ECDC_Annual Report_2011 by Get News

TOGETHER

LOOKING FORWARD

WITH RENEWED

CLARITY ANNUAL REPORT 2010/11

Honourable Mcebisi Jonas Member of the Executive Council for Economic Development and Environmental Affairs. I have the honour of submitting the Annual Report of the Eastern Cape Development Corporation for the period 1 April 2010 to 31 March 2011.

Mr Sitembele Mase Chief Executive Officer Eastern Cape Development Corporation

Published by: Eastern Cape Development Corporation Ocean Terrace Park, Moore Street, Quigney, East London PO Box 11197, Southernwood, 5213, South Africa © Eastern Cape Development Corporation, 2011 Enquiries: Marketing Department Eastern Cape Development Corporation Telephone: +27 43 704 5600 • Fax: +27 43 704 5700 info@ecdc.co.za • www.ecdc.co.za ISBN: 978-0-620-51252-7

TOGETHER LOOKING FORWARD

WITH RENEWED

CLARITY ANNUAL REPORT 2010/11 ECDC highlights in 2010/11

About ECDC

R80 million investment to boost production

Chairman’s foreword

Corporation’s performance in 2010/11 • Supporting SMMEs • Developing new markets • Attracting investors and facilitating trade platforms

33 34 37 39

ECDC supports dairy farms

Overview of financial reports

Long-term partnership yields positive results for co-op 49 Human resources management

Granite mine to boost manufacturing and logistics

Programme performance

ECDC funding boost bakery production

Auditor-General’s report

Mohair manufacturer increase in foreign sales, jobs

Corporate governance

Coega agro-processing investor receives international acclaim

Fly tying in the former Transkei

Introduction and highlights by the CEO

Report of the audit committee

ECDC trials new crop pilot

ECDC helps co-op to access markets

103

Eastern Cape socio-economic environment in 2010/11 21

Directors’ report

105

Rejuvenation of Mthatha central business district

Jewellery designers continue legacy of family business 111

Executive management

Financial reports and annual financial statements

113

ECDC funds deli

List of acronyms

176

Italicised items profile ECDC success stories

ECDC HIGHLIGHTS IN 2010/11

After satisfying, honest and productive engagements with a range of stakeholders, such as employees, the board and our provincial custodians, ECDCâ&#x20AC;&#x2122;s five-year corporate strategy, 2011 to 2015, is now in place. The strategy is founded on a new certainty of role and purpose to be a development finance institution (DFI) for the promotion of economic growth in the Eastern Cape. This reviewed and focused mandate as a DFI gives clear direction that has resulted in a concomitant internal alignment process that allows ECDC to carry out and deliver on this promise. As an institution that promotes economic growth, particularly in the areas of most need, it is heartening to highlight that 42% of loan funding was disbursed to enterprises in the OR Tambo District, an area in the former Transkei that is in desperate need of jobs due to high poverty levels. This example, one of many, demonstrates ECDCâ&#x20AC;&#x2122;s commitment to expanding its reach and connecting people who live in the rural and poor areas of the province.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

ECDC highlights in 2010/11

JOBS CREATED

Funding SMMEs

3,584 jobs created in 2010/11 accounts for 14% of jobs created by ECDC in the past five years (25,021 jobs).

1,797

Implementing projects

587

Supporting key sectors

732

Enterprise support

431 37

Facilitating trade

451

SMMEs FUNDED • ECDC disbursed R109 million to 451 enterprises. • 50.1% of total jobs (1,797 of 3,584 jobs) created by businesses funded by ECDC. • R209 million received in loan repayments.

TRADE FACILITATED ECDC helped to create the conditions necessary to increase the value of exports from R502 million in the previous financial year to over R1 billion in the year under review.

enterprises RECEIVED FUNDING VALUE OF EXPORTS (R’MILLION) 2010/11

R1,060

2009/10

R502

2008/09

R202

5,865

ENTERPRISES SUPPORTED Registrations in 2010/11: 5,865 businesses and 205 cooperatives, now legally registered, can access government opportunities.

SECTORS SUPPORTED

BUSINESSES REGISTERED

VALUE OF INVESTMENTS (R’MILLION)

• ECDC facilitated 25 new investments in 2010/11 compared with 19 in the previous year. • The total value of investments is R661,4 million compared with R590 million in the previous period.

• The corporation attracted R64 million from third parties for new projects. • ECDC spent R3 million on 18 projects – nine new and nine expansions.

ECDC recorded a stable return of 10.1% on its investment properties (commercial and residential) in Mthatha, Butterworth, King William’s Town and Queenstown.

R454

Plastics

R67.6

Agriculture & agro-processing

R46.3

Aquaculture

R42.5

Renewable energy

R33

Automotive

R18

PROJECTS IMPLEMENTED

INVESTMENT PERFORMANCE

Tourism

PROJECTS FUNDED (9 NEW & 9 EXPANSIONS)

PERCENTAGE RETURN ON AVERAGE INVESTMENT PROPERTIES 2010/11

10.1%

2009/10

10.3%

2008/09

10.5%

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

01 3

ABOUT

ECDC

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

About ECDC

The Eastern Cape Development Corporation (ECDC) is a wholly owned subsidiary of the Eastern Cape Department of Economic Development and Environmental Affairs. It is the official economic development agency for the Eastern Cape Province. ECDC reports to its board of directors, which represents government, business and labour, as appointed by the Provincial MEC for Economic Development and Environmental Affairs. PURPOSE OF THE ECDC

ECDC was established to address prevailing socio-economic challenges and market failures within the Eastern Cape. Its purpose is to be a development finance corporation for the promotion of economic growth in the Eastern Cape. An act of Parliament, ECDC Act of 1997, legislates the creation of a coporation to be the vehicle to support the policy intervention. ECDC’s purpose is, therefore, to be a development finance corporation of economic growth in the Eastern Cape.

VISION

ECDC aims to be: “An innovative leader for promoting sustainable economic growth and development of the Eastern Cape.”

MISSION

In order to achieve the vision of promoting sustainable economic development in the Eastern Cape, ECDC: • Provides innovative development finance • Leverages resources, strategic alliances, investment and partnerships

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

CORPORATE VALUES

Values that underpin the way ECDC delivers its services to the Eastern Cape • Integrity • Professionalism • Accountability • Teamwork.

KEY ROLE OF ECDC

ECDC’s purpose, vision and mission is to be achieved through five strategic goals: • Stimulating economic activity through focused investment in vital sectors of the Eastern Cape economy • Investing in intellectual leadership • Optimising all resources so as to maximise investment returns and attain financial sustainability • Building a strong brand • Establishing integrated partnerships with stakeholders to ensure maximum leverage of resources and development outcomes

CUSTOMER VALUE PROPOSITION

ECDC contributes to economic development of the Eastern Cape by: • Providing business finance to emerging and existing enterprises • Providing relevant market information and finance to local and international investors • Acting as an agency for implementation of government special projects • Contributing to research and policy innovation.

Services rendered by ECDC

ECDC renders a variety of services related to the following operational areas: • Development Finance • Investment Promotion • Trade Promotion • Enterprise Development Services • Development Projects, Development of New Markets and Risk Capital • Property Management and Development.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

About ECDC

ECDC OFFICES IN THE EASTERN CAPE Head office 1

East London

Regional offices 2

Port Elizabeth

Queenstown

Butterworth

King William’s Town

Mthatha

Satellite offices 7

Mount Ayliff

Aliwal North

Alfred Nzo District

Joe Gqabi District

Mount Ayliff

8 Aliwal North

Oliver Tambo Lusikisiki Mthatha District

Middelburg

N10

Graaff-Reinet

Chris Hani District

Queenstown

Cradock

Port St Johns

Butterworth 4

Bhisho Amathole

Aberdeen

Cacadu District

N9 Willowmore

District

King William’s Town 5 N10

East London

Grahamstown

Uitenhage N2

Humansdorp

Nelson Mandela Port Alfred Metropole 2

Nelson Mandela Bay

Port Elizabeth Jeffreys Bay

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

South Africa’s marine finfish farming industry leader, Espadon Marine, has committed a further R50 million to expand its facility in the East London Industrial Development Zone (IDZ). Its kabeljou (or kob) production will be significantly expanded to 600 tons.

R80 MILLION INVESTMENT

The operator’s initial R30 million investment in 2009 for the first phase of the development is bearing fruit as the operator geared up for its first commercial harvest during the period under review. Espadon’s kob harvest is the first commercial harvest in the Eastern Cape.

PRODUCTION

The establishment of the facility, which was a result of ECDC’s lobbying, was further motivated by East London’s suitable temperature for finfish farming. The area’s annual average minimum of 18°C and maximum of 22°C is suited to temperate finfish species.

TO BOOST

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

02 9

CHAIRMAN’S

FOREWORD ADVOCATE OYAMA MABANDLA

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Chairman’s foreword

I am delighted to present the annual performance report of the Eastern Cape Development Corporation (ECDC) for the 2010/11 financial year. My enthusiasm stems from the conviction that interventions adopted in the review period have firmly positioned the corporation on a sustainable path to make an immediate impact on the socio-economic lot of our people. I am equally pleased to report that the corporation knows which levers it needs to pull to effectively respond to the most pressing challenges facing the poor and marginalised. In turn, this clarity of purpose has enabled ECDC to respond with renewed vigour to the provincial government’s economic growth path, encapsulated in the Provincial Growth and Development Plan. ECDC’s optimism in discharging its objectives is a direct consequence of its successful efforts in the review period to refine a broad mandate that has in the past blurred its identity and effectiveness. This refocused mandate will provide ECDC with strategic impetus in the manner in which it conducts business and will also act as a reliable barometer with which to appraise its efficacy.

Ingredients for a high-performing development finance institution (DFI)

However, the board is mindful that the refined mandate will only be realisable if ECDC is adequately capitalised to invest in the growth of small businesses through financial and non-financial interventions, as well as development projects. A sufficiently capitalised ECDC is thus able to disburse funds to small business, as well as invest in catalytic projects that stimulate entrepreneurship and create jobs. Furthermore, the board recognises that the success of the refined mandate lies in the injection into the corporation of a skills set that addresses our developmental challenges. Thus, ECDC consciously undertook an organisational development exercise in the review period that will put it in a position to meet its DFI aspirations. The exercise had the effect

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

of ensuring that the right skills at the corporation are employed in organisational areas that enhance our effectiveness. In essence, this exercise has ensured that the reconfigured ECDC structure is in sync with its DFI strategy. I should also state from the outset that the success of ECDC and the effectiveness of its mandate will only be successful within a stable political environment. An unstable political environment exacerbates our development challenge and deters investment into the province. In this sense, economic underdevelopment and the continuing deprivation of our people are a consequence of instability at the political level. We thus cannot attract investors into the province in an environment that is essentially an inhibitor and constraint to investment.

Mandate delivery

At the epicentre of ECDC’s objectives is the promotion of enterprise, the attraction of investment and the creation of jobs in the province. I am pleased to report that the corporation has taken a bold step towards achieving this goal through the establishment of the Eastern Cape Provincial Investment Fund. This specialised fund is envisaged to unlock catalytic investments by sourcing funds from the market. Investments in targeted sectors, such as agriculture, agro-processing, infrastructure, tourism and hospitality, alternative energy and the green economy broadly, should serve as a springboard for massive job creation, as well as provide opportunities for small businesses. ECDC’s job creation capability is not a mere theoretical postulate. The corporation has demonstrated this ability by facilitating the creation of 25,021 jobs in the past five years. In a sense, the fund places ECDC on the road to financial sustainability and enhances the corporation’s strategic nouse. ECDC disbursed R109 million to 451 businesses in the year under review. The corporation facilitated the creation of some 1,797 jobs through its funding mechanism in the review period. Although challenges remain in account management, cash collections on the loan portfolio remained stable at R212 million from the previous year’s R219 million. The funding spread indicates that 15% of loans were granted to youth, and 13% to women.

Empowered regions – total solutions

ECDC has also taken a bold decision to improve its effectiveness by bestowing its six regional offices with powers to provide the full ECDC service offering, particularly the power to make funding decisions. These services include investment support, business support, project development and managing customer service in the regions. In the past, clients had to travel from far-flung areas to the head office to receive loan approvals. This resulted in clients incurring transport and opportunity costs. The results of this intervention will be felt in the next financial year. This move reaffirms ECDC’s continued resolve to absorb rural people into the formal economy. The majority of loans were distributed in the predominantly rural Amathole District and the OR Tambo, Chris Hani and Alfred Nzo district municipalities, followed by the Cacadu District and the Nelson Mandela Metropolitan area.

Pursuit of high-impact industries

Moving forward, ECDC will actively pursue investment in those industries that have potential for high economic impact. Undoubtedly, the Eastern Cape possesses tremendous comparative advantages inherent in its dazzling natural beauty, which remains untapped. Thus, the tourism sector will receive specific attention with the view to establishing the province as a tourist haven - transforming the Wild Coast into the Riviera of South Africa. The tourism sector has the potential to provide massive employment and economic opportunities. Closely linked to its tourism endowment is the province’s rich intellectual and political heritage. This province is the home of black education. It is the home of Lovedale and Healdtown colleges and the University of Fort Hare, educational institutions that spurred the

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Chairman’s foreword

development of an intellectual and political class in the subcontinent, which would become a critical ingredient in the flowering of African nationalism and the anti-colonial independence movement. This province should be well poised to exploit this legacy and the incomparable achievements and inspiration of its leading lights, such as Steve Biko, Nelson Mandela, Govan Mbeki, Albertina Sisulu, Thabo Mbeki and Chris Hani. The investment fund will identify catalytic tourism projects that will deliver this tourism and heritage potential. There are also significant possibilities for a dynamic organic agricultural and agro-processing industry. The Eastern Cape has huge tracts of land that lie fallow and thus are unproductive. ECDC will support the growth of this industry, as well as commercial agriculture, particularly in the former Transkei.

natural land of opportunity

ECDC also sees the infrastructural backlog in the province as an opportunity for business to generate higher return on its investments. The potential to unlock infrastructure development is huge. As investors chase new opportunities, the Eastern Cape’s infrastructure potential becomes a haven of opportunity. Infrastructure development puts people to work in the short to long term. Thus public works initiatives involving the improvement of our roads and transport infrastructure provide the people of the province with shovel-ready projects that could put a lot of our people to work.

Attracting the right skills

Another challenge is attracting quality talent back to the province and reversing the brain drain. Realistically, getting talented people to come back to the Eastern Cape is a challenge. We need to make a concerted effort to change perceptions about a province that is difficult to do business in. It will be impossible to implement all our stated programmes without the requisite skilled human resources. Once talented people see economic opportunities, visible progress and political and administrative stability on the ground, they will return.

Future outlook

The board has provided the chief executive officer and his team with the necessary tools and framework to transform ECDC into a high-performing DFI. In keeping with ECDC’s crystalised DFI positioning, the board is convinced that this new strategic trajectory further enhances the corporation’s ability to maximise its socio-economic growth stimulus efforts. The effectiveness of this DFI positioning will find expression in the exploitation of strategic partnerships, the promotion of entrepreneurship, and improved economic and job creation benefits. Getting the basics right and getting everyone to do what they are supposed to do takes us ever closer towards achieving the ultimate goal of changing the socio-economic landscape of the Eastern Cape.

Appreciation

On behalf of the board, my sincere gratitude goes to the Honourable MEC for Economic Development and Economic Affairs, Mcebisi Jonas, for his visionary and energetic leadership. I also take this opportunity to pay tribute to the chief executive officer of ECDC, Sitembele Mase, and his executive team for their commitment in discharging the corporation’s mandate.

Oyama Mabandla

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

COEGA AGRO-PROCESSING

INVESTOR RECEIVES

INTERNATIONAL

ACCLAIM

Winner of multiple global food innovation awards, Dynamic Commodities, benefits from the Department of Trade and Industry’s export marketing and investment assistance scheme. Access to the scheme, facilitated by ECDC, has helped the company expand the distribution of its valueadded agricultural products to foreign markets. Based in the Coega Industrial Development Zone in Nelson Mandela Bay, the company produces a range of frozen fruit products, which include sorbets. Its product, Bits o’Juice, made from 100% frozen citrus fruits, has received two international awards. The product won the frozen food and ice cream category in Anuga 2009. Anuga, which takes place every two years in Cologne (Germany), is the world´s leading food fair for the retail, food service and catering trade. Dynamic Commodities also received an award from the International Union of Food Science and Technology for its Bits o’ Juice in 2009. The union represents more than 200,000 food scientists and technologists worldwide.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

03 15

INTRODUCTION &

HIGHLIGHTS

BY THE CEO SITEMBELE MASE

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Introduction and highlights by the CEO

The year under review was an exciting phase for ECDC as it brought about clarity of purpose and certainty to an institution with a history of a broad and often unwieldy mandate. In the past, ECDC was effectively a jack of all trades, involved in activities ranging from managing property to the disbursement and account management of loan funding. This has changed and the corporation has emerged from this review period with a clear mandate to transform itself into a high-performing development finance institution (DFI). During the review period, the corporation’s operational plans were adjusted to provide impetus to a reconfigured mandate provided by the board. As a result, a new strategy and supporting business plans were developed. In order to bring the organisation into line with the new strategy, an organisational development exercise was put in place. It is intended that the outcomes of this exercise will result in an organisational structure that enhances ECDC’s role as a DFI. The board, under the insightful leadership of Advocate Oyama Mabandla, gave the corporation the task of refocusing its energies on providing development funding, as well as investing in projects that enhance the economic livelihoods of the people of the Eastern Cape. In light of ECDC’s DFI role, the board impressed upon the corporation that its interventions should be geared towards building entrepreneurship in the province. This includes providing non-financial assistance to small businesses in order to enhance their competitiveness and market readiness in an increasingly competitive global business environment. A key element of ECDC’s renewed entrepreneurship role is improving customer service in ECDC’s head office, five regional offices, and two smaller offices in Aliwal North and Mount Ayliff. Furthermore, ECDC is acutely aware that it has to review its balance sheet so that it can adequately fulfil its DFI role. Ideally, 80% of its balance sheet should be made up of funding in the form of loans and equity to stimulate the provincial and local economies. Hence, ECDC is working with the provincial government to unbundle the balance sheet, which is dominated by the property portfolio.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

empowered REGIONS

Key to enhancing its effectiveness, the corporation will in future provide its regional offices the powers to provide ECDC’s full service offering, particularly the power to make funding decisions that leverage local conditions and opportunities. This means ECDC should be able to provide a full-service offering to its clients in the regions, including investment, business support, project development and managing customer service. The results of this intervention will be felt in the next financial year.

DFI BLUEPRINT

A high-performing DFI infrastructure also means putting in place systems and processes that enhance delivery to customers. Consequently, the corporation is investigating an information technology strategy and a master systems plan that meets ECDC’s business requirements. The corporation has also instituted a performance management system, which aligns individual performance to the objectives of respective units and the corporation over the next five years. This alignment is expected to drive performance, reporting and accountability. Armed with its mandatory DFI role, ECDC refocused its energies on building the capacity of Eastern Cape small businesses through loan funding and non-financial assistance, as well as development projects. In the past five years, ECDC facilitated the creation of 25,021 jobs, including 3,584 jobs during the period under review – almost half of these were created by projects funded by ECDC.

DEMONSTRATING IMPACT

In order to grow projects that enhance job creation, ECDC disbursed R109 million to 451 businesses, which created 1,797 jobs. Although challenges remain in account management, cash collections on the loan portfolio remained stable at R212 million, somewhat down on last year’s R219 million. Notwithstanding these milestones, more work is needed in this area, and clients can look forward to reconfigured regional offices that are streamlined to service customers and provide total solutions. The corporation is also encouraged by the commitment of other DFI partners. During this period, ECDC negotiated R64 million from third parties for development projects. ECDC’s support of these projects comes from the R6.2 million that was spent on scoping new projects that should create economic benefits and jobs. Small, medium and micro enterprise (SMME) skills development is a key component of growth. ECDC remains committed to this area. The R20 million two-year construction mentorship programme benefitted 62 entrepreneurs. ECDC also embarked on empowering the creative and information communication technology (ICT) sectors through mentoring. The Eastern Cape Information Technology Initiative, which is supported by the corporation, attracted 15 SMMEs into its incubator programme. These SMMEs generated a turnover of more than R2.2 million.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Introduction and highlights by the CEO

Investor attraction and platforms

In the property portfolio, the corporation realised a 97% success rate on rental collection in relation to its R40 million target. This represents an improvement on last yearâ&#x20AC;&#x2122;s R37.4 million. Eight Transido complexes within Mthathaâ&#x20AC;&#x2122;s industrial area and small business centres were transferred to various municipalities. A further 53 top commercial structures were transferred to the Lukhanji Local Municipality in the former Transkei. The R9 million Madiba Village was transferred to the Mnquma Local Municipality in the former Transkei to encourage home ownership. This should help boost the socio-economic prospects of this community. Foreign and local direct investment has increased from R590 million in the previous year to R661 million in the review period, signalling a trend toward global recovery and effectiveness of stimulus packages.

promise projects

for

catalytic

high-impact

The coming year holds promise and ECDC is confident that, with shareholder and stakeholder support, it will continue to positively impact on the lives of the people of the province. ECDC is confident that it is taking the right steps towards building the Eastern Cape economy and changing the socio-economic conditions of the people of the province. A major development for the corporation is the establishment of the Eastern Cape Provincial Investment Fund. This fund is intended to leverage private investments worth R2 billion for catalytic high-impact projects in infrastructure and agro-processing, as well as in renewable energy. ECDC is also excited about its role in bringing the Joule electric car to the Eastern Cape. This project is catalytic in nature since it brings new technology and contributes to stimulating the renewable energy sector. Finally, I take this opportunity to thank the board under the leadership of Advocate Oyama Mabandla for its astute oversight and to thank the 160-strong ECDC team who performed admirably in discharging our DFI mandate.

Sitembele Mase Chief Executive Officer

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

ECDC TRIALS

NEW CROP

PILOT

ECDC is conducting five cassava crop trials in Bizana, Port St Johns and Ncera (East London). The trials aim to grow and extract tubers, and establish starch processing operations for the manufacturing of chips. Cassava is a root plant of Amazon origin and belongs to the sweet potato family. It is a good source of starch and apart from being a good energy food source, can be processed into animal feed. The R770,000 project, launched in July 2010, entails the transfer of specialised skills and technology to participating communities. The first crops were planted before the holiday season in mid-December. The trial plot has since been harvested and replanted. It is estimated that the project will create and sustain approximately 50 jobs in the short- to medium-term.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

04 21

EASTERN CAPE

SOCIO-ECONOMIC

ENVIRONMENT IN 2010/11

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Eastern Cape socio-economic environment

The province is still faced with significant socio-economic challenges, which government institutions, such as the ECDC, together with the private sector, are committed to eradicating. Provincial unemployment stands at 27%, with 74% of the unemployed under the age of 35. Worrying figures also indicate that the Eastern Cape has the third largest number of people living with HIV/AIDS. This has a direct bearing on the province’s economic prospects. Finance is the biggest industry in the Eastern Cape, and the Eastern Cape Socio-Economic Consultative Council’s (ECSECC’s) March 2011 quarterly economic update states that it contributed 19.7% towards gross domestic product in the fourth quarter of 2010. The province’s finance industry grew by 1.4% quarter on quarter and 2.1% year on year in the fourth quarter of 2010. The government sector was the second largest contributor in the fourth quarter of 2010, growing by 5% from the previous quarter and 2.7% year on year. This is followed by manufacturing, which grew by 4.1% quarter on quarter and 3.2% year on year. ECSECC’s March 2011 economic update further states that the employment opportunities brought about by the 2010 Soccer World Cup were short term. Such sectors as agriculture, electricity, finance and transport showed negative employment growth rates in the last quarter of 2010. These negative figures run counter to government’s aims to fight poverty by providing more jobs for the unemployed.

CONTRIBUTION TO GDP

In the last quarter of 2010, the finance industry was the largest contributor to Eastern Cape GDP (19.7%), outstripping government’s contribution (18.9) . Manufacturing contributed 16.3% to the provincial GDP. Source: ECSECC, March 2011

RURAL-URBAN DIVIDE PERSISTS

In his 2010/11 policy speech, Eastern Cape Economic Development and Environmental Affairs MEC Mcebisi Jonas stated: Poverty in the Eastern Cape is primarily located in the rural areas. Here people have limited access to economic opportunities and resources. By extension, economic development is retarded. Limited access to decent work also means that large components of the economically active population remain migrants, stripping a great portions of the required human capital to

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

ensure optimal economic development. As a result, economic activity in the rural areas is largely limited to subsistence based agriculture. The retail sector is relatively strong as it is closely related to the most significant tertiary economic activity – the provision of social grants. The sad fact is that no substantial industrial or manufacturing base exists in these areas to drive and sustain economic development. The only manufacturing bases of note are those located in the urban areas which have little or no direct linkages and no direct advantage to the millions of people trapped in the rural poverty zones. The disparities between urban and rural economic realities are exacerbated by an artificial theoretical separation between urban and rural development in the minds of policy thinkers and academics. As a result, policy responses are by and large limited to the development of “rural solutions” that are devoid of leverage and linkages to existing economic systems and mechanisms which create wealth and prosperity in the urban areas.

However, it should be acknowledged that all is not well in the urban areas. Production and manufacturing processes in the Eastern Cape are characterised by relatively low levels of local content. Further, manufacturing is concentrated in the automotive sector. This limits government’s ability to both diversify the provincial economic base and to generate the necessary levels of value addition and expansion. Moreover, the geographic location of the Eastern Cape increases the transactional cost of manufacturing and doing business, which is worsened by underdeveloped logistic value chains. This further hinders economic development. Furthermore, the SMME sector is dominated by stereotypes that dilute its development. These include the belief that injecting more funds will solve problems, entitlement, the idea that big is better, and the notion that export is for the elite. SMME support is therefore central as it presents an opportunity to contribute towards rural development.

PIDS PAINTS WORRYING PICTURE

The March 2010 Eastern Cape Provincial Industrial Development Strategy (PIDS) notes fundamental structural weaknesses in the provincial economy. These include the concentration of economic activity in the urban industrial centres, the Nelson Mandela Bay and Buffalo City metropolitan areas. It is also noted that the province is characterised by a manufacturing base, dominated by the automotive sector, with declining manufacturing subsectors outside of automotives. It is characterised by a small and declining primary sector. There has been stagnant growth in district municipalities, such as OR Tambo, Alfred Nzo and Joe Gqabi (formerly Ukhahlamba), over the past 12 years. These areas are heavily dependent on social grants as a result of high unemployment. A worrying factor has also been disinvestment from the former industrial decentralisation zones, such as Butterworth and Dimbaza. As Premier Noxolo Kiviet noted in her 2010 State of the Province address, the Eastern Cape’s “march towards speeding up growth and transforming the economy to create decent work and sustainable livelihoods is progressing well. Like the rest of the world, in the recent months, the South African economy has been hit by a recession, characterised by massive job losses, a decline in economic activity across a range of economic sectors, and increasing levels of poverty. Needless to say, the Eastern Cape has not been spared as we have also seen job losses in critical sectors such as automotive and manufacturing.” More than a quarter (26.4%) of households in the Eastern Cape rely on government grants as their main source of income. Nationally, the youth unemployment rate is estimated to be close to 35%, with more than three million young people out of work. Youth unemployment in the Eastern Cape averages 41.4 %. This is more than twice the adult unemployment rate

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Eastern Cape socio-economic environment

(18.4%). A total of 695,175 young people have been without work every year in the Eastern Cape during the past decade, according to ECSECC’s August 2010 economic update. There is a noticeable increase in the uptake of social grants and, in particular, the child support grant (which most benefits caregivers in the youth category, those between the ages of 18 and 35 years). Those outside the age bracket for the social grant remain vulnerable and still unable to meet their basic needs. The aftereffects of the economic slowdown were evident during the review period, and entrepreneurs struggled to survive. Such industries as tourism were hard hit because of a slowdown in demand and less disposable income for spending. This has, by and large, resulted in a swelling tide of people who have become entrepreneurs by necessity, a challenge that ECDC is confronting head on.

ECONOMIC GROWTH

Although the Eastern Cape’s economic growth improved from 0.7% (third quarter in 2010) to 3.2% (last quarter of 2010), this did not translate into significant improvements in the number of employed people. Source: ECSECC, March 2011

However, home ownership figures released by the South African Institute of Race Relations in January 2011 are encouraging. The less wealthy Eastern Cape Province had higher home ownership figures, with 71% of households having paid off their homes.

POTENTIAL TO UNLOCK ECONOMIC GROWTH

ECSECC’s March 2011 economic update states that the agricultural sector in this largely rural province can be used to unlock economic growth and development. Agriculture can also serve to increase rural employment. The report states that since 2001, growth and employment in the agricultural sector has been declining. It notes that such factors as drought, climate change and deregulation have contributed to the decline. While the Eastern Cape – and South Africa – is not unique in this regard, this decline is a disturbing trend and calls for a careful review of agricultural policy in the province. Budgetary constraints were felt across all areas of government and were not limited to ECDC. The effects on ECDC were hard felt in its core business of funding small businesses. The sector faced significant budgetary constraints and this negatively impacted on those SMMEs that depend on government tenders. This resulted in the corporation disbursing less than the budgeted loan funding figure. The public sector’s contraction compounded ECDC’s funding shortfalls, which meant less loan capital was available for disbursement.

Plan to relieve industries in distress

In his 2010/11 policy speech, MEC Jonas announced a plan to boost economic performance of the green economy. The plan is envisaged to bring relief to the provincial economy, which lost an estimated 95,000 jobs during the severe global recession. These jobs were shed mostly in the automotive and textile manufacturing industries. Jonas noted that the creation of new markets, particularly related to renewable energy in support of a green economy, is crucial. The MEC stated that the province has sharpened its focus on using carbon trading to attract and earn additional project funding in the province. As such, the development of a framework for the promotion of green jobs within existing industry sectors, as well as in emerging green industries, is a top priority.

UPSWING IN EXPORT ACTIVITY

However, indications are that the wheels of the Eastern Cape economy are starting to turn. This is encouraging, particularly following the severe recession, with effects that are still evident.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

EMPLOYMENT

The Transnet National Ports Authority states that export activity from the province’s commercial ports in 2010 showed a marked increase: it was up by 1.6 million metric tons from the previous year. The Eastern Cape’s port figures show that exports jumped from 3.8 million metric tons in 2009 to about 5.4 million metric tons in 2010. These figures are backed by the Eastern Cape business barometer, which indicated that the export market is performing, with road transport showing a significant increase. The barometer attributes this to increased exports to the rest of Africa. This is reflected in a 9.9% increase in economic activity in the province in the fourth quarter of 2010 compared with the same period in the previous year. Jonas further stated that discussions with Transnet relating to the upgrading of the Port of East London are progressing and will continue in support of enhancing the province’s export capability. The export market should also be buoyed by the barometer’s finding that, while manufacturing has been slow to recover nationally, the Eastern Cape manufacturing index, at 7.5%, was the only one to show an increase, driven by automotive.

Trade is the second largest employer accounting for 23.6% of all jobs in the Eastern Cape, followed by manufacturing (12.3%). Source: ECSECC, March 2011

7.5%

Eastern Cape manufacturing index Source: Transnet National Ports Authority

HIGHEST MANUFACTURING CONFIDENCE

Similarly, the 2011 Bureau for Economic Research (BER) economic outlook states that the Eastern Cape recorded the highest manufacturing business confidence in South Africa, driven mainly by a high performing transport sector in the first quarter of 2011. According to the BER, the Eastern Cape manufacturing confidence level, at 91%, is the highest of the four provinces surveyed, which also include Gauteng, the Western Cape and KwaZulu-Natal. Manufacturing in the Eastern Cape is driven mainly by higher vehicle sales as a result of higher real disposable income and higher wage settlements. Very low interest rates, which have dropped by 650 basis points since December 2008, also contributed to this trend. At the time of writing this report (March 2011), the repo rate, at 5.5%, is at its lowest in 30 years.

91%

Business manufacturing confidence Source:Bureau for Economic Research

The high manufacturing business confidence levels in the Eastern Cape are also supported by an increase in domestic demand, with manufacturers reporting higher domestic sales volumes.

CHALLENGES IN JOB CREATION REMAIN

The BER survey, conducted quarterly, however, reveals that the high manufacturing confidence level in the Eastern Cape do not necessarily translate into an increase in jobs. Seven percent of manufacturers reported retrenchments in this period compared with the previous quarter, when manufacturers reported an increase in the number of factory workers employed. This is because employers have increased the productivity of the current workforce by increasing the average hours worked by individual employees before taking on more staff. MEC Jonas also noted that automotive sector incentive programmes have in the past focused on stimulating exports, which have, as yet, had no sizeable impact on job creation.

FOCUS ON JOB CREATION

The ECSECC socio-economic review points out that technological advances in the global

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Eastern Cape socio-economic environment

automotive industry pose significant risks to the sustainability of the manufacturing sector. The lack of development in the primary sector, particularly regarding the Eastern Capeâ&#x20AC;&#x2122;s agricultural potential, limits the economyâ&#x20AC;&#x2122;s ability to absorb shocks. With this in mind, ECDC threw its weight behind the implementation of 18 development projects during the review period, especially those in the agricultural sector. The corporation is mindful that this sector possesses immense potential for job creation and poverty alleviation.

FUTURE OUTLOOK

Despite these challenges, PIDS states that the province is well positioned to take advantage of export opportunities (through expanding its industrial development zones) and is well endowed with natural resources (for exploitation in tourism, agriculture and agro-processing and green industries). There is also potential to grow the services and trade sector. With the appropriate support and public investment, significant opportunities exist to build a sustainable and labour-absorbing agro-processing economy in the east of the province, and significant opportunities exist for downstream beneficiation from heavy industries located at the provinceâ&#x20AC;&#x2122;s two industrial development zones. The extent to which the province can take advantage of these opportunities will depend on the extent to which local productive capabilities and the delivery of enabling infrastructure, training and skills development can be sustained. Going forward, Premier Kiviet stated that at this stage, indications are that the province is beginning to recover from this situation: However, we understand that this recovery will be a slow and painful one, thus potentially exacerbating the burdens of poverty and unemployment. We, therefore, need to marshal our resources to mitigate these burdens, while simultaneously charting a new course toward prosperity, dignity and environmental sustainability. This will require a fundamental realignment of economic focus, and in particular, we will have to prioritise growth of the primary sector. Government will need to lead, support and drive this shift through the provision of investment incentives, trade assistance, access to finance and state investment, particularly in socioeconomic infrastructure.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

REJUVENATION

OF MTHATHA

In order to maximise the opportunities within the commercial property sector, ECDC has signed a long-term lease with KFC for use of its refurbished building which was once the Hillcombe Residential Complex. Hillcombe was previously an underperforming, dilapidated residential complex situated in the heart of the Mthatha Central Business District.

CENTRAL BUSINESS

District

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

05 29

EXECUTIVE MANAGEMENT 2010/11

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Executive management

CHIEF EXECUTIVE OFFICER Sitembele Mase*

Executive manager: Development Services Noludwe Ncokazi

Executive manager: Development PROPERTIES Luyanda Tsipa

Executive manager: Development INVESTMENTS Buhle Dlulane**

CHIEF FINANCIAL OFFICER Msulwa Daca

* Mr Mase was appointed on 01 July 2010 ** Mr Dlulane was appointed on 01 February 2011

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

ECDC FUNDS DELI

Port Elizabeth delicatessen Angel Foods, located in the Perridgevale Shopping Centre, received financing from ECDC for equipment, which has helped the small business expand its menu range. Having first specialised in Greek cuisine, the shop now services a broader market with muffins, preserves, pastries and lunches. Items can be bought freshly baked or frozen for an easy meal. The specialty food store also caters for events and corporate functions. Angel Foods began operations two years ago.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

06 33

CORPORATION’S

PERFORMANCE

HIGHLIGHTS IN 2010/11

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Corporation’s performance hIghlights

Priority 1

SUPPORTING

SMMEs Small businesses receive lion’s share

The corporation disbursed R109 million in the review period compared with the previous year’s R226 million. Although challenges remain in account management, cash collections on the loan portfolio remained stable at R212 million, somewhat down from the previous year’s R219 million. This financing contributed 1,797 jobs to the economy. As the public sector spent less due to the economic slowdown, the contraction of the construction sector had a negative effect on loan disbursements as funding in this sector is used more than once within the same year due to its short-term nature, thus facilitating liquidity management.

FUNDING HIGHLIGHTS IN 2010/11

R109 million disbursed to 451 enterprises

R212 million in loan repayments

1,797 jobs created

Framework to manage DFI risk appetite

ECDC experienced a reduced risk appetite in the quest to strike a balance between meeting its developmental mandate and achieving sustainability. Erring on the side of its DFI mandate, the corporation experienced higher impairments (defaults on loan payments), which rose to 64% from the previous year’s 51%. However, the total value of impairments decreased by R11 million from the previous period. The services and manufacturing sectors suffered the most in terms of impact of the economic slowdown, and hence saw the highest impairments. More focus is given to loan monitoring, business support and aftercare efforts aimed at reducing impairment levels and maintaining loan repayment momentum.

LOAN FUNDING

With the help of the Industrial Development Corporation, ECDC has developed a risk tolerance framework in line with its development mandate.

competitiveness and market readiness

Part of growing and developing business activity in the Eastern Cape is harnessing the competitiveness and market readiness of small businesses. A small business is seen as being market ready when it has the necessary skills to sustain the business. To give effect to its DFI status, ECDC is aware that loan funding should be backed by solid non-financial support measures to grow the skills of small business operators. For example, if an SMME is equipped with sound financial management systems, the corporation enhances the SMMEs’ potential to become sustainable and improves its loan collections.

37%

Above R1 million

42%

Below R500,000

21%

Between R500,000 and R1 million

Through strengthening the linkage between financial and non-financial support, ECDC is positioning itself to provide better support for SMMEs.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

LOAN ALLOCATION BY SECTOR (Râ&#x20AC;&#x2122;MILLION) Services

R80 million

Construction

R11 million

Retail

R9 million

Manufacturing

R5 million

Agriculture

R4 million

Attracting a pipeline of quality SMMEs

PRIORITY GROUPS

The corporation is determined to improve the pipeline of quality SMMEs that are market ready and competitive. Key to this process is product development.

15%

For example, during the period under review, ECDC offered product development training and technical skills to the Msobomvu Development Co-operative, which is involved in weaving. It currently employs 18 people.

13%

Youth

Women

This co-operative includes some of the 400 people who received this training in the province. Other training offered to SMMEs covers basic business skills, financial management, governance skills and customer care. This includes generating business ideas and business planning. The training assisted participants in identifying new business ideas, turning ideas into sustainable businesses, and developing business mindsets. The corporation continues to excel in mentoring businesses. Experienced managers mentor small businesses in the daily challenges of managing a business. This model has worked well for the construction industry, where ECDC leads the country. The Construction Industry Development Board has rated the corporationâ&#x20AC;&#x2122;s Integrated Emerging Contractors Development Model as industry best practice. Additionally, the exposure provided to SMMEs and business people with respect to trade fairs, expos and market access programmes resulted in increased turnover and sustainability of those businesses. Support in the various economic sectors resulted in a three-fold overachievement in job creation. This is especially evident in those sectors receiving mentoring and incubation.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Corporation’s performance hIghlights

MAP LEGEND

LOAN DISTRIBUTION BY DISTRICT

42% 1%

12%

34%

3% 4%

OR Tambo District* Amathole District Chris Hani District Alfred Nzo District Nelson Mandela Bay Cacadu District Joe Gqabi District *Loan funding by its nature is demand driven. The greater proportion of loans by value was disbursed in the OR Tambo District, which is desperately in need of jobs due to high poverty levels

ENTERPRISE development support highlights in 2010/11 Registrations • 5,865 businesses • 205 co-operatives Outreach programme • Nine SMME seminars in Aliwal North, Ugie, Cradock, Mthatha and Mount Ayliff • Annual SMME Summit in East London • Two-day programme in partnership with the provincial Department of Economic Development and Environmental Affairs, Small Enterprise Development Agency and the University of Fort Hare • Top 10 businesses received customised training and mentorship packages from the Eastern Cape SMME Business Plan Launchpad award by Enablis in partnership with ECDC • Further support provided to craft enterprises to exhibit products at the Business Unlimited Expo, which ran concurrently with the summit • A precursor to the summit was a financial management workshop hosted by the University of Fort Hare. Craft enterprise development programme • Created linkages to markets by funding craft enterprises to exhibit at the National Arts Festival (Grahamstown), Shell Festival (Jeffrey’s Bay), Decorex Johannesburg, and the Business Unlimited Expo (East London) • Four craft networking sessions in Amathole, Chris Hani, Cacadu and Alfred Nzo districts.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Priority 2

DEVELOPING NEW

MARKETS Implementing potential

projects

with

high

As part of its DFI role, ECDC must stimulate the economic growth and development of key sectors of the economy through strategic identification and support of projects that have a high employment and economic viability potential. Consequently, the corporation attracted R64 million from third parties for development projects. ECDC spent a further R6.2 million on scoping new projects that have future economic potential and can create jobs. As such, the corporation exceeded its target of development projects in the review period. Eighteen development projects were implemented, three more than the target.

Potential for dietary fibre extraction

STATUS BY YEAR-END 2010/11

27 projects under scoping

18 projects implemented

R64 million secured from third-party funders

R3 million funded 18 projects

There is potential to establish a niche natural fibre cluster around the provinceâ&#x20AC;&#x2122;s cashmere, hemp and flax, pineapple, agave Americana, and wool and mohair industries. Pineapple beneficiation is a leading project within this cluster: it involves the extraction of dietary fibre from pineapple waste. The quality and flavouring of the dietary fibre was well received by the local market. Consequently, two agreements to buy the fibre have already been secured from two large companies. Following this success, ECDC is to fund the commercialisation of the project, which will create 150 jobs at the factory in the initial phase in the next financial year. The corporation was also instrumental in funding the Mthatha Airport Agricultural Services Co-operative which produces fresh vegetables, such as mushrooms, lettuces and tomatoes, in tunnels. ECDC disbursed R1.6 million to the project while the European Union-funded Thina Sinako contributed R5.1 million. The project is progressing well with off-take agreements in place with retail chains in the former Transkei. Currently this project employs 24 people. ECDC also invested R770,000 into the pilot phase for the development of industrial starch from cassava production. Three sites were identified: one at Kwelerha, outside East London, and two in the OR Tambo District. The plant is used to produce industrial starch, which is used in paint and other chemical products. The OR Tambo sites in Bizana are doing well and should be ready for commercialisation in the next financial year. The East London site has not been successful.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Corporation’s performance hIghlights

Successfully implemented development projects in 2010/11 Fly tying project Butterworth

Bamboo trial Port Elizabeth & Stutterheim

Granite mining Butterworth

Raspberries Molteno

LEGEND Poultry Mthatha

Agriculture & agro-processing

Tunnel vegetables Mthatha

Pharmaceuticals & chemicals

Hydrophonics project Mthatha Cassava pilot Port St Johns

Textiles & clothing

General manufacturing

Cassava pilot Bizana Cashmere fibre Tsolo Sithembe Women’s Enterprises Mthatha Vegetable co-operative Ngqamakwe Guar Gum Butterworth, Ngqamakwe Cassava pilot Ncera (East London) Macadamia nuts East London Amathole essential oils Hogsback & Middledrift

Blueberries Stutterheim & Keiskammahoek

JOB CREATION

The corporation is also excited that it is at the forefront of promoting the production of bamboo for industrial use in South Africa. Bamboo offers a large local and international market as the plant is used in the production of numerous products, such as furniture, construction material, textiles and in energy generation. Currently, South Africa imports all its bamboo furniture. ECDC has invested R1 million in its three pilots: Thornhill in Port Elizabeth (5 ha), Ndakana near King William’s Town (5 ha) and Centane in the former Transkei (5 ha). In its efforts to commercialise this project, ECDC is to use one of its factories in Butterworth to process imported bamboo, which is to be used to test the local market.

587 jobs created/saved

Although the Eastern Cape is not known for its mineral resources, it does provide some opportunities in such areas as the former Transkei. Recently, ECDC funded a geological and market survey to explore the possibilities of granite mining in Butterworth. Following surveys that tested the volume of granite and the market’s response to granite, mining in the area was conducted, which found that the granite was suitable for domestic uses. Letters of intent from the market to buy the granite have been secured. Eleven people have been employed

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Priority 3

ATTRACTING INVESTORS

& FACILITATING

TRADE PLATFORMS Improved investor attraction

The corporation is mindful that the economic growth and development of SMMEs in the province is also influenced by domestic and foreign direct investment and trade. These investments are often catalytic and act as anchors for the growth of small businesses. It further consolidates ECDC’s role as an effective and energised DFI. As such, ECDC conducted extensive consultations in the review period to ensure that its sector plans received the required support from stakeholders. It is also a participant of the Investment Promotion Coordination Forum, coordinated by the province’s Department of Economic Development and Environment Affairs (DEDEA) and other stakeholders, such as the Coega Development Corporation and the East London Industrial Development Zone. It is encouraging that a cohesive provincial investment promotion strategy has been developed. Further work remains to be done to streamline the roles and responsibilities of key institutions involved in investment promotion. All these interventions should have the effect of coordinating and improving the province’s investment attraction efforts.

INVESTMENT PROMOTION ACTIVITIES IN 2010/11

R661.4 million new investments

25 investor expansions

732 jobs created from investments

146 leads generated

For example, outward missions undertaken during the year resulted in 146 leads being identified, compared with the previous year’s 115. ECDC facilitated 25 new investments compared with 19 last year. With the economic recovery gaining momentum, existing and new investors are gaining confidence and are willing to invest further in their respective projects. This is true if you consider that the value of investments facilitated stands at R661 million compared with R590 million last year. This also means that the improvement in the economic climate and delayed investment decisions are now being implemented. The leading sector has been tourism. For example, the corporation facilitated the establishment of the catalytic De la Vlei Wildlife Estate, which is underway on the western periphery of Port Elizabeth. ECDC is proud to have lobbied for the passing of the environmental impact assessment, which was crucial to unlocking the development. The total value of the estate is close to R2 billion and has the potential to create an estimated 700 part-time and full-time jobs. Already, R415 million has been committed towards the first phase of the development, which has already begun with the laying of building infrastructure. The estate will include three privately owned properties spanning 878 ha. These hectares include a private nature reserve, 400 ha of forest, open grazing areas, and the biggest natural freshwater lake in Port Elizabeth. All these numbers point to improved performance from the previous year. However, a lot more needs to be done to ensure that existing and new investors create further jobs.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Corporation’s performance hIghlights

Rand value of investments and related jobs by sector (R’million) Tourism

R454 million

Plastics

R68 million

Agriculture & agro-processing

R46 million

Aquaculture

R43 million

Renewable energy

R33 million

Automotive

R18 million R0

R 100

R 200

R 300

R 400

Investment totalled R661 million, which created 732 jobs

Improved trade performance

The corporation also focused on increasing trade activity in the province. A lot of energy was pumped into improving the competitiveness and market readiness of SMMEs so that they are able to compete with their international counterparts. Extensive research was also conducted on provincial exports, and this led to the development of a provincial trade promotion strategy. The aim of this exercise is to increase the value of trade and the number of exporters that are focusing on exploring new markets, and to broaden trade within Africa. ECDC helped create the conditions for increasing the value of exports from R502 million in the previous year to more than R1 billion in the year under review. ECDC also facilitated domestic trade within the Eastern Cape which then increased from R39 million in the previous year to R72 million in 2010/11. The foreign selling missions led by the Department of Trade and Industry (dti) and ECDC are bearing fruit. The number of new exporters increased from 26 in the previous year to 39. While this is an encouraging trend, part of the challenge is that developing new exporters is a lengthy process. It requires many steps, including certification by international institutions. ECDC is to partner with Trade Point in Nelson Mandela Bay to jointly implement the Exporter Readiness Programmes, which will include certification.

Trade Promotion highlights in 2010/11 • • • •

R1.060 billion in export sales due to foreign missions in partnership with the dti 39 local companies entered export market – a 50% increase from 2009/10 38 existing exporters assisted 84% increase in the number of businesses that have increased their value of trade within the province – 72 businesses in 2010/11 from 39 in 2009/10

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

VALUE OF EXPORTS (R’MILLION) 2006/07 TO 2010/11 2010/11 2009/10 2008/09 2007/08 2006/07 R0

R 200

R 400

R 600

R 800

R 1000

Foreign missions contributed towards export growth in 2010/11 (R’million)

maximum return on investment assets

While ECDC is mindful of the need to grow its loan book in pursuit of its DFI aspirations, it acknowledges the need to realise maximum return on its investment assets. Thus, the corporation is committed to providing an integrated approach to economic development. ECDC’s large property portfolio provides an ideal platform for investors to launch their investments. It has a property portfolio comprising residential, commercial and industrial property, as well as vacant land and leisure properties. Currently, properties make up R577 million of ECDC’s balance sheet of R1.3 billion.

Focus on rental collections

In the review period, ECDC put particular focus on rental collections. Consequently, ECDC collected R38.9 million in rent from last year’s R37.4 million. This represents a 97% collection success rate against the R40 million target. However, collection on outstanding rentals decreased from R11.7 million to R10.6 million. ECDC marginally increased its occupancy rates on industrial properties from 86% in the previous year to 87%. Vacancy remains a challenge as areas remain economically depressed. Discussions with other partners are underway to resuscitate the industries. The Lukhanji transfer of 53 properties in the Chris Hani District municipal area (Whittlesea, Ezibeleni and Sada) was finalised, and helps resolve ECDC’s ownership challenges of these assets. Similarly, eight Transido complexes and small business centres in the former Transkei were transferred to various municipalities in the review period. Madiba Village, covering 99 ha in Butterworth, was transferred to the Mnquma Local Municipality in the former Transkei to encourage home ownership and building of Reconstruction and Development Programme houses.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Corporation’s performance hIghlights

Occupancy: Residential lettable units

LEGEND Let Vacant

QUEENSTOWN KING WILLIAM’S TOWN BUTTERWORTH MTHATHA 0

100

PERCENTAGE OF LETTABLE UNITS

Residential figures based on: • Queenstown 29 let (94%) and 2 vacant (6%) • King William’s Town 11 let (92%) and 1 vacant (8%) • Butterworth 523 let (96%) and 20 vacant (4%) • Mthatha 332 let (96%) and 14 vacant (4%)

Occupancy: Commercial lettable units

LEGEND Let Vacant

QUEENSTOWN KING WILLIAM’S TOWN BUTTERWORTH MTHATHA 0

100

PERCENTAGE OF LETTABLE UNITS

Commercial figures based on: • Queenstown 46 let (71%) and 19 vacant (29%) • King William’s Town 285 let (79%) and 75 vacant (21%) • Butterworth 219 let (76%) and 69 vacant (24%) • Mthatha 336 let (84%) and 62 vacant (16%)

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

ECDC SUPPORTS

DAIRY

FARMS

While agriculture remains a critical sector for unlocking the economic potential of the province, ECDC continues to promote further development into high agricultural potential areas in the former Transkei and Ciskei. The expansion of three dairy farms through the revitalisation of closed irrigation schemes in Alice, Whittlesea and Cala demonstrates this commitment. The farms form part of Amadlelo Agri, established in 2004, by 70 commercial farmers in the Eastern Cape and KwaZuluNatal, along with such partners as the University of Fort Hare. Targeting underutilised and fallow land, the aim is to develop it to its full potential and eventually milk 6,000 cows. The farmers seek to address some of the issues facing the dairy industry in South Africa, which includes a shortage of domestic production and increased milk imports. Amadlelo has facilitated a partnership between commercial farmers and communities within the targeted areas. A key focus of the partnership is the transfer of skills from commercial to emerging farmers so that local community members can run the farms and provide employment for community members on the farms. Alice-based Fort Hare Dairy Trust, which forms part of the programme, is an 800-cow commercial dairy operation and was established in 2007. It features teaching centres to train students in farm management.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

07 45

OVERVIEW OF

FINANCIAL

REPORTS IN 2010/11

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Interpretation of financials

OVERVIEW OF FINANCIAL REPORTS IN 2010/11 The corporation’s sustainability will be realised by a strong balance sheet that reflects ECDC’s development impact. This means that ECDC needs to be substantially capitalised so it can have a loan book large enough to make the socio-economic impact that is required as per its mandate. BALANCE SHEET ITEMS FOR THE PAST 5 YEARS (R’MILLIONS)

2011 2010 2009 2008 2007

200

400

600

800

1,000

1,200

2007

2008

2009

2010

2011

Cash and cash equivalents

288

304

254

282

310

Trade and other receivables

Loans advances

102

104

215

187

143

Investments

143

151

107

Investments & loans in subsidaries & associates

Property, plant and equipment

Investment property

450

481

512

544

577

The balance sheet reflects the corporation’s assets; it shows a healthy cash balance and an increase in ECDC’s investment property portfolio. The property business remains ECDC’s biggest asset at R577 million. Loans account for R143 million. The clarity that comes with the corporation’s refocused mandate to become a high-performing development finance institution (DFI) has energised ECDC to increase the value of its loan book. The challenge is to convert its property assets into loan assets to bring liquidity to the balance sheet. Although the corporation made a R67 million operating loss, this is a R17 million improvement from the previous year’s loss of R84 million.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

SOURCES OF INCOME (Râ&#x20AC;&#x2122;MILLIONS)

2011 2010 2009 2008 2007 50

100

2007 Revaluation

2008

150

2009

200

2010

250

2011

50.00

Finance income: bank & other

24.63

32.57

24.41

23.47

24.26

Other income

2.74

11.23

18.70

15.75

12.40

Government grants

26.70

54.09

68.52

78.40

84.71

Interest on loans

19.51

21.32

18.51

26.77

20.65

Rental income

49.25

50.89

51.92

54.46

56.83

Total income remained flat year on year, at R199 million in both 2010 and 2011. The most notable variances on the sources of income are on interest on loans (23% decrease between 2010 and 2011) and other income (21% decrease between 2010 and 2011). Two areas contributed to the operating loss. First, revenues did not grow at the expected rate as interest on loans remained low while there were costs associated with loan defaults with non-performing loans and properties. Second, such expenses as human resource costs and such property-related costs as rates, security and maintenance remained high, but were reduced from R259 million in the previous year to R242 million this year.

IMPAIRMENTS AS A PERCENTAGE OF AVERAGE LOANS ADVANCED

2011

64%

2010

51%

2009

37.8%

2008

49.4%

2007

41.7%

The impairment as a percentage of loans advanced has deteriorated from 51% in 2010 to 64% in 2011. This is attributable to the loan book reaching maturity. Hence, the policy decision was made to reposition ECDC as a DFI aiming at increasing the loan book.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Interpretation of financials

PERCENTAGE RETURN ON AVERAGE INVESTMENT PROPERTY

2011

10.1%

2010

10.3%

2009

10.5%

2008

10.9%

2007

10.9%

The return on the average investment property is stable, at an average of 10.4% per year for the past five years.

PERCENTAGE

RETURN

2011

12.5%

2010

13.3%

2009

11.6%

2008

20.7%

2007

19.2%

AVERAGE

LOAN

The average return on loans advanced is much more volatile than the return on investment property, but yields a higher return. From the graph, one can see the effect of the global economic crisis whereby the returns after 2008 are much less than prior to 2008. Although the corporation yields a higher return on loan advances, investment property remains a much more stable asset class and therefore a valuable risk-mitigating asset. The corporation made a substantial improvement as the comprehensive loss moved to R19 million during the year under review from R68 million in the previous year. A key focus for ECDC for the next five years will be on attracting quality SMMEs and improving account management to improve the quality of its loan book. This will ensure that it enhances and consolidates its DFI aspirations.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

LONG TERM

PARTNERSHIP

YIELDS

POSITIVE RESULTS FOR CO-OP

Nonkqubela Weaving Primary Co-operative at Ilinge near Queenstown makes high quality hand woven laundry baskets and magazine racks using steel frames and sisan or bundle twine. The co-operative was formed in 1999 and is now made up of 15 members, three of whom are disabled and 12 are women. Over the years, ECDC has assisted the group with loan financing. ECDC continues to provide the co-operative with support through the crafts and creative sector support programme, which assists small enterprises to take their products to the market. Exhibitions such as Decorex and the Grahamstown National Arts Festival are crucial channels for these types of businesses. ECDC has helped them with a presence at these events. ECDC also facilitated training for the group which focused on product development, basic financial management, basic business skills and co-operative governance.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

08 51

HUMAN

RESOURCES

MANAGEMENT 2010/11

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Human Resources Management

8.1 AIM To render human resources administration, human resources development, organisational development and labour relations services to the corporation.

8.2 SERVICE DELIVERY All departments and government institutions and entities are required to develop a Service Delivery Improvement Plan. The following tables reflect the components of the plan, as well as progress made in the implementation of the plan by the corporation. 8.2.1 Main services provided and standards Main services Provision of human resources (HR) services

Actual customers

Potential customers

All business units, Job applicants management, board, staff and union

Standards of service Providing the right person at the right time

Actual achievements against standards More than 80% of complement achieved

Recruitment of the right skills within acceptable turnaround times Access to HR services

All business units, Job applicants management, board, staff and union

Provision of professional advice and support

Professional advice and support rendered on a needs basis

8.2.2 Consultation arrangements with customers Type of arrangement Regular consultation

Actual customers

Potential customers

Actual achievements

Regular engagement and participation in meetings

Management Board Staff

Reports and submissions made as required Ad hoc consultations

Organised labour

Consultation on matters of mutual interest undertaken

8.2.3 Service information tools Types of information tools HR Policies and Procedures Manual

Actual achievements The manual has been reviewed and will be submitted to the board for approval

Internet, intranet, email and information system policy Accessible to all customers and potential customers document

8.2.4 Complaints mechanism Complaints mechanism Documented grievance procedure

Actual achievements Grievance procedure in place and utilised by staff

8.3 EXPENDITURE 8.3.1 Personnel costs by salary bands, 1 April 2010 to 31 March 2011 Salary bands Unskilled (Grade 2-6)

Personnel expenditure

% of total personnel cost

Average personnel cost per employee

992,745

104,250

Semi-skilled (Grade 7-11)

16,224,419

183,930

Skilled (Grade 12-16)

37,219,011

431,551

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Salary bands

Personnel expenditure

% of total personnel cost

Average personnel cost per employee

Senior management (Grade 17-25)

36,845,495

1,181,530

Total

91,281,620

100

8.3.2 Salaries, overtime, homeownersâ&#x20AC;&#x2122; allowances and medical aid by salary bands, 1 April 2010 to 31 March 2011 Programme

Salaries

Homeownersâ&#x20AC;&#x2122; allowance (HOA)

Medical assistance

Amount

Salaries as a % of personnel cost

Amount

HOA as a % of personnel cost

Amount

Medical assistance as a % of personnel cost

695,974

139,470

103,284

Semi-skilled (Grade 7-11)

9,393,192

1,326,533

1,378,364

Skilled (Grade 12-16)

21,665,367

738,018

2,166,415

Senior management (Grade 17-25)

15,299,482

57,986

870,371

Total

47,854,015

2,262,007

100

4,518,434

100

Unskilled (Grade 2-6)

8.4 EMPLOYMENT AND VACANCIES 8.4.1 Employment and vacancies by programme, 31 March 2011 Programme

Number of Restructuring Number of posts as at obsolete posts posts as at 31 March 31 March 2010 2011

Number of posts filled

Vacancy rate %

Number of employees additional to establishment

Investments

Property Management and Development

Development Services Unit

Support Services

Total

186

157

8.4.2 Employment and vacancies by salary bands, 1 April 2010 to 31 March 2011 Salary band

Number of posts

Number of posts filled

Vacancy rate %

Number of employees additional to the establishment

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Senior management (Grade 17-25)

Total

186

157

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Human Resources Management

8.5 JOB EVALUATIONS 8.5.1 Job evaluations, 1 April 2010 to 31 March 2011 Salary band

Number of posts

Unskilled (Grade 2-6)

Number of jobs evaluated

% of posts evaluated by salary bands

Posts upgraded

Posts DOWNGRADED

Number

% of posts evaluated

Number

% of posts evaluated

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Top and senior management (Grade 17-25)

Total

183

8.5.2 Profile of employees whose salary positions were upgraded due to their posts being upgraded, 1 April 2010 to 31 March 2011 No positions were upgraded during this financial year. 8.5.3 Employees whose salary levels exceed the grade determined by job evaluation, 1 April 2010 to 31 March 2011 (in terms of PSR 1.V.C.3) No employeeâ&#x20AC;&#x2122;s salary level exceeded the grade. 8.5.4 Profile of employees whose salary level exceed the grade determined by job evaluation, 1 April 2010 to 31 March 2011 (in terms of PSR 1.V.C.3) No employeeâ&#x20AC;&#x2122;s salary exceeded the grade.

8.6 EMPLOYMENT CHANGES 8.6.1 Annual turnover rates by salary band for the period 31 March 2010 to 31 March 2011 Salary band

Number of posts filled as at 31 March 2010

Appointments and transfers into the corporation

Terminations and transfers out of the corporation

Number of employees per band as at 31 March 2011

Turnover rate %

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Top and senior management (Grade 17-25)

Total

154

156

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

8.6.2 Reasons why staff are leaving the organisation Termination type

Number

% of total

Death

Resignation

Expiry of contract

Dismissal – operational changes

Dismissal – misconduct

Dismissal – inefficiency

Discharged due to ill health

Retirement

Other (transferred to another entity)

Total

100

Total number of employees who left as a % of the total employment (5%)

8.6.3 Promotions by critical occupation There is one employee promoted. 8.6.4 Promotions by salary band None.

8.7 EMPLOYMENT EQUITY 8.7.1 Total number of employees (including employees with disabilities) in each of the following occupational categories as at 31 March 2011 Occupational categories

Male

Female

African

Coloured

Indian

White

African

Coloured

Indian

White

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Senior management (Grade 17-25)

Total

156

Employees with disabilities

GRAND TOTAL

156

TOTAL

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Human Resources Management

8.7.2 Recruitment for the period, 1 April 2010 to 31 March 2011 Male

Occupational bands

Female

African

Coloured

Indian

White

African

Coloured

Indian

White

Total

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Senior management (Grade 17-25)

Total

Employees with disabilities

Indian

White

Total

8.7.3 Promotions for the period, 1 April 2010 to 31 March 2011 There is one promotion during the period under review. 8.7.4 Terminations for the period, 1 April 2010 to 31 March 2011 Occupational bands

Male

Female

African

Coloured

Indian

White

African Coloured

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Senior management (Grade 17-25)

TOTAL PERMANENT

Non-permanent

Employees with disabilities

GRAND TOTAL

8.7.5 Disciplinary action for the period, 1 April 2010 to 31 March 2011 Male Disciplinary action

Female

African

Coloured

Indian

White

African

Coloured

Indian

White

Total

8.7.6 Skills development for the period, 1 April 2010 to 31 March 2011 (refer to Table 8.11)

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

8.8 FOREIGN WORKERS 8.8.1 Foreign workers, 1 April 2010 to 31 March 2011, by salary band 1 April 2009 Salary band

Number

31 March 2010

% of total

Number

Change

% of total

Number

% change

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled (Grade 12-16)

100

Senior management (Grade 17-25)

100

Total

8.8.2 Foreign workers, 1 April 2010 to 31 March 2011, by major occupation 1 April 2009 Major occupation

31 March 2010

Change

Number

% of total

Number

% of total

Number

% change

Trade & Industry advisor and related

100

Total

100

8.9 Leave utlisation for the period, 31 March 2010 to 1 April 2011 8.9.1 Sick leave

Salary band Unskilled (Grade 2-6)

Total days

Number of days Number of % of total Average days with medical employees using employees per employee certification sick leave using sick leave

Semi-skilled (Grade 7-11)

449

Skilled (Grade 12-16)

332

Senior management (Grade 17-25)

206

157

Total

1037

321

112

100

8.9.2 Disability leave (temporary and permanent), 21 March 2010 to 1 April 2010 There was one disability grant awarded during the period under review. 8.9.3 Annual leave, 1 April 2010 to 1 April 2011 Salary band

Total days taken

Unskilled (Grade 2-6)

Average per employee

317

Semi-skilled levels (Grade 7-11)

2,301

2.48

Skilled (Grade 12-16)

2,317

2.46

772

7.39

5,707

30.33

Senior management (Grade 17-25) Total

8.9.4 Capped leave, 1 April 2010 to 31 March 2011 Leave has been capped at 40 days per employee.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Human Resources Management

8.9.5 Leave pay-outs for the period, 1 April 2010 to 31 March 2011 The following table summarises payments made to employees as a result of leave that was not taken. Reason

Total amount

Number of employees

Average payment per employee (R’s)

Leave pay-out for 2008/09 due to non-utilisation of leave for the previous cycle

Capped leave pay-outs on termination of service for 2008/09

Current leave pay-out on termination of service for 2008/09

428,189

57,457

Total

428,189

57,457

8.9.6 Details of health promotion and HIV/AIDS programmes Question 1. Has the corporation designated a member of the SMS to implement the provisions contained in Part VI E of Chapter 1 of the Public Service Regulations, 2001? If so, provide her/his name and position.

Yes

Details, if yes

√

Mrs June Moshoeshoe, Coordinator: Training and Development

2. Does the corporation have a dedicated unit or has it designated specific staff members to promote the health and wellbeing of your employees? If so, indicate the number of employees who are involved in this task and the annual budget that is available for this purpose.

√

6 employees

3. Has the corporation introduced an employee assistance or health promotion programme for your employees? If so, indicate the key elements/services of this programme.

√

Mrs June Moshoeshoe had been appointed for this responsibility. A new committee was nominated, to evolve into an Integrated Wellness Committee. Referral System to Discovery, World AIDS Day commemoration, wellness posters.

4. Has the corporation established (a) committee(s) as contemplated in Part VI E.5 (e) of Chapter 1 of the Public Service Regulations, 2001? If so, please provide the names of the members of the committee and the stakeholder(s) that they represent.

√

Mr L Filtane Mr A Meiring Mrs T Mzayifani Mrs van Wyk Mrs Moshoeshoe Mrs L Sikonje

5. Has the corporation reviewed its employment policies and practices to ensure that these do not unfairly discriminate against employees on the basis of their HIV status? If so, list the employment policies/practices so reviewed.

All HR policies were reviewed. The recruitment policy complies with legislation. Pre-employment testing prohibited. Benefits offered only in terms of conditions of employment which now includes a specific Discovery Wellness Benefit catering for HIV status as part of the overall diseases management/wellness plan.

√

6. Has the corporation introduced measures to protect HIV-positive employees or those perceived to be HIV positive from discrimination? If so, list the key elements of these measures.

√

The policy on HIV was adopted. The policy prohibits any employment practices that discriminate against HIV positive employees.

7. Does the corporation encourage its employees to undergo voluntary counselling and testing (VCT)? If so, list the results that you have you achieved.

√

Progress has not been measured in this regard as VCT is encouraged as a confidential exercise to avoid stigma and discrimination.

8. Has the corporation developed measures/indicators to monitor and evaluate the impact of its health promotion programme? If so, list these measures/indicators.

√

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

We are currently identifying social partners with the expertise to assist us in developing these indicators.

8.10 LABOUR RELATIONS 8.10.1 Collective agreements, 1 April 2010 to 31 March 2011 Total collective agreements

1 (SACCAWU) â&#x20AC;&#x201C; recognition & wage agreement

8.10.2 Misconduct and disciplinary hearings finalised, 1 April 2010 to 31 March 2011 Outcomes of disciplinary hearings

Number

% of total

Correctional counselling

Verbal warning

Written warning

Final written warning

Suspended without pay

Fine

Demotion

Dismissal

Not guilty

Case withdrawn

Total

100

8.10.3 Types of misconduct addressed at disciplinary hearings Type of misconduct Poor work performance

Number

% of total

Assault of colleague

Unacceptable behaviour (misconduct)

Misuse of vehicle

Theft

Bribery

Negligence

Misappropriation of funds

Fraud

Sexual harassment

Total

100

8.10.4 Grievances lodged for the period, 1 April 2010 to 31 March 2011 Number

% of total

Number of grievances resolved

Number of grievances not resolved

Total number of grievances lodged

100

8.10.5 Disputes lodged with councils for the period, 1 April 2010 to 31 March 2011 There are five disputes lodged within the period under review. 8.10.6 Strike actions for the period, 1 April 2010 to 31 March 2011 None.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Human Resources Management

8.10.7 Precautionary suspensions for the period, 1 April 2010 to 31 March 2011 Number of people suspended

Number of people whose suspension exceeded 30 days

Average number of days suspended

Cost (Râ&#x20AC;&#x2122;s) of suspensions

8.11 SKILLS DEVELOPMENT 8.11.1 Training needs identified, 1 April 2010 to 31 March 2011 Occupational categories

Gender

Number of employees identified as at 1 April 2010

Internships

Legislators, senior officials and managers Professionals

Skills programmes, other short courses & ABET

Other forms of training, study loans

Total programmes, short courses & forms of training

Female

Male

Female

Male

Technicians and associate professionals

Female

Male

Clerks

Female

Male

Service and sales workers

Female

Male

Skilled agriculture and fishery workers

Female

Male

Craft and related trades workers

Female

Male

Plant and machine operators and assemblers

Female

Male

Elementary occupations

Female

Male

Sub total

Female

103

Male

107

157

Total

Training needs identified at start of reporting period

NB* Skills programmes and other short courses were not identified by gender. The figures indicated under this column cater for both genders.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

8.11.2 Training provided, 1 April 2010 to 31 March 2011 Occupational categories

Gender

Number of Training PROVIDED WITHIN THE reporting period employees Learnerships Skills Other forms Total trained as programmes, of training, programmes, at 31 March other short study loans short courses 2010 courses & ABET & forms of training

Legislators, senior officials and managers

Female

Male

Professionals

Female

Male

Technicians and associate professionals

Female

Male

Clerks

Female

104

130

Male

Service and sales workers

Female

Male

Skilled agriculture and fishery workers

Female

Male

Craft and related trades workers

Female

Male

Plant and machine operators and assemblers

Female

Male

Elementary occupations

Female

Male

Female Male

Sub total Total

205

132

168

131

175

337

8.12 INJURY ON DUTY 8.12.1 Injury on duty, 1 April 2010 to 31 March 2011 Nature of injury on duty

Number

% of total

Required basic medical attention only

Temporary total disablement

Permanent disablement

Fatal (death)

100%

Total

100%

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Human Resources Management

8.13 UTILISATION OF CONSULTANTS 8.13.1 Report on consultant appointments using appropriated funds No consultancy firm was appointed. 8.13.2 Analysis of consultant appointments using appropriated funds, in terms of historically disadvantaged individuals No consultants were appointed using appropriated funds. 8.13.3 Report on consultant appointments using donor funds No consultant was appointed using donor funds. 8.13.4 Analysis of consultant appointments using donor funds, in terms of historically disadvantaged individuals No consultant was appointed using donor funds.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

GRANITE MINE

TO BOOST MANUFACTURING & LOGISTICS

ECDC has funded Bold Moves, a private company that obtained a permit to mine granite in Masaleni near Butterworth. The trial sampling and drilling process has been successfully completed in the quarry. The quality of polished granite samples was confirmed and favourable comment has been received from retailers. Bold Movesâ&#x20AC;&#x2122; investment which will constitute a R20 million injection into the local economy, aims to sell granite blocks internationally (specifically to the US market) and granite slabs locally, and to set up a processing factory in Butterworth. It will generate additional spinoffs for the local economy by producing memorial stones, counter tops and building blocks. Eight people were employed during the trial phase, and as the project reaches its full capacity, an additional 70 jobs will be created in the quarrying operations. Further jobs are likely to be created in the cutting and polishing plant. The business was established in 2008.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

09 65

PROGRAMME

PERFORMANCE 2010/11

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Programme Performance Property Management and Development

9.1 PROPERTY MANAGEMENT AND DEVELOPMENT 9.1.1 Aim The programme aims to anticipate and satisfy customer needs by ensuring availability of suitable industrial and commercial premises for investors throughout the Eastern Cape, and disposing of residential units, in a manner that maximises returns for the corporation. 9.1.2 Strategic objective To realise maximum return on investment assets. 9.1.3 Outputs and service delivery trends Measurable objectives

Performance measure

Planned performance

Actual performance

Deviation %

Reason for deviation

38.9

-3

Collections in the Butterworth region were lower than projected.

To maximise rental received

Rental received (R’million)

Increase collection on outstanding rentals

Arrears collected (R’million)

17.4

10.6

-39

Collection on arrears is undermined by traceability and indigence of ex-tenants.

To sell property through implementation of the asset conversion policy (ACP)

Value of property sales (R’million)

4.0

5.5

Implementation of the asset conversion policy.

Deed of sale signed (R’million)

20.0

9.5

-53

Total deeds of sale concluded as at March 2011 amounted to R30.9 million (R9,5 million in 2010/11). No further deeds of sale were entertained beyond July 2010 pending a review of the property disposal strategy.

Conversion of ECDC properties according to ACP

Properties converted (R’million)

5.0

0.94

-81

Overall completion of project is at 12.4%. However, this has not yet translated into spending.

Investment in new property development

Maximised income from vacant land (number of projects)

-100

Development agreement finalised and signed with the preferred developers. Delays experienced with land claims and other land tenure-related challenges.

Flats converted to sectional title units (number of flats converted)

-100

Delays were due to identified gaps in the historical property information on town planning aspects. This had an effect on the obtaining of Surveyor General and deeds office approvals for the registration of sectional title plans.

Remodelling of ECDC offices (R’million)

5.0

-100

Delays with respect to architectural and design-related development and finalisation.

Enhance property values

Rand value spent on maintenance (R’million)

8.0

4.6

-43

Savings due to tighter control measures.

Increase rate of occupancy by 2%

Number of units occupied (% increase in occupation)

-50

Such areas as Dimbaza remain economically depressed. Engagements with other stakeholders are underway to resuscitate certain industrial areas.

Reduction of operational costs

Number of prepaid meters in multitenanted properties

10 buildings

0 buildings

-100

There were delays in the sourcing of a service provider to monitor and manage billings with respect to connections and disconnections.

Number of nonincome generating properties transferred

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Target achieved.

9.1.4 Trends in performance, 2005/06 to 2010/11 Measurable objective

Performance measure

To increase rental Rental received collection (R’million)

2005/06 (actual)

2006/07 (actual)

2007/08 (actual)

2008/09 (actual)

2009/10 (actual)

2010/11 (actual)

Compound annual growth %

46.9

48.9

34.7

42.3

37.4

38.9

-3.7

Decline is due to tenants’ delinquency with respect to payments.

15.4

12.9

11.7

10.6

-11.7

Affected by indigence and traceability of tenants.

Not measured

Increase collection on outstanding rentals

Arrears collected (R’million)

To convert residential properties to tenants in good standing

Value of property sales (R’million)

14.7

12.1

5.5

-15.8

Affected by the review of the asset conversion policy.

Maintain ECDC properties

Obtain good value for property (R’million)

3.8

5.8

5.9

14.2

4.5

4.6

-19.3

Decline is due to tighter controls on spending on repairs and maintenance.

Increase rate of occupancy

Number of units occupied (% increase)

Not measured

Comment

Not measured

Certain areas remain economically depressed.

9.1.5 Budget 2010/11 Programme Overhead expenditure

Budget R ’000

Actual R ’000

Deviation %

Reason for deviation

70,644

55,103

-16

Since the Properties Unit does not rely on the government fiscus, the funding is selfgenerated through rental and arrears. Likewise, expenditure is used to upkeep fixed assets and remunerate staff. The savings can be attributed to: • Savings in rates and taxes • Saving in repairs and maintenance.

9.1.6 Challenges in 2010/11 • Collections in Butterworth still remain a challenge, but all cases regarding evictions of defaulting tenants are progressing. • The old book remains a challenge even though the debts have been outsourced to debt collectors. Most ex-tenants are untraceable and some are no longer financially capable of paying over the debt. • Vacancies remain a challenge as other areas remain economically depressed. • Acquisition of competent service providers in development and refurbishment projects is still a challenge, which has meant that certain projects are delayed. • Slow progress in property development was due to unresolved land claims, delays in municipal approvals, and historical gaps in property information for the sectional title projects.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Programme Performance Property Management and Development

Achievements for 2010/11 • The conversion of ECDC properties have progressed well. At present: site clearance is 100% complete; attenuation tank, excavation and concrete pouring are 100% complete; excavation to bases is 100% complete; and concrete columns are 40% complete. Overall completion of project is at 12.4%. • Regarding revamping of the ECDC Butterworth office, the architects are currently waiting for the appointment of a quantity surveyor and electrical & mechanical engineers to proceed to the final design before construction can take place. For head office, EXMA has approved the space planning submission, and the architect is busy amending layout designs for approval. Regarding the Queenstown office, consultants have finalised various preliminary design plans and options. We are currently busy with internal approval processes before designs can be presented to EXMA for approval. • A development agreement has been finalised and signed with the preferred developers. A cooperation agreement has been signed by the Zimbane community. • Eight Transido complexes and small business centres were transferred to the various municipalities in the financial year, and 53 top structures were transferred to the Lukhanji Municipality. This was a major achievement as it will also partly address the audit queries on land that is not owned by ECDC but is on our asset register by virtue of ECDC owning the top structures only. • Total deeds of sale concluded as at March 2011 amount to R30.9 million (R9.5 million for 2010/11) and no further deeds of sale are entertained pending a review of our property disposal strategy. • 97% of current rentals were collected against the set target of R40 million. • The Madiba village was successfully transferred to the Mnquma Municipality to encourage home ownership. This will provide some socio-economic relief for the community.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

9.2 DEVELOPMENT FINANCE 9.2.1 Aim The Development Investments Unit strategy is underpinned by the: • Promotion of entrepreneurship across the Eastern Cape through the funding of technically sound and financially sustainable businesses and projects • Targeting of businesses and projects in high poverty nodes where multiple socioeconomic objectives can be achieved • Provision of low-income individuals/communities with investment opportunities in private sector partnerships that address their needs, such as job creation, affordable housing and the starting of responsible sustainable businesses. 9.2.2 Strategic goals The Development Investments Unit strategic objectives are to: • Achieve socio-economic development objectives, which include entrepreneurial development, empowerment of black people (individuals, companies and communities), poverty alleviation, skills development and transfer, and contribute to economic growth. • Preserve invested capital and achieve a return on investments. 9.2.3 Outputs and service delivery trends Programme

Budgeted disbursements R’million1

Actual disbursements R’million2

Deviation %

Sub-programme 1: long-term loans

60.0

46.9

-21,8

Sub-programme 2: short-term loans

200.0

54.0

-73

Slow economic activity especially in public sector spending.

Total disbursements

260.0

100.9

Co-operative finance

n/a

8.6

n/a

No dedicated management of the programme.

Equity

n/a

1.6

n/a

Grand total

Measurable objectives

Reason for deviation

Low deal activity due to shift from funding long-term projects.

111.1

Performance measure

Planned performance

Actual performance

Deviation % 0

Improvement in turnaround time Documented turnaround time

Baseline set for short-and long-term products

Turnaround times documented as follows: 40 days for short-term loans and 90 days for long-term loans, on average

All micro loans under R250,000 placed in a special purpose vehicle

Project status and stage of approval

SMME fund excised

SMME fund still within ECDC

Increase equity investment

Rand value of equity investment

R30m

Improve processes to ensure efficiency and effectiveness

Level of cash receipts from total loan book

100%

Loan repayment rates

Set baseline

Reason for deviation Target achieved.

-100

Decision revisited due to review of the SMME strategy by the Department of Economic Development and Environmental Affairs.

-100

Shift to short-term funding due to liquidity concerns.

Not yet determined

-100

Rate could not be set due to the system re-configuration that is needed.

Not yet determined

-100

Rate could not be set due to the system re-configuration that is needed.

Target includes other financial transactions, such as refunds, fees and insurance. Actual excludes other financial transactions, such as refunds, fees and isurances as required by the Auditor General during the 2009/10 audit.

1 2

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Programme Performance Development Finance

9.2.4 Sub-programme 1: Trends in performance from 2005/06 to 2010/11 Measurable objectives

Performance measure

2005/06 Actual approvals R’million

2006/07 Actual approvals R’million

To provide financial Value of term loans assistance to SMMEs

To provide financial Value of equity assistance to SMMEs investments

To provide financial Value of trade assistance to SMMEs finance

Not measured

To provide financial Value of contractor assistance to finance emerging contractors To provide financial assistance to micro enterprises

Value of micro finance

Not measured

2007/08 2008/09 2009/10 Actual Actual Actual disbursed disbursed disbursed R’million R’million R’million3

Not measured

2010/11 Actual disbursed R’million

Compound annual growth %

Comment

30,0

-6,9

Low deal activity due to shift from funding longterm projects.

1,6

-39,7

Due to use of funding in shorter-term products.

53,8

-14,1

Public sector spending was lower than anticipated.

141

16,9

-22,1

Public sector spending was lower than anticipated.

0,8

2,6

0,2

-29,3

Lower demand for short-term funding.

9.2.5 Debt collection performance from 2005/06 to 2010/11 Measurable objective

Performance indicator

Increase cash collections

Total cash collections Total loan portfolio

2006/7 R’million

2007/8 R’million

2008/09 R’million

2009/10 R’million4

2010/11 R’million

Not measured

169

219

212

Not measured

312

225

111.1

Reason for deviation

Closer monitoring of the portfolios.

Total disbursements Total loan disbursements

Low demand especially from short-term funding applicants.

9.2.6 Jobs created Measurable objectives Jobs created and/or saved

Performance measure Permanent/temporary jobs

Planned performance

Actual performance

Deviation %

Reason for deviation

2,500

1,797

-28

Planned performance %

Actual performance %

% movement

Reason for deviation

50%

64%

Further deterioration of ageing loan portfolio and increased provision for few high-value account balances.

Low job numbers in line with lower disbursement.

9.2.7 Impairment provision5 Measurable objectives Preserve invested capital

Performance measure Impairment provision as % of debtors

2009/10 compared with 2010/11 reflect a change in composition of formula to calculate loans disbursed and excludes other financial transactions, such as refunds, fees and insurance. 2009/10 compared with 2010/11 reflect a change in composition of formula to calculate loans disbursed and excludes other financial transactions, such as refunds, fees and insurance. Includes total provision for all transactions.

3 4 5

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

9.2.8 Budget 2010/11 Programme Development Finance

Budget R’000

Actual R’000

Deviation %

37,457

70,318

106%

Reason for deviation The over expenditure relates to loan impairments, and declined and unimplemented approved loans after incurring related transaction costs.

9.2.9 Challenges in 2010/11 • Both the equity and long- and short-term products came under pressure due to funding shortfalls for providing loans over the period. The funding shortfall was due to: - The construction sector, which involves turning and reusing funds on a short-term basis, came under the most amount of stress and had a negative effect on liquidity. - Poor collections over the period, which were due to ineffective aftercare and unfavourable economic conditions. - Higher impairments, which were due to the high-risk profile of the portfolio, ineffective credit management and unfavourable economic conditions. • Loan funding turnaround times resulting in most clients missing prime opportunities, ultimately impacting negatively on loan recoveries and transaction costs. • Equity investments were not made due to the long-term locking in of funding that was used for debt funding. • There was a 64% impairment of the entire loan portfolio.

9.2.10 Achievements in 2010/11 • R212 million has been collected from the portfolio. • 1,797 jobs were created in the financial year through granting finance. • 15% of loans were granted to youth. • 13% of loans were granted to women. • Loans were distributed in the following sectors: 73% in services; 4% in agriculture; 5% in manufacturing; 10% in construction; and 8% in retail. • When analysing the impact of funding, 36% of loans were for more than R1 million, 41% of loans were for less than R500,000, and 21% of loans were for between R500,000 and R1 million. This indicates that ECDC played a major role in developing SMMEs by injecting funding into businesses and ventures that are deemed risky.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Programme Performance Enterprise Promotion

9.3 ENTERPRISE PROMOTION: Investment and trade promotion 9.3.1 Aim The aim of the Investment and Trade Promotion Unit is to facilitate investment and trade in priority sectors in line with the Provincial Growth and Development Plan (PGDP) and the dti’s macroeconomic strategy so as to increase developmental impact in the Eastern Cape. The programme is composed of the following sub-programmes: • Investment Promotion • Trade Promotion.

9.3.2 INVESTMENT PROMOTION 9.3.2.1 Strategic objectives for the Investment Promotion sub-programme are to: • Attract foreign and local direct investment into the Eastern Cape through improving value propositions and promoting incentives developed by the dti, increased missions and marketing municipal incentives. • Maintain and support existing investments. • Cross leverage opportunities for ECDC loans and improve occupancy of ECDC properties. Based on the objectives of the PGDP, the unit focuses on the following sectors:

These are driven through the following approaches:

•

Manufacturing-based potential, which is sub-divided into general

•

Image-building activities (proactive)

manufacturing and automotive

•

Investment generation activities (proactive)

Agro-processing, medicinal and aromatic plant production and

•

Investor servicing activities, also referred to as aftercare (reactive)

greenhouse horticulture

•

Policy advocacy

property

•

Support and collaboration with the East London and Coega industrial

Business process outsourcing and off-shoring (BPO&O) with a focus on

•

Support function to municipalities (demand driven)

call centres and film

•

Outward missions

• •

Tourism

infrastructure

investment

promotion

and

development zones

development • •

Information and communication technology (ICT)

•

Mari- and aquaculture (fish and abalone)

9.3.2.2 Performance in 2010/11 Measurable objectives

Planned performance

Actual performance

Deviation %

Reason for deviation

Number of new prospects

130

146

Outward missions undertaken in the fourth quarter of 2010/11 brought about more leads than was expected.

Number of new investments

108

With the economic recovery that is gaining momentum, existing and investors are gaining confidence and are willing to invest further in their projects.

Value of investments facilitated (R’million)

500.0

661.4

There is an improvement in the economic climate, and delayed investment decisions are now being implemented. The leading sector is tourism.

Number of jobs created or saved

1,000

732

-27

The same investment projects stated above created fewer jobs during construction than anticipated.

Provide effective aftercare through visits

-13

Visits planned for the last quarter were postponed due to non-availability of companies.

Industry workshops

Number of industry workshops held per annum

Workshops are related to sector plans; hence more should be undertaken to develop sector plans.

Stakeholder coordination meetings

Number of workshops organised

Additional workshops had to be organised due to additional consultations with stakeholders.

Facilitate investments

Performance measure

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

9.3.2.3 Trends in performance from 2005/6 to 2010/11 Measurable objectives Facilitate investments

Performance measure

2005/06 (actual)

2006/07 2007/08 2008/09 2009/10 2010/11 (actual) (actual) (actual) (actual) (actual)

Compound annual growth %

Comment

With the economic recovery starting to show signs, more leads were generated over the past two years.

Number of new prospects

New measure

101

115

146

12.5

Number of new investments

New measure

1,416.5

766

738.3

731.4

592

661.4

-14.1

Though the trend of constant drop year on year since 2005/06, the recovery over the past two years has still not yielded significant investment. The steady increase, however, is an indication that investors are gaining confidence in the economic recovery.

3,467

3,522

2,177

1,214

1613

732

-26.7

The trend of job shedding has continued, and especially shedding of permanent jobs. This is an indication that although there are signs of economic recovery, they have not yet translated into sustainable jobs.

Value of investments facilitated (R’million)

Number of jobs created or saved

The number of expansions from existing companies depicts confidence in the Eastern Cape and presents a significant return on investment into strategic infrastructure over the past years. Some of the investors are penetrating new international markets; hence the need to expand.

9.3.2.4 Challenges in Investment Promotion in 2010/11 Renewable energy • Delays by the National Energy Regulator of South Africa (NERSA) in finalising a regulatory framework that would provide an enabling environment for the renewable energy sector remains a challenge for facilitating investment into the sector. • The environmental impact assessment (EIA) has proved to be a lengthy process with no clear roadmap. • The land tenure issue is still a major hindrance in advancing the sector into the rural parts of the former Transkei and Ciskei. Agriculture and agro-processing • Long protracted community disagreements had a negative effect on the expansion and growth of the sector into the high-potential areas in the former Transkei. Most of the welllocated project have either been stopped or abandoned because of disagreements. • Old and less productive agricultural practices still continue to inhibit growth and expansion in raw material production, resulting in limited supply for agro-processing. Manufacturing and automotive • The slow economic recovery still continues to impact negatively on the general manufacturing sector. • Global procurement policies are proving to pose a big challenge for tier 1, 2 and 3 suppliers of components to the automotive sector. Therefore, heavy reliance on this sector is highly risky.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Programme Performance Enterprise Promotion

Tourism • Low investment in infrastructure continues to inhibit any serious investment in tourism, particularly on the Wild Coast of the former Transkei, leaving it even more underdeveloped. BPO&O, ICT and film • Further work is required to streamline roles and responsibilities among key organizations involved in investment promotion. Special projects • Extensive consultation work has been done to ensure that sector plans receive the required support of the stakeholders. Likewise, the Investment Promotion Coordination Forum is being finalised with the Department of Economic Development and Environmental Affiars and stakeholders. • The Provincial Investment Promotion Strategy was developed. Further work is required to streamline roles and responsibilities among key organisations involved in investment promotion.

9.3.2.5 Achievements in 2010/2011 Missions undertaken in previous periods were beginning to yield results in 2010/11. Achievements are also as a result of the growing upswing in the global economy: delayed investments and expansions are now being implemented, albeit with a phased approach. Renewable energy A Cape Town-based company of French origin has identified potential sites for wind farms, spreading from the Grahamstown area to Ncorha and Ngqamakwe and to the Dutywa and Qunu areas near Mthatha. The establishment of partnerships with local communities, with the support of the House of Traditional Leaders and ECDC, is already underway. The sites in Grahamstown have obtained go-ahead through EIAs and are now awaiting NERSA approval. Agriculture and agro-processing • The expansion of dairy production through the revitalisation of closed irrigation schemes in Shiloh (Whittlesea) and Ncorha (Cala) on a partnership arrangement between commercial farmers and communities within the former Transkei and Ciskei areas. • The establishment of the Agro-processing Forum, linked to active participation in similar initiatives in the province (Amathole and Cacadu district municipalities’ agro-processing forums) is leading to a more coherent approach to sector promotion. • This year, we have seen good rainfall, resulting in increased supply of agricultural produce, thereby resulting in major expansion of the processing of sweet piquanté peppers in the province, which is mainly an export commodity. This has encouraged more farmers in the province and elsewhere to produce sweet piquanté peppers for processing in Grahamstown and in KwaZulu-Natal, creating jobs of an extended seasonal nature. • We have seen a few inward missions during the year under review. Chinese companies have shown interest in investing and sourcing agricultural products for the Chinese market. Spanish dairy processing companies have shown further interest in the Eastern Cape dairy industry, targeting the South Africa market and also looking at a UHT plant for the African market. A location on the coast provides a competitive advantage and easy access to the rest of Africa by sea. Manufacturing and renewable energy • Government has taken a conscious decision to establish innovation centres, tools, die and mould centres and skills development centres, all of which will prove to be key to the growth and development of any manufacturing sector. • A number of Chinese companies have participated in an inward mission into the Eastern

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Cape and shown interest in the general manufacturing sector. For example, a sweater manufacturing company is interested in having its product assembled in the East London Industrial Development Zone (ELIDZ) for the American market. This would provide muchneeded jobs in the province, while opening access to new technology through training and mentorship by the Chinese. Tourism • A Tourism Sector Plan, which is linked to Tourism Master Plan, was completed and approved by DEDEA for implementation during this financial year. • The De la Vlei project in Port Elizabeth, with an estimated value of R1.9 billion, commenced during the year under review. The first phase got underway, creating 150 jobs and entailing investment of about R155 million. The second phase was started just before year-end: investment is estimated at R260 million and it is expected that a total of 190 jobs will be created. The critical role played by ECDC in this project has been more on the facilitation of the EIA, which saw the project being approved for commencement sooner than expected. Aquaculture, fisheries and environmental management and mariculture • From the start, ECDC has been involved with Espadon Marine, a marine fin-fish operation located at the ELIDZ. The main highlight for the year is the fact that Espadon Marine is gearing up for its first commercial harvest of kob from its operation. The current financial year has seen Espadon expand into a second site in the zone. A further R50 million will be invested in the next two years. The kob harvest planned for the market will be the first from a commercial marine fin-fish operation in South Africa as all previous harvests have come from experimental-scale operation. Construction of a dedicated seawater pipeline in the ELIDZ has commenced and will be able to supply investors with a regular supply of seawater. • Good progress has been made with regards to the proposed mariculture node at Qolorha on the Wild Coast. This will involve production of fin-fish and abalone on land sites. The first phase of the EIA process has been completed, and the public participation process for the second phase was completed in March 2011. Special projects • ECDC continues to be involved in the Buffalo City Mayoral Steering Committee, which is part of the greater Port of East London upgrade lobby group. With the MEC for Economic Affairs placing particular pressure on Transnet, the East London Port has been prioritised to receive an upgrade to its grain elevator, valued at R20 million. Jobs are still being determined as the project unfolds. • Ugie electrical infrastructure was provided at a cost of R19 million with 11 jobs created. This project is funded through DEDEA/ECDC in support of economically improving the business climate in Ugie.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Programme Performance Enterprise Promotion

9.3.3 TRADE PROMOTION 8.3.3.1 Strategic objectives for the Trade Promotion sub-programme are to: • Increase the value of trade. • Increase the number of exporters. • Focus on and explore new markets. • Maximise the opportunities offered by various trade policies. • Broaden trade within Africa. Sectors with the highest production capacity and manufacturing capability Agro-processing, arts & crafts, and automotive

Focus target countries and markets

Individual participation in international trade platforms

China, Africa, Europe

Focus of initiatives

Shanghai Expo, Hannover faire, Mozambique (postponed)

New emerging economies, while keeping a presence in developed economies

9.3.3.2 Trade performance in 2010/11 Measurable objectives

Performance measure

Planned performance

Actual performance

Deviation %

Reason for deviation

Increase the value Value of exports of exports generated (R’million)

160

1,060

563

The foreign selling missions led by the dti and ECDC are showing results now.

Increase the number of exporters

Generation of new exporters

-19

Developing new exporters is a lengthy process as it requires many steps to be taken, such as certification by internationally recognised bodies. ECDC will partner with the Trade Point in Nelson Mandela Bay to jointly implement export readiness programmes, including certification programmes, in 2011/12.

Number of export networking forums

Target achieved.

Increase the value Number of of trade within the businesses province benefiting from the dti incentive

The Hannover mission planned for April 2011 has added to the results; hence the spike.

Stakeholder awareness workshops

Number of workshops organised with stakeholders

Target achieved.

Job creation

Number of jobs created

100

-63

Although the value of exports increased, job creation did not result due to businesses’ operational capacities.

9.3.3.3 Trends in performance from 2005/06 to 2010/11 Measurable Performance 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 Compound objectives measure (actual) (actual) (actual) (actual) (actual) (actual) annual growth %

Comment

Increase the value of exports

Value of exports generated (R’million)

New measure

17.8

46.1

202.2

502

1,060

177.8

The significant increase in the value of exports, particularly over recent year, is an indication that the previous selling missions are beginning to bear fruit.

Increase the number of exporters

Generation of new exporters

New measure

59.7

The steady increase year on year is due to such campaigns as export awareness and to better tracking methods, although there is still room for improvement.

Number of New existing exporters measure assisted

15.9

This shows that more efforts are put on outreach to even more exports in need of support

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Increase the value of trade within the province

Number of businesses benefitting from the dti incentive

New measure

25.5

More exporters are participating in dti-led national pavillions, as well as in selling missions led by the Trade Promotion Unit.

9.3.3.4 Challenges in 2010/11 • The increase in the value of exports does not necessarily translate into an increase in jobs, but can be attributed to mechanisation and global competitive sourcing for final manufacturing of goods. • Developing new exporters is a lengthy process as it requires many steps to be taken, such as certification by internationally recognised bodies.

9.3.3.5 Achievements in 2010/11 • Outward missions were undertaken and successfully resulted in more export-related leads. • Extensive research was done on provincial exports. Subsequently, a provincial trade promotion strategy was developed. • The provincial chapter of the National Export Forum initiative (the dti) was a successful campaign for the province. • ECDC, together with the dti, successfully hosted the United Nations Procurement Unit Seminar, which was represented by officials from New York, USA, to help prospective businesses learn how to register as service providers for the unit. Three companies were able to register while the workshop was underway, and more are in the process of registering. Specific sectors targeted include air transport services, medical and pharmaceutical supplies, food and catering, construction and engineering services, safety and security goods and services, vehicles, ICT goods and services, pre-fabricated buildings, and shelter and housing. • A local company involved in the manufacturing of mohair-based products expanded its factory space, boosting permanent employment by 45%, and has opened outlets in all South African airports. This has been brought about by increased orders, mainly from overseas markets. • ECDC has had a long relationship assisting in penetrating foreign markets, such as Scandinavia, North America and Europe, through participation in trade missions and in exhibitions that have resulted in building a growing base of loyal customers.

9.3.4 Budget for Investment and Trade Promotion for 2010/11 Programme

Budget R’000

Actual R’000

Deviation %

Reason for deviation

- Overheads

7,810

6,758

-13%

The new ECDC strategy of being a DFI has resulted in a review of the Investment and Trade Promotion Head position, hence the vacancy.

- Projects

5,066

4,563

-10%

There is an overlap of projects initiated in 2010/11, but which will be paid in 2011/12.

- Overheads

1,634

1,645

- Projects

3,076

2,187

-29%

A few large projects relating to export certification, Trade Point, and the bamboo initiative are only being implemented in 2011/12.

Total overhead expenditure

9,443

8,403

-11%

With the new organisational development and DFI strategy for ECDC, the variance will be corrected.

Total project expenditure

8,142

6,750

-17%

The projects that have been approved but not yet implemented were due to get underway in April/May 2011.

Sub-programme 2.1: Investment Promotion

Sub-programme 2.2: Trade Promotion

Target achieved.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Programme Performance Development Projects

9.4 DEVELOPMENT PROJECTS 9.4.1 Aim The aim of the Development Projects Programme is to increase investment (in partnership with third-party funders) in initiatives that unlock the economic potential of low-income areas, thereby leading to the establishment of viable enterprises, expansion of existing enterprises and creation and saving of jobs, and so creating sustainable economic growth in the province.

9.4.2 Strategic objectives • Stimulate economic growth and development of low income areas through strategic identification and support of projects with high employment and economic viability potential in line with the PGDP and ECDC’s development objectives. • Promote broad-based black economic empowerment (BBBEE) in the low-income areas of the Eastern Cape Province through public private partnerships. • Influence municipal planning through supporting the development of credible local economic development (LED) strategies. • Support research and knowledge management through packaging of lessons learnt from best practice cases.

9.4.3 Development projects are driven by the following approaches: • Identify potential economic projects and fund development of business plans, trials and pilot projects. • Leverage funding from development partners (including limited funding from ECDC) for commercialisation of economic projects. • Assist enterprises that are in distress and assist in resuscitation of declining sectors. • Focus on high-value, high-impact projects with developmental focus. • Assist municipalities in planning and implementing projects. • Develop a project monitoring and evaluation tool.

9.4.4 Performance in 2010/11 Measurable objectives To create jobs and wealth through establishing viable and sustainable projects

Performance measure

Planned performance

Actual performance

Deviation %

Reason for deviation

List of projects identified for scoping

A good pipeline of projects was ready for scoping.

ECDC funding used for scoping (R’million)

4.56

6.2

Based on the above projects identified, the target was exceeded due to a good pipeline of projects.

ECDC funds used for project implementation (R’million)

2.27

3.0

Based on the above projects identified, the target was exceeded due to a good pipeline of projects.

Third-party funding obtained for business related studies, crop trials and project implementation (R’million)

60.0

64.5

This was mainly due to the confidence shown by investors and third-party funders during the economic recovery seen in the third quarter of the financial year.

Number of projects established/expanded

This was due to a number of projects that became ready for implementation from the previous financial year, as well as those that had passed the scoping phases.

Number of actual jobs created and/or saved

660

587

-11

Most of the projects implemented are in the first phase of implementation. Hence fewer jobs are created; however, this should increase as the projects mature.

The budget was amended from R4.5 million to R5 million due to addidiontional allocation by the Departments of Development and Economic Affairs. This occured after operational plans were approved by the board and Eastern Cape Legislature. The budget was amended from R2.2 million to R3 million due to addidiontional allocation by the Departments of Development and Economic Affairs. This occured after operational plans were approved by the board and Eastern Cape Legislature.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Measurable objectives

Performance measure

Facilitate and support integrated development plan (IDP) processes to enhance the municipal IDP/LED process

Value of ECDC funds disbursed towards support of municipal projects (R’million)

Economic intelligence data ready for dissemination

Number of visits to projects

Planned performance

Actual performance

Deviation %

Reason for deviation

2,0

0,66

-67

This was due to slow municipal procurement processes and a limited ability to implement projects.

This was due to early identification of three best practice cases by a partner organisation.

9.4.5 Trends in performance from 2005/06 to 2010/11 Measurable objectives

Performance measure

2005/06 (actual)

2006/07 (actual)

2007/08 (actual)

2008/09 (actual)

2009/10 (actual)

2010/11 (actual)

Compound annual growth %

To create jobs and wealth through establishing viable and sustainable projects

Number of projects identified

-5

The number of projects identified decreased from last year due to a focus on higher-impact catalytic projects.

6.6 Disbursements + commitments

7 Disbursements + commitments

-6

ECDC continues to invest in scoping so as to facilitate diversification and access to new markets.

8.3 Approvals, incl.implementation

Third-party funding obtained for businessrelated studies, crop trials and project implementation (R’million)

51.7

89.3

103.8

367.7

64.5

-5

Much improved turnaround times by third parties are due to better cooperation and improved financial conditions.

-6

Quality of pipeline has improved from the previous financial year.

1,146

728

2,479

824

352

587

-13

Most projects have not reached full production or maturity; hence the lower trend.

Number of actual jobs created/ saved

6.6 Disbursements + commitments

6.2 Disbursements + commitments

ECDC funding used for businessrelated studies, crop trials and implementation (R’million)

Number of projects established

9.1 Approvals, incl.implementation

Comment

9.4.6 Budget 2010/11 Programme

Budget R’000

Actual R’000

Deviation %

- Overheads

7,114

5,278

-26%

- Projects

10,000

9,960

Reason for deviation

Development and rural projects

Lower overhead costs are due to salaries for unfilled posts. Spending is on target.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Programme Performance Development Projects

9.4.7 Challenges in 2010/11 • Most projects implemented are in the first phases and hence fewer jobs have been created so far. Most jobs are created during the processing phase, and most of the projects had not reached this phase during the financial year under review. • A number of pilot projects were launched, including mining beneficiation, agro-processing (natural fibres) and forestry (bamboo pilot). Fewer jobs are created in the pilot phase. • Slow municipal procurement processes create delays. • Intellectual property rights registration and slow conclusion of off-take agreements delayed the commercialisation of certain projects. • Community conflicts and disputes are delaying tourism projects, especially on the Wild Coast.

9.4.8 Achievements in 2010/11 • The target was exceeded due to a good pipeline in the previous financial year and an improved turnaround time on contracting with service providers on the procuring of services for projects. • New products were developed and are ready for the market. Likewise, private investors have expressed interest in a number of projects, such as new creams and granite products. • The Nkanya Lodge project finally secured an operating partner. • The Lubala poultry project, just outside Mthatha, was established in a record time of just over a month through multi-stakeholder coordination. • The pineapple dietary fibre project has reached the first phase of commercialisation and has secured two off-take agreements. • The Eastern Cape fibre hub has concluded research into such natural fibres as cashmere, mohair, flax and hemp in such districts as OR Tambo, Cacadu, Amathole and Chris Hani.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

9.5 ENTERPRISE DEVELOPMENT SERVICES 9.5.1 Aim The Enterprise Development Services Unit aims to provide effective, efficient and integrated development and support services to priority SMME sectors.

9.5.2 Strategic goals • Provide enterprise development services in targeted priority sectors. • Facilitate competitiveness of the SMME sector. • Promote the culture of entrepreneurship to increase economic growth and development.

9.5.3 Performance in 2010/11 Measurable objectives To provide business development services in targeted priority sectors

Performance measure

Planned performance

Actual performance

Deviation %

Reasons for deviation

Number of emerging entrepreneurs participating in the programme

The increase in the number of incubates has been triggered by increased market access programmes in the creative industry sector and therefore higher demand by enterprises to be part of the programme. Outreach programmes in the form of networking functions has raised interest in the programme; hence the increase in demand.

Number of entrepreneurs graduated from one level to the next

140

A graduated entrepreneur is measured in terms of increase in turnover, formalisation of business and grading. The figure reflected here is mainly on turnover and the overachievement is caused by enterprises generating income mainly through market access programme, which is linked to an increase in expos and exhibitions attended.

Number of jobs created through the programme

110

431

291

The increase in the number of jobs over what was originally planned has been caused by increased participation of enterprises in the craft programme.

Number of networking sessions

This is as a result of partnership with the Border Kei Chamber of Business on the hosting of BBBEE workshops in some parts of the region, and furthermore, a partnership with the Metropolitan SMME Portal on the hosting of an imbizo, including sessions that were originally planned.

Number of market access opportunities

100

This was attributed to a partnership with the Department of Trade and Industry in attending exhibitions locally, nationally and internationally.

Number of entrepreneurs provided with business development services

180

186

This was exceeded due to demand.

Number of businesses started from total supported

Target achieved.

Number of co-ops provided with business development services

100

-78

Most co-operatives are primarily looking for finance. However, these co-operatives are referred to when prefinance support is required. Demand for this service has been low.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Programme Performance Enterprise Development Services

Facilitate Number of SMMEs competiveness of trained in financial the SMME sector management

Measurable objectives

New business started

120

130

Number of SMMEs with proper and up-to-date management reports

-60

This project was preceded by research in collaboration with Walter Sisulu University to establish the exact needs, level of financial literacy among SMME owners, etc. A proactive approach to intervene on financial management systems, targeting 100 entrepreneurs and financed by ECDC, will commence in April 2011. The procurement process was finalised in March. The 16 SMMEs assisted had clear needs and were ready to have the systems installed.

Number of SMMEs trained in quality management

-100

A partnership agreement with the Tourism Enterprise Programme and the Eastern Cape Parks and Tourism Agency was signed in March 2011. Training will commence in April 2011.

Planned performance

Actual performance

Deviation %

Reasons for deviation

Number of accredited SMMEs with quality management systems and policies

-100

Complete research report on SMMEs

Target achieved.

Number of trained potential entrepreneurs/start ups

200

302

This was due to demand by enterprises.

Number of co-ops trained

100

163

This was due to partnerships with the local municipalities in hosting the training.

Number of companies registered

4400

5865

This was due to higher demand resulting from increased business seminars and business outreach programmes.

Number of co-op registered

200

205

The active promotion of co-operative development and the re-launch of the Imvaba Fund increased the demand for registrations.

During the year, four craft networking sessions were held (in the Amathole, Chris Hani, Cacadu and Alfred Nzo districts). Five SMME seminars were held (in Mount Ayliff, Mthatha, Aliwal North, Ugie and Cradock). The overachievement (in Mount Ayliff) has been as a result of craft sessions held in partnership with the Small Enterprise Development Agency.

Number of recognition and reward events held

Target achieved.

Number of business chamber programmes supported

Five chamber programmes were supported in the current financial year. These included support to NAFCOC, FABCOS, Border Kei Chamber of Business and the Chris Hani Business Forum. The supported programmes are aimed at empowering entrepreneurs within these organisations. The reason why we supported more than the target is as a result of requests and demands from chambers.

Performance measure

Promote Number of seminar/ entrepreneurship workshops

There is a growing demand for financial management training.

Project costs and the availability of an accredited qualified service provider hampered delivery.

9.5.4 Trends in performance from 2005/06 to 2010/11 Measurable objectives

Performance measure

2005/06 (actual)

2006/07 (actual)

2007/08 (actual)

2008/09 (actual)

2009/10 (actual)

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

2010/11 (actual)

Compound annual growth %

Comment

To provide development services in a sector-focused approach

Number of businesses supported in priority sectors (number of interventions)

119

169

279

392

266

288

19.3

There has been an increase in support through incubation in construction, the creative industry and the ICT sector, as well as general walk ins.

Impact of support per priority sector; Construction Industry Development Board rating for construction

62 >Grade 5

The increase in turnover has been as a result of an increase in the number of market access programmes that craft producers were supported to participate in. These include local, national and international exhibitions, expos, and trade and consumer shows.

N/A

441,000

15,565

62,000

238,600

1,206,796

28.6

There was a significant improvement in participation in local, national and international exhibitions and trade shows. Numerous contracts were secured as a result.

2005/06 (actual)

2006/07 (actual)

2007/08 (actual)

2008/09 (actual)

2009/10 (actual)

2010/11 (actual)

Compound annual growth %

Comment

Integrate/partner with other development agencies with regard to SMME development (number of walkins and business referrals)

N/A

731

5938

6035

6358

105.6

This number of registered companies reflects stability in new business registered year on year and is reflective of consistent entrepreneurial activity and interest.

Business registrations (CC registrations only: CK1, CK2 and CK3)

N/A

1907

5546

5769

5865

45.4

There is a rising demand for business registration, indicating a positive upward trend in the level of entrepreneurship across the province.

SMME training and capacity building sessions/ workshops focusing on quality management systems and financial management

130

100.6

There is a demand for training, and that service was provided successfully, although there were challenges in respect of quality management training.

Turnover for arts and crafts (R’)

Measurable objectives

Performance measure

9.4.5 Budget 2010/11 Programme

Budget R’000

Actual R’000

Deviation %

Reason for deviation

Overheads

8,902

9,118

-2%

Certain vacancies were not filled.

Projects

15,000

13,349

-11%

This is due to some programmes being implemented over multiple years and therefore extending beyond the financial year under review. These include chamber support programmes.

9.4.6 Challenges in 2010/11 • A joint initiative with the Development Finance Unit of ECDC has been initiated. Its main focus is to provide SMMEs financed by ECDC with assistance through a Small Business

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Programme Performance Enterprise Development Services

Financial Management System to enable them to have up-to-date management reports. The initiative is targeting 100 entrepreneurs financed by ECDC and will commence in April 2011. • The quality training intervention for SMMEs was also delayed, and a partnership agreement has been reached with the Tourism Enterprise Programme and the Eastern Cape Parks and Tourism Agency to undertake training in this sector. The training will commence in April 2011. • The demand for business development services and registrations from cooperatives has been low since most co-ops are looking for financial assistance prior to business advice. Alignment is underway to ensure that the cooperatives’ funding pipeline is matched with a positive state of readiness and proper aftercare. • A general reluctance by supported enterprises to provide financial information on the performance of their companies leads to delays in assessing the support to be provided.

9.4.7 Achievements in 2010/11 • Numerous programmes exceeded their targets due to demand. This was especially the case with the incubation programme, training for entrepreneurs, seminars, and those services that were provided in conjunction with the various business chambers. • The opportunities for exposure provided to SMMEs and entrepreneurs with respect to trade fairs, expos and market access programmes resulted in increased turnover and sustainability of those businesses. • Support in the various sectors resulted, in certain instances, a three-fold overachievement in job creation. This shows the value of the work that has been done, especially in those sectors receiving mentoring and incubation. • Overachievement of the target comes as a result of partnerships with chambers of business, especially the Border Kei Chamber of Business in hosting BBBEE workshops, and the Metropolitan SMME Portal in hosting the imbizo. This is apart from sessions that were organised outside of these partnerships. Work with the various chambers of business, such as NAFCOC and FABCOS, has yielded results with respect to training and development of their constituencies.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

ECDC FUNDING

BOOST

ECDCâ&#x20AC;&#x2122;s R350,000 loan has helped a Mount Frere bakery upgrade its energy infrastructure and buy additional equipment. This has allowed Door 2 Door Bakery to meet the increased demand for bread and baked goods in the town and surrounding area. The business, owned by Mabangula Langa, employs 15 locals and was started in 2009.

BAKERY PRODUCTION

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

10 87

AUDITOR-GENERAL’S

REPORT

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Auditor-Generalâ&#x20AC;&#x2122;s Report

REPORT OF THE AUDITOR-GENERAL TO THE EASTERN CAPE PROVINCIAL LEGISLATURE ON THE EASTERN CAPE DEVELOPMENT CORPORATION.

REPORT ON THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS Introduction 1. I have audited the accompanying consolidated and separate financial statements of the Eastern Cape Development Corporation, which comprise the consolidated and separate statement of financial position as at 31 March 2011, the consolidated and separate statement of financial performance, statement of changes in equity and statement of cash flows for the year then ended, a summary of significant accounting policies and other explanatory information, and the directors' report, as set out on pages 106 to 171. Accounting authority's responsibility for the consolidated financial statements 2. The accounting authority is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No. 1 of 1999) (PFMA), the Eastern Cape Development Act, 1997 (Act No.2 of 1997) and the Companies Act of South Africa, 1973 (Act No. 61 of 1973) (Companies Act), and for such internal control as management determines necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor-General's responsibility 3. As required by section 188 of the Constitution of the Republic of South Africa, 1996 (Act No. 1 08 of 1996) and section 4 of the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), my responsibility is to express an opinion on these consolidated financial statements based on my audit. 4. I conducted my audit in accordance with International Standards on Auditing and General Notice 1111 of 2010 issued in Government Gazette 33872 of 15 December 2010. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. 5. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated and separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and separate financial statements. 6. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Opinion 7. In my opinion, the consolidated and separate financial statements present fairly, in all material respects, the financial position of the Eastern Cape Development Corporation and its subsidiaries as at 31 March 2011 and their financial performance and cash flows for the year then ended in accordance with the SA Statements of GAAP and the requirements of the PFMA and Companies Act. Emphasis of matters 8. I draw attention to the matters below. My opinion is not modified in respect of these matters: Material impairments 9. As disclosed in note 20 to the financial statements, the entity had material impairments totalling R72,7 million related to amounts irrecoverable. Of this amount, R20,5 million related to receivables and R52,2 million related to loans advanced considered irrecoverable. Investment property 10. As disclosed in note 2 to the financial statements, properties with a combined value of R58,2 million (2009-10: R78,7 million) (2008-09: R83,5 million) were disclosed as being owned by government, tribal authorities and municipalities. Although the corporation's right to occupy these properties has not been reduced to writing, it derives economic benefits from their use and carries the risks that are incidental to ownership. The valuation method used to value these properties assumes that the corporation has the right to occupy these properties and will receive economic benefits in perpetuity. Additional matter 11. I draw attention to the matter below. My opinion is not modified in respect of this matter: Unaudited supplementary schedules 12. The supplementary information set out on pages 172 to 175 does not form part of the financial statements and is presented as additional information. I have not audited these annexures and accordingly I do not express an opinion thereon.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS 13. In accordance with the PAA and in terms of General Notice 1111 of 2010 issued in Government Gazette 33872 of 15 December 2010, I include below my findings on the annual performance report as set out on pages 66 to 84 and material non-compliance with laws and regulations applicable to the entity. Predetermined objectives 14. There are no material findings on the annual performance report. Compliance with laws and regulations Annual financial statements 15. The accounting authority submitted financial statements for auditing that had not been prepared In all material aspects in accordance with generally accepted accounting practice, as required by section 55(1)(a) and (b) of the PFMA. The material misstatements identified by the AGSA with regard to investment properties and lease commitments were subsequently corrected.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Auditor-Generalâ&#x20AC;&#x2122;s Report

Corporate planning and reporting 16. The accounting authority did not take effective and appropriate steps to ensure compliance with section 52(b) of the PFMA, which requires that the corporate plan of a public entity must cover the affairs of that entity for the following three financial years, and, if it has subsidiaries, also the affairs of the subsidiaries. 17. As such, the accounting authority did not take effective and appropriate steps to ensure compliance with section 55(2)(b)(v) of the PFMA, in that the corporate plan should include the predetermined objectives of the subsidiaries and the entity must also report on the performance of the subsidiaries against predetermined objectives In its annual report.

INTERNAL CONTROL 18. In accordance with the PAA and in terms of General Notice 1111 of 2010 issued in Government Gazette 33872 of 15 December 2010, I considered internal control relevant to my audit, but not for the purpose of expressing an opinion on the effectiveness of internal control. The matters reported below are limited to the significant deficiencies that resulted in the findings on compliance with laws and regulations Included in this report. Leadership 19. Oversight responsibility over the preparation of financial statements, compliance with laws and regulations as well as internal control was not adequately exercised by the accounting authority. As a result of the lack of review over reporting processes, commitments were not accurately calculated, while the fair values of investment property were not updated before the submission of the annual financial statements. 20. Management did not ensure that the entity had adequate policies and procedures for group reporting on predetermined objectives, which led to non-compliance with the PFMA.

East London 29 July 2011

Auditing to build public confidence

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

MOHAIR MANUFACTURER INCREASE IN

FOREIGN SALES, JOBS

World-class producer of luxury mohair textiles and apparel, Momento’s of Africa, continues with its success following its humble beginnings in the 1980s when British expert weaver Lin Smith taught unemployed people to weave Xhosa tapestries as a means of making a living. The company, which started off as a curio shop at the Port Elizabeth airport, has taken advantage of the Eastern Cape’s leading position in mohair production and now boasts an expanded factory with average annual increases of 30% in employment, and a chain of outlets including most South African airports. South Africa, which currently produces more than 60% of the world’s mohair, gave the company a competitive advantage regarding the sourcing of mohair produced. Over the past 30 years, Momento’s brand names have come to denote quality all over the world. These include BabyMo products, which are woven or knitted from the hair of kid Angora goats, and the original imiBoniso brand which features modern and traditional Xhosa mohair tapestries and wall hangings. More recently Momento’s have developed and trademarked new fabrics which include heavier apparel cloths

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

11 93

CORPORATE

GOVERNANCE

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Corporate governance

Introduction

The Eastern Cape Development Corporation is established in terms of the Eastern Cape Development Corporation Act, No. 2 of 1997. The ECDC mandate includes planning, financing, coordinating, marketing, promoting and implementing development of the province and its people in the fields of industry, commerce, agriculture, transport and finance. The Eastern Cape Provincial Government, represented by the Member of the Executive Council (MEC) responsible for economic development in the province, is the sole shareholder of the corporation. The MEC appoints the board of directors, which is the accounting authority of the corporation. In addition to the ECDC Act, the ECDC is also subject to the provisions of the Public Finance Management Act (PFMA), No 1 of 1999.

Corporate governance approach

ECDC endorses the code of corporate practices and conduct as contained in the King Reports on Corporate Governance, and affirms its commitment of adherence to the principles incorporated therein. The corporation further subscribes to, and complies with, the corporate governance principles set out in the PFMA. ECDC is reviewing its corporate governance practices with a view to ensuring compliance with the Companies Act, 2008, as well as adherence to the recommendations of King III. The board strives to effectively manage risks that are facing the corporation, as well as to ensure the effectiveness and efficiency of the internal control environment.

ECDC corporate governance structures

Board of directors The ECDC board is the accounting authority of the corporation. It is comprised mainly of independent non-executive directors in line with the guidelines set out in the King Reports on Corporate Governance. Eight board meetings were held during the period under review. The board continued with its corporate governance oversight and strategic direction role in the corporation, and the following corporate governance systems are in place and implemented: Corporate Governance Framework The board continued to implement the Corporate Governance Framework, which consolidates the corporate governance procedures, practices and rules applied by the corporation. These are in line with best practice guidelines as contained in the King Reports on Corporate Governance and other good governance prescripts and guidelines. Board Charter The Board Charter sets out the roles, powers and functions of the board, and individual directors and officials of ECDC, as well as advising on the delegation of powers to the board committees. The board continues to implement its comprehensive delegations matrix aimed at clarifying the various roles and limits of authority within ECDC. Board development The board implemented the director development policy in terms of which ECDC directors are entitled to continued professional development at ECDCâ&#x20AC;&#x2122;s expense. Board and committee evaluation The board and its committees conduct an evaluation of their performance with a view to

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

identification of weaknesses and achievement of optimum performance levels.. Shareholderâ&#x20AC;&#x2122;s Compact A Shareholderâ&#x20AC;&#x2122;s Compact was concluded between ECDC and the Eastern Cape provincial government as a shareholder, represented by the Member of the Executive Council responsible for Economic Development and Environmental Affairs. The Shareholderâ&#x20AC;&#x2122;s Compact serves as a framework for effective governance of the relationship between the corporation and the shareholder. The compact further secures transparency, accountability and sound management of the revenue, expenditure, assets and liabilities of the corporation.

Audit Committee

The Audit Committee provides oversight of governance, control and risk management processes. It is chaired by an independent chairperson in accordance with good governance principles. The Audit Committee also reviews internal and external audit feedback on the status of risk management, internal control and governance; and provides objective advice to the board on the status thereof with suggested corrective actions relating to audit findings. The Audit Committee met five times during the year under review.

Human Resource & Remuneration Committee

With a view to streamlining the efficiency and effectiveness of its committees, the board merged the Human Resources Committee and Remuneration Committees to form the Human Resource & Remuneration Committee.

Internal controls

In terms of the PFMA, the board continued to discharge its duty of maintaining effective, efficient and transparent systems of financial and risk management and internal control. To this end, the board ensured that the internal audit function is under the control of an effective Audit Committee and has, among other things, prepared a rolling three-year strategic internal audit plan and an operational plan for the first year of the rolling plan. The board adopted a Risk Appetite and Tolerance Framework and conducted a risk assessment process whereby known and possible risks and opportunities to which the corporation may be exposed were identified and evaluated. Significant risks are controlled or transferred. The risk management process was integrated into the performance management system of the corporation. Structures and delegations for the day-to-day management and operations of the organisation, including its risk management activities, have been established. Directors The board is appointed by the MEC responsible for Economic Development and Environmental Affairs in terms of the ECDC Act. The persons reflected in Table 1 were directors of the corporation during the period under review. Director

Appointed

Fikeni, S

20/03/2009

Buthelezi, S

20/03/2009

Mlonzi, N

20/03/2009

Silinga, M

20/03/2009

Sharpley, G

12/05/2009

Cerff, J

18/06/2009

Resigned No resignations were recorded

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Corporate governance

Mteto,N

03/11/2009

Director

Appointed

Tyantsi,Y

03/11/2009

Nqadolo, B

03/11/2009

Mazibuko, M

03/11/2009

Mabandla, O

01/01/2010

Resigned

Directors’ fees Fees were paid to directors for board and board committee attendance. In addition, fees are paid to directors for ad hoc attendances on ECDC business matters. During the financial year, these were as follows: Director

Board

Mabandla, O

Fikeni, S

Buthelezi, S

Sharpley, G

Audit Committee

HR & Remuneration Committee

Ad hoc8

Total

R202 500.00

R147 500.00

R82 500.00

R92 500.00

4 3

Silinga, M

R95 000.00

Cerff, J

R142 500.00

Mlonzi N

R35 000.00

Tyantsi, Y

R127 500.00

Nqadolo, B10

Mteto, N

Mazibuko, M

R 0.00

R105 000.00

R120 000.00

Nicholls, R

R37 500.00

Njeke, J

R50 000.00

Executive remuneration Executive

Basic (R’000)

Performance bonuses (R’000)

Daca, M

949

119

Tsipa, L

645

Ncokazi, N

657

101

Bierman, C*

315

Dlulane, N**

Mase, S*** TOTAL

Contribution to Contribution to medical aid retirement benefits (R’000) (R’000)

Allowances (R’000)

Total remuneration (R’000)

216

1,387

162

1,004

194

1.035

417

189

838

130

1,085

3,487

310

132

324

864

5,117

* Bierman resigned on 31 July 2010 ** Dlulane appointed on 1 February 2011 ***Mase appointed on 01 July 2010

Company secretary The company secretary’s details are as reflected here: Name: Mziwoxolo Mavuso Address ECDC House, Ocean Terrace Park, Moore Street, Quigney, East London, Eastern Cape Ad hoc refers to meetings of the Audit Steering Committees, board strategy sessions, Portfolio committees, cabinet and project-specific board task teams and general attendances by board members for ECDC business. This director is a government employee with effect from 1 January 2011 and is not allowed to receive remuneration. 10 This director is a government employee and is not allowed to receive remuneration. 8

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

FLY TYING IN THE TRANSKEI

Ten fly tiers from Centane and Willowvale in the former Transkei will soon boast the age-old art of fly tying as result of ECDCâ&#x20AC;&#x2122;s R500,000 investment. Fly tiers, who will be mentored by an appointed trainer who will also help them establish a business, will undergo training and mentoring as they learn the art of preparing hooks for anglers and fly fishermen who visit the areas. Other opportunities for the business includes satellite fly tying, bait and tackle outlets, managing local fishing venues, and starting a training centre for future fly tiers and fishing guides.

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12 99

REPORT OF THE

AUDIT COMMITTEE

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Report of the Audit Committee

Report of the Audit Committee required by Treasury Regulations 27.1.7 and 27.1.10 (b) and (c) in terms of the Public Finance Management Act 1 of 1999, as amended.

Overview

We are pleased to present our report for the financial year ended 31 March 2011. Audit Committee members and attendance The Audit Committee consists of the members listed hereunder. As per its terms of reference, the committee is required to meet at least four times a year. During the year under review, five meetings were held. Name of Member

Period of membership

Number of meetings attended

J Njeke (Chairperson)

1 April 2010 – 31 March 2011

Prof S Buthelezi

1 April 2010 – 31 March 2011

R Nicholls

1 April 2010 – 31 March 2011

J Cerff

1 April 2010 – 31 March 2011

B Nqadolo**

1 April 2010 – 31 March 2011

N Mlonzi*

1 April 2010 – 31 March 2011

**Member was appointed to the Audit Committee in August 2010. * Member was allowed special leave of absence during the year.

Audit Committee responsibility The Audit Committee is a committee of the board and has discharged its responsibilities accordingly in terms of Section 51 (1) a (ii) of the PFMA and 27.1.8 of the Treasury Regulations. The Audit Committee has formal terms of reference, has conducted its affairs in compliance with these terms of reference, and has discharged its responsibilities contained therein. Effectiveness of internal control During the year, various reports of the internal auditors, the Audit Report of the AuditorGeneral on the annual financial statements, and the accompanying management letter indicated that the system of internal control has shortcomings. The Audit Committee has noted these, and based on the outcome of such reviews and the information provided by management, the Audit Committee is of the opinion that despite these weaknesses, the internal controls of the corporation operated effectively throughout the year under review. Risk management and governance The risk management practices are consistently being developed and improved upon within the corporation. A risk appetite and tolerance framework was recently developed and approved by the board. A process of enterprise-wide risk management is being implemented by the corporation wherein risk assessments are conducted and updated on an annual basis at both senior management and board level. During the year, the corporation adopted and approved various policies and procedures to strengthen the control environment. Monthly and quarterly performance information The Audit Committee is satisfied with the content and quality of monthly and quarterly reports prepared and issued by the corporation during the year under review.

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100

Internal audit The Audit Committee reviewed the activities of the internal audit function, and has concluded the following: • The function is effective and there were no unjustified restrictions or limitations. • The internal audit reports were reviewed at quarterly meetings, including its annual work programme, coordination with the external auditors, the reports of significant investigations and the responses of management to issues raised therein. External auditors The Auditor-General acted as the external auditors throughout the year. The Audit Committee reviewed the external auditors’ scope and work plan to ensure that key risk areas of the business were being addressed during the audit process.

Evaluation of annual financial statements The Audit Committee has: • Reviewed and discussed with the Auditor-General and the accounting authority the audited annual financial statements to be included in the annual report • Reviewed the Auditor-General’s audit report, the management letter and management responses thereto • Reviewed the significant adjustments resulting from the audit. The Audit Committee concurs and accepts the conclusions of the Auditor-General on the annual financial statements and is of the opinion that the audited financial statements be accepted and read together with the report of the Auditor-General and the Directors’ Report. The Audit Committee agrees that the adoption of the going concern premise is appropriate in preparing the annual financial statements.

J Njeke Chairperson of the Audit Committee 31 July 2011

Port St Johns - Eastern Cape From Above exhibition

101

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102

103

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story

ECDC HELPS

CO-OP TO

ACCESS

MARKETS

Through ECDCâ&#x20AC;&#x2122;s craft and creative industry support programme, the Umsobomvu Development Co-operative has accessed markets as far and wide as Europe. In 2010, the co-operative exhibited its wares in Italy, Kenya and Portugal. They have also been a regular and popular feature at the Grahamstown National Arts Festival and Decorex Johannesburg. The co-operative was initiated in 2001 by a domestic worker and two former textile factory workers after the respective firms they worked for closed down. Today, the Umsobomvu Development Co-operative based in Middleburg is a beacon of hope for the community and has grown its membership to 18 women. ECDC also sent three of the co-operative members to Plettenberg Bay for product development training. The women produce blankets, flooring, table runners, scarves, wall hangings and throws from mohair.

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104

13 105

DIRECTORS’

REPORT

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Directorsâ&#x20AC;&#x2122; Report

Introduction The board of directors, as the accounting authority of the ECDC, are pleased to present their report and the audited annual financial statements for the year ended 31 March 2011. The corporation is established by the Eastern Cape Development Corporation Act, 1997 (Act No. 2 of 1997) (ECDC Act). It is listed in Schedule 3 D of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (the PFMA) as a Provincial Government Business Enterprise. Nature of business The Corporation has the mandate of, among other things, planning, financing, co-ordinating, marketing, promoting and implementing the development of the Province and its people in the fields of industry, commerce, agriculture, transport and finance. In order to achieve its developmental mandate, ECDC focuses on the provision of development finance and enterprise support expertise to all business types, including SMMEs, stimulation of domestic and foreign direct investment, and facilitation of high impact economic development projects. The corporation has a clearly defined role of improving access to development finance and improving the capacity of entrepreneurs in the Province for longterm economic development and sustainability. ECDC also provides various forms of support to municipalities and local authorities in the Eastern Cape Province for this purpose as well.

Overview of current performance Development loans advanced Total disbursements of development loans in the review period amount to R109 million. A significant portion of these loans have been disbursed predominantly to areas which are economically depressed and underdeveloped. Thus, ECDC seeks to strike a healthy balance between obtaining a commercial return, while effecting sustainable socio-economic development impact returns below commercial expectations as well as higher impairment ratios. Investment properties The corporation continued to provide property related infrastructure as a valuable resource for the re-generation of the economy in the Eastern Cape. The board commissioned a review of the property strategy and a task team was established to fast track the implementation of the revised strategy. Steady progress has been made in this regard. In respect of property development projects, the Hillcombe residential complex in Mthatha is being converted to a modern commercial property to meet the requirements of new tenants, while plans for residential property developments in Southernwood (Mthatha) are at an advanced stage of implementation. ECDCâ&#x20AC;&#x2122;s property developments in general are faced with several delays arising from challenges with land claims, municipal approvals and historical gaps in property information. The drive in improving the integrity of the asset register resulted in the transfer of top structures built on land owned by municipalities. The transfer of top structures to the Lukhanji Municipality is one such case which demonstrates ECDCâ&#x20AC;&#x2122;s commitment to support economic development initiatives in that area.

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106

Post balance sheet events review The directors are not aware of any material matter or circumstance arising since the end of the financial year under review. Authorised and issued share capital The authorised share capital of the corporation remained unchanged at R 1billion rand worth of Ordinary Shares. The corporation issued R383, 547 850 worth of ordinary shares to the provincial government of the Eastern Cape (Department of Economic Development and Environmental Affairs). The issued share capital is made up of 191,773 925 “A” shares of R1 each and 191, 773 925 “B” shares of R1 each. Financial results The results of the corporation and the group are disclosed in the annual financial statements. Policy directives During the year under review, the corporation received no new policy directives from the Member of the Executive Council responsible for the Department of Economic Development and Environmental Affairs. Dividends No dividends were declared or paid to shareholders during the year. Interest bearing borrowings There were no new borrowings incurred during the year. The corporation continued to reduce its existing borrowings with the Development Bank of Southern Africa Limited. Subsidiaries The corporation has interests in various subsidiaries and associates. Financial information in respect of interests of the Corporation in such subsidiaries and associates is set out in annual financial statements. Corporate governance matters A detailed account on the corporate governance matters of ECDC is reflected in the corporate governance section of this annual report. Directors’ responsibilities for the financial statements for the year ended 31 March 2011 In terms of the PFMA and the ECDC Act, the board has the responsibility of maintaining adequate accounting records and is responsible for the content and integrity of the annual financial statements and related financial information included in this report. The directors are further responsible for ensuring that the annual financial statements fairly present the state of affairs of the Corporation as at the end of the financial year, and that the results of its operations and cash flows for the period then ended are in conformity with South African Statements of Generally Accepted Accounting Practice. The external auditors are engaged to express an independent opinion on the annual financial statements. The annual financial statements of the corporation are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates. The directors place considerable reliance on maintaining a strong control environment. To this end the directors set standards for internal control aimed at reducing the risk of error or

107

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Directors’ Report

loss in a cost-effective manner. These standards include proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. During the year under review such controls were monitored as far as reasonably possible throughout the corporation; all employees are required to maintain high ethical standards in ensuring the corporation’s business is conducted in a manner that is above reproach in all reasonable circumstances. The risk management focus in the corporation is on identifying, assessing, managing and monitoring all known forms of risk across the Corporation. While it is acknowledged that operating risk cannot be fully eliminated, the corporation, however, endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied within predetermined procedures and constraints. The directors are of the opinion that the system of internal control provides reasonable assurance that the financial records may be relied upon for the preparation of the annual financial statements. Any system of internal control can, however, provide only reasonable, and not absolute, assurance against material misstatement or loss. Going concern statement Having reviewed the corporation’s cash flow forecast for the year to 31 March 2012 and, in the light of this review and current financial position, the directors are satisfied that the corporation has or has access to, adequate resources to continue its operational existence for the future. Directors and secretary The details of the corporation’s directors and secretary are reflected in the corporate governance section of this annual report. FEES Board Meeting

FEES Audit Committee

Adv. O. Mabandla

202,500

Dr. S. Fikeni

147,500

Prof. S. Buthelezi

62,500

20,000

Mr G. Sharpley

92,500

Mr P. Silinga

95,000

Mr J. Cerff

122,500

20,000

Ms N. Mlonzi

25,000

10,000

Ms Y. Tyantsi

127,500

Mr R. Nicholls

37,500

50,000

105,000

Mr J. Njeke Ms N. Mteto Prof. M. Mazibuko

120,000

1,100,000

137,500

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

108

BOARD OF

DIRECTORS 2010/11

1. Advocate Oyama Mbandla Chairman of the Board of Directors 2. Dr Somadoda Fikeni DEPUTY Chairman of the Board of Directors 3. Bulelwa Nqadolo 4. Gaster Sharpley 5. Noxolo Mteto 6. John Cerff 7. Mninawe Pepi Silinga 8. Yolisa Tyantsi 9. Prof Mkhalelwa Mazibuko 10. Prof Sipho Buthelezi 11. Nothemba Mlonzi 12. Sitembele Mase Chief Executive Officer (EX-OFFICIO)

109

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Board of directors

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

110

111

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Success story JEWELLERY DESIGNERS

CONTINUE LEGACY

OF FAMILY

BUSINESS

Uitenhage-based Golden Touch Manufacturing, co-owned by an uncle and nephew Lizo and Mbulelo Singapi, is a jewellery manufacturing company which boasts a fullyequipped facility with the help of ECDC funding. The team is successfully growing the business which started with reparation work for the Foschini Group (which includes American Swiss) and manufacturing jewellery on demand. The family has a long history in the jewellery business with Mbulelo’s late father having had a similar business for 18 years. Lizo, one of only a handful of goldsmiths in South Africa, gained extensive manufacturing experience at some of the country’s leading jewellers. Golden Touch focuses on the design, manufacturing and sales of a range of products which include corporate gifts, medals, trophies and engraving.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

112

14 113

FINANCIAL REPORTS

& ANNUAL FINANCIAL STATEMENTS 2010/11

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

CONSOLIDATED

ANNUAL FINANCIAL

STATEMENTS FOR THE YEAR ENDED 2010/11

The reports and statements set out below comprise the consolidated annual financial statements presented to the shareholder: Statement of Financial Position

118

Statement of Financial Performance

119

Statement of Comprehensive Income

119

Statement of Changes in Equity

120

Statement of Cash Flows

122

Accounting Policies

123

Notes to the Consolidated Annual Financial Statements

134

Supplementary information

175

The consolidated annual financial statements set out on pages 115 to 171, which have been prepared on the going concern basis, were approved by the Board of directors on 29 July 2011 and were signed on its behalf by:

Chairperson Advocate O. Mabandla

Chief Executive Officer S. Mase

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

114

Statement of Financial PositioN Group Figures in Rand thousand

Company

Note(s)

2011

2010

2009

2011

2010

2009

2 3 39 4 5 6 7 8 9

1,436,477 399,064 17 51,402 96,137 77 101,586

1,406,421 377,128 36 49,474 107,849 65 135,688

927,336 565,557 36 45,780 151,847 1,120 111,084

577,018 21,853 26,120 38,779 26,740 94,820 101,568

543,581 22,837 26,120 38,779 23,656 106,659 135,673

511,960 19,054 26,119 36,985 26,412 151,153 111,069

2,084,760

2,076,661

1,802,760

886,898

897,305

882,752

541 49,025 40,935 702,514

1,887 44,398 50,955 625,708

1,913 62,533 103,649 452,084

29,676 40,935 309,646

26,984 50,955 281,508

32,141 103,649 254,500

793,015

722,948

620,179

380,257

359,447

390,290

2,877,775

2,799,609

2,422,939

1,267,155

1,256,752

1,273,042

383,548 673,171 31,993

347,398 745,954 26,361

298,683 740,500 39,882

383,548 758,425 (160,916)

347,398 716,023 (114,994)

298,683 722,415 (52,723)

1,088,712

1,119,713

1,079,065

981,057

948,427

968,375

4,811

4,202

3,454

1,093,523

1,123,915

1,082,519

981,057

948,427

968,375

2,867 23,308 1,110,926

14,429 20,452 1,025,749

16,068 16,004 496,833

34,644 2,847 23,308 -

30,898 14,429 20,452 -

27,771 16,080 16,004 -

1,137,101

1,060,630

528,905

60,799

65,779

59,855

11,519 116 65,771 406,708 163,037

1,544 108 108,872 313,793 190,747

1,566 100,244 520,385 189,320

11,496 24,355 26,411 163,037

1,483 26,365 30,128 184,570

1,483 29,678 30,508 183,143

647,151

615,064

811,515

225,299

242,546

244,812

Total Liabilities

1,784,252

1,675,694

1,340,420

286,098

308,325

304,667

Total Equity and Liabilities

2,877,775

2,799,609

2,422,939

1,267,155

1,256,752

1,273,042

Assets Non-Current Assets Investment property Property, plant and equipment Intangible assets Investments in subsidiaries Investments in associates Loans to group companies Investments Deferred tax Loans advanced

Current Assets Current tax receivable Trade and other receivables Loans advanced Cash and cash equivalents

10 9 11

Total Assets Equity and Liabilities Equity Equity Attributable to Equity Holders of Parent Share capital Reserves Accumulated loss

12 13

Non-controlling interest

Liabilities Non-Current Liabilities Loans from group companies Interest bearing borrowings Retirement benefit obligation Deferred income

6 14 15 16

Current Liabilities Interest bearing borrowings Current tax payable Trade and other payables Deferred income Project grants

115

14 17 16 18

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Consolidated financial statements for the year ended 31 March 2010

Statement of Financial Performance Group Figures in Rand thousand

Note(s)

2011

Revenue Other income Government grants Operating expenses

132,487 11,722 217,233 (385,597)

124,573 101,680 82,142 87,608 77,540 3,557 13,221 7,729 9,376 11,590 215,776 147,127 84,709 78,399 68,552 (379,963) (301,480) (243,168) (259,516) (201,447)

Operating loss

(24,155)

(36,057) (39,452) (68,588) (84,133) (43,765)

Investment revenue Fair value adjustments Income from equity accounted investments Gain on non-current assets held for sale or disposal groups Finance costs

22 23 24

23,766 127 1,929 (1,604)

22,987 496 1,898 (1,628)

46,490 5,360 2,701 1,203 (1,579)

(12,304)

14,723

(1,163)

3,633

(13,467)

18,356

(45,922) (62,271)

28,631

(545) 609

(13,521) 54

17,168 1,188

(45,922) -

(62,271) -

28,631 -

(13,467)

18,356

(45,922) (62,271)

28,631

Profit (loss) before taxation Taxation

Profit (loss) for the year

2010

Company 2009

2011

24,261 (1,595)

2010

23,470 (1,608)

(45,922) (62,271) -

2009

74,407 (2,011) 28,631 -

Profit (loss) attributable to : Owners of the parent Non-controlling interest

Statement of Comprehensive Income Group Figures in Rand thousand

Note(s)

Profit (loss) for the year

Company

2011

2010

2009

2011

2010

2009

(13,467)

18,356

(72,966)

(50,000) 55,454

39,907

42,402

(50,000) 43,608

(72,966)

5,454

39,907

42,402

(6,392) 41,965

(72,902)

(8,013)

58,263

(3,520)

(68,663) 70,596

(73,511) 609

(8,067) 54

57,075 1,188

(3,520) -

(68,663) -

(72,902)

(8,013)

58,263

(3,520)

(68,663) 70,596

(45,922) (62,271) 28,631

Other comprehensive income: Available-for-sale financial assets adjustments Gains and losses on property revaluation Other comprehensive income for the year net of taxation Total comprehensive (loss) income

41,965

Total comprehensive (loss) income attributable to: Owners of the parent Non-controlling interest

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

70,596 -

116

Statement of Changes in Equity Share capital

Revaluation reserve

Fair value adjustment assetsavailable-for-sale reserve

Opening balance as previously reported Adjustments Prior year adjustments (refer to Note 38)

298,683

271,654

74,173

Balance at 01 April 2009 as restated

298,683

271,654

74,173

Fair value gains transferred/ Profit or (Loss) Issue of shares Change in ownership interest

48,715 -

55,454 -

(50,000) -

Total changes

48,715

55,454

(50,000)

Opening balance as previously reported Adjustments Prior year adjustments (refer to Note 38)

347,398

122,528

24,173

204,580

Balance at 01 April 2010 as restated

347,398

327,108

24,173

Changes in equity Fair value gains/Profit or (Loss) Issue of shares Cimec reserve written off VAT recovered

36,150 -

(72,966) -

Total changes

36,150

(72,966)

383,548

254,142

24,173

13&37

Share capital

Revaluation reserve

Fair value adjustment assetsavailable-for-sale reserve

298,683

263,970

74,180

43,608

(50,000)

48,715

Figures in Rand thousand Group

Balance at 31 March 2011 Note(s)

Statement of Changes in Equity Figures in Rand thousand Company Balance at 01 April 2009 Changes in equity Fair value gains transferred/Profit or (Loss) Issue of shares Total changes Balance at 01 April 2010 Changes in equity Fair value gains transferred/Profit or (Loss) Issue of shares Total changes Balance at 31 March 2011 Note(s)

117

48,715

43,608

(50,000)

347,398

307,578

24,180

36,150

42,402 -

36,150

42,402

383,548

349,980

24,180

13&37

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Consolidated financial statements for the year ended 31 March 2010

Other NDR

Total reserves

Accumulated loss

Total attributable to equity holders of the group /company

Non-controlling interest

Total equity

394,673

740,500

(15,553)

1,023,630

3,454

1,027,084

55,435

394,673

740,500

39,882

1,079,065

3,454

1,082,519

5,454 -

(13,521) -

(8,067) 48,715 -

54 694

(8,013) 48,715 694

5,454

(13,521)

40,648

748

41,396

403,861

550,562

(79,005)

818,955

4,202

823,157

(9,188)

195,392

105,366

300,758

394,673

745,954

26,361

1,119,713

4,202

1,123,915

183

(72,966) 183

(545) 6,177 -

(73,511) 6,177 183

609 -

(72,902) 6,177 183

183

(72,783)

5,632

(31,001)

609

(30,392)

394,856

673,171

31,993

1,088,712

4,811

1,093,523

Other NDR

Total reserves

Accumulated loss

Total attributable to equity holders of the group /company

Non-controlling interest

Total equity

384,265

722,415

(52,723)

968,375

(6,392)

(62,271)

(68,663)

48,715

(6,392)

(62,271)

(19,948)

384,265

716,023

(114,994)

948,427

42,402 -

(45,922) -

(3,520) 36,150

42,402

(45,922)

32,630

384,265

758,425

(160,916)

981,057

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118

Statement of Cash Flows Group Figures in Rand thousand

Company

Note(s)

2011

2010

2009

2011

2010

2009

166,051 19,496 39 (1,604) 1,343

378,487 17,410 125 (1,628) 26

187,038 39,015 137 (1,579) (1,697)

(37,464) 20,157 (1,595) -

(34,582) 17,918 100 (1,608) -

(41,257) 38,383 (2,011) -

185,325

394,420

222,914

(18,902)

(18,172)

(4,885)

(66,264) 502 (89,702) 5,869 (23) (1,619) 13,062

(185,499) 20 (77,049) 14,422 (6) (5,295) 1

(166,486) 1,389 12,282 (10,080) 630

(797) 60 (1,110) 5,869 1,898 (1,619) 13,062

(1,354) 10,421 5,434 (4,951) 1

(1,527) 12,032 (1,785) (10,127) 600

(112,677) 129,303

(235,510) 219,639

(285,609) 169,864

(112,674) 129,303

(232,501) 219,639

(285,607) 169,864

(121,549)

(269,277)

(278,010)

33,992

(3,311)

(116,550)

36,150 (1,587) (21,533)

48,715 (1,661) 1,427

27,813 (1,530) 45,533

36,150 (1,569) (21,533)

48,715 (1,651) 1,427

27,813 (1,521) 45,533

Net cash from financing activities

13,030

48,481

71,816

13,048

48,491

71,825

Total cash movement for the year

76,806

173,624

16,720

28,138

27,008

(49,610)

Cash at the beginning of the year

625,708

452,084

435,364

281,508

254,500

304,110

702,514

625,708

452,084

309,646

281,508

254,500

Cash flows from operating activities Cash used/ generated in operations Interest income Dividends received Finance costs Tax received (paid)

Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Sale of property, plant and equipment Purchase of investment property Sale of investment property Purchase of other intangible assets Loans to group companies repaid Loans advanced to group companies Purchase of financial assets Sale of financial assets/withdrawal from investments Loans disbursed Loans collected

3 3 2 2 39

Net cash from investing activities Cash flows from financing activities Proceeds on share issue Repayment of interest bearing borrowings Movement in project grants

Total cash at end of the year

119

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Accounting Policies

Accounting Policies 1. Presentation of Consolidated Financial Statements The consolidated annual financial statements of the Eastern Cape Development Corporation have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Public Finance Management Act (Act No. 1 of 1999, as amended) and the Eastern Cape Development Corporation Act. The consolidated annual financial statements have been prepared on the historical cost basis as modified by the revaluations of certain land and buildings, investment properties, available for sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of annual financial statements in conformity with South African Statements of Generally Accepted Accounting Practice requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the groupâ&#x20AC;&#x2122;s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 1.15. The annual financial statements have been prepared in the Corporationâ&#x20AC;&#x2122;s functional currency, the South African Rand. These accounting policies are consistent with the previous financial year. Underlying assumptions The financial statements are prepared on the going concern basis, which assumes that the Corporation will continue in operation for the foreseeable future. The financial statements are prepared using accrual accounting whereby the effects of transactions and other events are recognised when they occur rather than when the cash is received or paid. Assets and liabilities and income and expenses are not offset unless specifically permitted by an accounting standard. Financial assets and financial liabilities are offset and the net amount reported only when a current legally enforceable right to set off the amounts exists and the intention is either to settle on a net basis or to realise the asset and settle the liability simultaneously. Changes in accounting policies are accounted for in accordance with the transitional provisions in the applicable standard. If no such guidance is given, they are applied retrospectively unless it is impracticable to do so, in which case the change is applied prospectively. Changes in accounting estimates are recognised in profit or loss in the period they occur. Prior period errors are retrospectively restated unless it is impracticable to do so, in which case they are applied prospectively. Recognition of Assets and Liabilities An asset, being a resource controlled by the entity as a result of a past event from which future economic benefits are expected to flow, is recognised when it is probable that the future economic benefits associated with it will flow to the Group and its cost or fair value can be measured reliably. A liability, being a present obligation of the Group arising from a past event the settlement of which is expected to result in an outflow of resources embodying economic resources from the Group, is recognised when it is probable that future economic benefits associated with it will flow from the Group and its cost or fair value can be measured reliably. Derecognition of assets and liabilities Financial assets or parts thereof are derecognised, i.e. removed from the balance sheet, when the contractual rights to receive the cash flows have been transferred or have expired

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120

or if substantially all the risks and rewards of ownership have passed. Where substantially all the risks and rewards of ownership have not been transferred or retained, the financial assets are derecognised if they are no longer controlled by the Group. However, if control is retained, financial assets are recognised only to the extent of the Groupâ&#x20AC;&#x2122;s continuing involvement in those assets. All other assets are derecognised on disposal or when no future economic benefits are expected to flow to the Group from their use or disposal. Financial liabilities are derecognised when the relevant obligation has either been discharged or cancelled or has expired. Post-balance sheet events Recognised amounts in the financial statements are adjusted to reflect events arising after the balance sheet date that provide evidence of conditions that existed at the balance sheet date. Events after the balance sheet date that are indicative of conditions that arose after the balance sheet date are dealt with by way of a note.

1.1 Investment property Investment property is held for long-term rental yields or for capital appreciation or both and comprises properties not occupied by the Group. Hotel buildings held by the Group are classified as investment property as the group is not involved in the hotel operations. Investment properties are initially measured at cost, including transaction costs, and are subsequently stated at fair value determined by an independent sworn appraiser, every third year. Management reviews these valuations for reasonability and adjustments are made where it is deemed to be necessary. Fair value Subsequent to initial measurement investment property is measured at fair value. Fair value gains and losses are recognised in the non-distributable reserves.

1.2 Property, plant and equipment The cost of an item of Property, plant and equipment is recognised as an asset when: â&#x20AC;˘ it is probable that future economic benefits associated with the item will flow to the company; and â&#x20AC;˘ the cost of the item can be measured reliably. Property, plant and equipment is initially measured at cost. Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised. Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses except for Land and Buildings which is carried at revalued amount, being the fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount. The revaluation surplus in equity related to a specific item of property, plant and equipment is transferred directly to retained earnings when the asset is derecognised.

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Accounting Policies

Property, plant and equipment are depreciated over their expected useful lives to their estimated residual value. The useful lives of items of property, plant and equipment have been assessed as follows: Item

Average useful life

Land

Indefinite

Buildings and infrastructure

25 - 50 years

Plant and machinery

4 years

Furniture and fixtures

6 - 10 years

Motor vehicles

4 - 5 years

Office equipment

4 - 5 years

IT equipment

3 years

Computer software

3 years

Other property, plant and equipment 5 years The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting period. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate. The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset. The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

1.3 Investments in subsidiaries Subsidiaries are entities, including unincorporated partnerships and companies without a share capital, that are controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Consolidated annual financial statements The consolidated annual financial statements incorporate the assets, liabilities, income, expenses and cash flows of the corporation and its subsidiaries. The results of the subsidiaries acquired or disposed during the year are included from the date of acquisition or up to the date of disposal. Inter-company transactions and balances are eliminated on consolidation. Corporation annual financial statements In the Corporationâ&#x20AC;&#x2122;s separate annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment. The cost of an investment in a subsidiary is the aggregate of: â&#x20AC;˘ the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the company; plus â&#x20AC;˘ any costs directly attributable to the purchase of the subsidiary. An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably.

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122

1.4 Investments in associates Associates are entities, including unincorporated partnerships and companies without a share capital, over which the Group exercises significant influence. Consolidated annual financial statements An investment in an associate is accounted for using the equity method, except when the asset is classified as held-for-sale in accordance with IFRS 5: Non-current assets held for sale and discontinued operations. Under the equity method, the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the group’s share of the profits or losses of the investee after acquisition date. The use of the equity method is discontinued from the date the group ceases to have significant influence over an associate. Any impairment losses are deducted from the carrying amount of the investment in associate. Distributions received from the associate reduce the carrying amount of the investment. Profits and losses resulting from transactions with associates are recognised only to the extent of unrelated investors’ interests in the associate. The excess of cost of acquisition over the group’s interest in the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill, and is included in the carrying amount of the associate. The excess of the group’s share of the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities over the cost is excluded from the carrying amount of the investment and is instead included as income in the period in which the investment is acquired. Corporation annual financial statements Associate companies are those companies in which the Corporation holds a long-term equity interest and over which it exercises a significant influence over its financial and operating policies, other than investments in companies acquired to protect advances or as a conduit for advances. The investments in associate companies are initially recorded at cost. Subsequent to initial recognition, the investment in the associate is carried at fair value as an available for sale financial asset in accordance with the accounting policy on financial assets. If fair value cannot be measured reliably, the investment is carried at cost. An appropriate provision is made where there is considered to be a permanent diminution in the value of the investment.

1.5 Impairment of assets An impairment loss on an asset or cash-generating unit is the amount by which the carrying amount, i.e. the amount recognised on the balance sheet after deducting any accumulated depreciation and accumulated impairment losses, exceeds its recoverable amount. The recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. Value in use is the present value of future cash flows expected to be derived from an asset or cash- generating unit. At each reporting date the carrying amount of the tangible and intangible assets are assessed to determine whether there is any indication that those assets may have suffered an impairment loss. If any such indication exists, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. Value in use is estimated taking into account future cash flows, forecast market conditions and the expected useful lives of the assets. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than

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Accounting Policies

its carrying amount, the carrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in profit or loss. The loss is first allocated to reduce the carrying amount of goodwill and then to the other assets of the cash-generating unit. Subsequent to the recognition of an impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life. If an impairment loss subsequently reverses, the carrying amount of the asset (or cashgenerating unit) is increased to the revised estimate of its recoverable amount, limited to the carrying amount that would have been recognised had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. Impairments to goodwill are not reversed in subsequent accounting periods.

1.6 Financial instruments Classification The group classifies financial assets and financial liabilities into the following categories: • Financial assets at fair value through profit or loss - designated • Held-to-maturity investment • Loans and receivables • Available-for-sale financial assets Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial recognition. Classification is re-assessed on an annual basis, except financial assets designated as at fair value through profit or loss, which shall not be classified out of the fair value through profit or loss category. Initial recognition and measurement Financial instruments are recognised initially when the group becomes a party to the contractual provisions of the instruments. The group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available for sale financial assets. For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument. Transaction costs on financial instruments at fair value through profit or loss are recognised in profit or loss. Subsequent measurement Financial instruments at fair value through profit or loss are subsequently measured at fair value, with gains and losses arising from changes in fair value being included in profit or loss for the period. Net gains or losses on the financial instruments at fair value through profit or loss include interest. Dividend income is recognised in profit or loss as part of other income when the group’s right to receive payment is established.

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124

Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Held-to-maturity investments are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Available for sale financial assets are subsequently measured at fair value. This excludes equity investments for which a fair value is not determinable, which are measured at cost less accumulated impairment losses. Gains and losses arising from changes in fair value are recognised directly in equity until the asset is disposed of or determined to be impaired. Interest on available for sale financial assets calculated using the effective interest method is recognised in profit or loss as part of other income. Dividends received on available for sale equity instruments are recognised in profit or loss as part of other income when the group’s right to receive payment is established.

Impairment of financial assets At each statement of financial position date the group assesses all financial assets, other than those at fair value through profit or loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired. For amounts due to the group, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default of payments are all considered indicators of impairment. Impairment losses are recognised in profit or loss, except for available-for-sale equity investments . Impairment losses are reversed when an increase in the financial asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been recognised. Reversals of impairment losses are recognised in profit or loss except for equity investments classified as available for sale. Impairment losses are also not subsequently reversed for available-for-sale equity investments which are held at cost because fair value was not determinable.

1.7 Share capital and equity Ordinary share capital, preference share capital or any financial instrument issued by the group is classified as equity when: • Payment of cash, in the form of a dividend or redemption, is at the discretion of the group; • The instrument does not provide for the exchange of financial instruments under conditions that are potentially unfavourable to the group; • Settlement in the group’s own equity instruments is for a fixed number of equity instruments at a fixed price; and • The instrument represents a residual interest in the assets of the group after deducting all of its liabilities.

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Accounting Policies

The group’s ordinary share capital is classified as equity. Consideration paid or received for equity instruments is recognized directly in equity. Equity instruments are initially measured at the proceeds received less incremental directly attributable issue costs. No gain is recognised in profit or loss on the purchase, sale, issue or cancellation of the group’s equity instruments. When the group issues a compound instrument, i.e. an instrument that contains both a liability and equity component, the equity component is initially measured at the residual amount after deducting from the fair value of the compound instrument the amount separately determined for the liability component. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. Distributions to holders of equity instruments are recognised as dividends within equity in the period in which they are payable. Dividends for the year that are declared after the balance sheet date are disclosed in the notes.

1.8 Government grants and deferred income Government includes government agencies and similar bodies whether local, national or international. Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. A government grant is assistance by government in the form of transfers of resources. When the conditions attaching to government grants have been met and the grants have been received, they are recognised in profit or loss on a systematic basis over the periods necessary to match them with the related costs. When they are for expenses or losses already incurred, they are recognised in profit or loss immediately. The unrecognised portion of project spend at the balance sheet date is presented as deferred income. No value is recognised for other government assistance Government grants are recognised when there is reasonable assurance that: • the group will comply with the conditions attaching to them; and • the grants will be received. Government grants are recognised as income over the periods necessary to match them with the related costs that they are intended to compensate. A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs is recognised as income of the period in which it becomes receivable. Government grants related to assets, including non-monetary grants at fair value, are presented in the statement of financial position by setting up the grant as deferred income.

1.9 Project grants The grants received and associated expenditure are not included in the income statement of the Group but transferred directly to individual project fund accounts, which are reflected as a current liability. Interest received on the funds is accounted for in the fund account unless the Group is entitled thereto according to the agreement. The funds are applied to either specific expenditure as directed by the funder or in terms of the agreement with the funder.

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1.10 Provisions Provisions are recognised when: • the group has a present obligation as a result of a past event; • it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and • a reliable estimate can be made of the obligation. The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision. Provisions are not recognised for future operating losses. When the Group has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision. Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in a note 28.

1.11 Revenue Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods, services and operating lease income provided in the normal course of business, net of value added tax. Interest is recognised, in profit or loss, using the effective interest rate method.

Operating lease income is recognised as income on a straight-line basis over the lease term or another systematic basis, if more representative of the time pattern of the user’s benefit. Dividends are recognised, in profit or loss, when the Group’s right to receive payment has been established.

1.12 Employee benefits Short-term employee benefits Employee benefits cost include all forms of consideration given in exchange for services rendered by employees. The cost of providing employee benefits is recognised in profit or loss in the period they are earned by employees. The cost of short-term employee benefits is recognised in the period in which the service is rendered and is not discounted. The expected cost of short-term accumulating compensated absences is recognised as an expense as the employees render service that increases their entitlement or, in the case of non-accumulating absences, when the absences occur. The expected cost of performance bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.

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Accounting Policies

Post-employment benefit obligations The cost of providing defined benefits is determined using the projected unit credit method. Valuations are conducted annually. The amount recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses.

1.13 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Operating leases â&#x20AC;&#x201C; lessee Rentals payable under operating leases are recognised in profit or loss on a straight-line basis over the term of the relevant lease, or another basis if more representative of the time pattern of the Groupâ&#x20AC;&#x2122;s benefit. Any contingent rents are expensed in the period they are incurred.

1.14 Tax Current tax The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Deferred tax A deferred tax asset is the amount of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits. A deferred tax asset is only recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised, unless specifically exempt. It is measured at the tax rates that have been enacted or substantially enacted at the balance sheet date and is not discounted. A deferred tax liability is recognised for taxable temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at the balance sheet date and is not discounted. A deferred tax liability is the amount of income taxes payable in future periods in respect of taxable temporary differences. Temporary differences are differences between the carrying amount of an asset or liability and its tax base. Deferred tax arising on investments in subsidiaries, associates and joint ventures is recognised except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

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1.15 Key assumptions concerning the future and key sources of estimation The financial statements are prepared in accordance with and comply with SA GAAP and its interpretations adopted by the Accounting Practices Board. In the preparation of the financial statements the corporation has assumed certain key sources of estimation in recording various assets and liabilities, as set out below. Credit impairment of loans and advances The Group adopted an incurred-loss approach to impairment in accordance with accounting policy 1.6. Impairment losses are incurred only if there is objective evidence of impairment as a result of one or more past events that has occurred since initial recognition. This necessitates the establishment of ‘impairment triggers’ on the occurrence of which an impairment loss may be recognised. Credit impairment is based on discounted estimated future cashflows on an asset or group of assets, where such objective evidence of impairment exists. The discount rates used to calculate the recoverable amount exclude consideration of any anticipated future credit losses. The group has created a portfolio provision for incurred but not reported (IBNR) losses. The purpose of the IBNR provision is to allow for latent losses on a portfolio of loans and advances that have not yet been individually evidenced. Generally, a period of time will elapse between the occurrence of an impairment event and objective evidence of the impairment becoming evident, which is known as the ‘emergence period’. The IBNR provision is based on the probability that loans that are ostensibly performing at the calculation date are impaired, and objective evidence of that impairment becomes evident during the emergence period. The implementation of these principles is at a corporation level and will be specific to the nature of their individual loan portfolios and the loan loss data available to the lending division. Provisions, contingent liabilities and contingent assets The group, in the ordinary course of business, enters into transactions that expose the group to tax, legal and business risks. Refer to notes 29 and 28 for further information on provisions, contingent liabilities and contingent assets. Fair value of Investment Properties For valuation methodologies utilised to fair value investment properties, refer to note 2. Unlisted investment valuations The valuation of unlisted investments is based on the discounted free cash flows of the investments taking into account the projected future activities of the entity. These values are established either by independent valuers or management and are reviewed by the Development Investment Committee.

1.16 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows: • Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a

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Accounting Policies

qualifying asset less any temporary investment of those borrowings. • Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred. The capitalisation of borrowing costs commences when: • expenditures for the asset have occurred; • borrowing costs have been incurred, and • activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation is suspended during extended periods in which active development is interrupted. Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. All other borrowing costs are recognised as an expense in the period in which they are incurred.

1.17 Intangible assets Computer software Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bring to use the specific software. The cost of minor software and licences are recognised in the Statement of Financial Performance as an expense when incurred. Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in the Statement of Financial Performance as an expense when incurred. Amortisation Amortisation is charged to the Statement of Finnacial Performance on a straight - line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for sale. The estimated useful lives are as follows: Computer software

18 months

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130

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

2. Investment property Group

Investment property

2011

2010

Cost / Valuation

Accumulated depreciation

Carrying value

Cost / Valuation

Accumulated depreciation

Carrying value

1,436,477

1,406,421

Cost / Valuation

Accumulated depreciation

Carrying value

927,336

Group

2009

Investment property COMPANY

Investment property

2011 Cost / Valuation

Accumulated depreciation

Carrying value

Cost / Valuation

Accumulated depreciation

Carrying value

577,018

543,581

COMPANY

Investment property

2010

2011

2010

Cost / Valuation

Accumulated depreciation

Carrying value

Cost / Valuation

Accumulated depreciation

Carrying value

577,018

543,581

Group

2009

Investment property

Cost / Valuation

Accumulated depreciation

Carrying value

511,960

Reconciliation of investment property - Group - 2011

Investment property

Opening balance

Additions

Disposals

Transfers and other changes

Fair value adjustments

Total

1,406,421

89,702

(5,972)

23,252

(76,926)

1,436,477

Reconciliation of investment property - Group - 2010

Investment property

Opening balance

Additions

Disposals

Transfers and other changes

Fair value adjustments

Total

927,336

77,049

(16,082)

370,272

47,846

1,406,421

Reconciliation of investment property - Group - 2009

Investment property

131

Opening balance

Additions resulting from capitalised subsequent expenditure

Disposals

Transfers and other changes

Fair value adjustments

Total

712,839

593

(13,137)

183,171

43,870

927,336

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Group Figures in Rand thousand

2011

Company

2010

2009

2011

2010

2009

2. Investment property (continued) Reconciliation of investment property - Company - 2011

Investment property

Opening balance

Additions

Disposals

Transfers and other changes

Fair value adjustments

Total

543,581

1,110

(5,972)

42,401

(4,102)

577,018

Reconciliation of investment property - Company - 2010

Investment property

Opening balance

Disposals

Fair value adjustments

Other changes, movements

Total

511,960

(12,081)

39,600

4,102

543,581

Reconciliation of investment property - Company - 2009 Opening balance

Additions resulting from capitalised subsequent expenditure

Disposals

FAIR VALUE ADJUSTMENTS

Other changes, movements

Total

481,389

593

(12,897)

41,965

910

511,960

1,406,421

927,336

712,839

543,581

511,960

481,389

Disposals

(5,972)

(16,082)

(13,137)

(5,972)

(12,081)

(12,897)

Additions & transfers

117,056

443,219

182,261

1,110

Fair value gains/(losses)

(76,926)

47,846

43,870

42,401

39,600

41,965

Other movements

(4,102)

4,102

1,503

(4,102)

4,102

1,503

1,436,477

1,406,421

927,336

577,018

543,581

511,960

Percentage

Value

Number

Residential

230,367

507

Commercial

252,648

368

Vacant land

70,122

969

Industrial

17,688

Investment property

Reconciliation of movement Investment property

These properties are situated throughout the Eastern Cape, with the majority of properties concentrated in the areas in and surrounding King Sabatha Dalindyebo, Mnquma, Buffalo City and Chris Hani municipalities. The portfolio consists mainly of industrial, residential and commercial properties. Corporation - 2011 Type of properties

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

132

Other

6,193

100

577,018

1,912

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

2. Investment property (continued) Corporation - 2010 Type of properties

Percentage

Value

Number

Residential

240,920

520

Commercial

116,012

252

Vacant land

30,905

601

Industrial

134,561

193

Other

21,183

115

100

543,581

1,681

Percentage

Value

Number

Residential

244,002

558

Commercial

96,456

250

Vacant land

26,985

777

Industrial

126,115

193

Other

18,402

115

100

511,960

1,893

Percentage

Value

Number

Corporation

472,944

1,812

Government

52,971

Tribal land

29,978

Corporation - 2009 Type of properties

Investment properties were valued in terms of the accounting policy, which requires a value determined by a sworn appraiser every three years. Valuations are normally based on comparable sales in the area or on the income earning potential of the building. Investment properties are subject to operating leases with tenants. No rental was charged on certain properties, mainly because the properties are vacant or undeveloped land or unoccupied buildings. Freehold title is held by the Corporation for the majority of properties, but not for all. Properties for which freehold title is not held are included in investment property when they are managed by the Corporation and result in the receipt of economic benefits and rewards and when the Corporation incurs the risks incidental to ownership. Freehold title is held as follows: Corporation - 2011

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Notes to the Consolidated financial statements

Municipality

21,125

100

577,018

1,912

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

2. Investment property (continued) Corporation - 2010 Percentage

Value

Number

Corporation

442,562

1,494

Government

49,246

123

Tribal land

29,978

Municipality

21,795

100

543,581

1,681

Percentage

Value

Number

Corporation

417,044

1,689

Government

44,204

131

Tribal land

29,978

Municipality

20,734

100

511,960

1,893

Corporation - 2009

The categories of freehold title are further described as follows: • Corporation Freehold title is registered to the Corporation or one of the former corporations consolidated under the Corporation in terms of the Eastern Cape Development Corporation Act, No 2 of 1997, read with Proclamation 1 of 2001 • Government The title over land is registered to government. The Corporation is in the process of analysing the properties within this group, which comprise mainly entitlement in terms of Proclamation 1 of 2001 by the Premier of the Eastern Cape. • Tribal land This group comprises mainly of properties where the Corporation has assumed “Permission to Occupy”. The majority of these properties are situated on forestry estates and hotels on the Wild Coast. • The Corporation’s right to occupy properties to the value of R58.2 million (2010: R78.7 million) (2009: R 83.5 million) included in the above, has not been reduced to writing. However, the Corporation has occupied these properties for a number of years and derives economic benefits from their use and carries the risks that are incidental to ownership.

The valuation method used to value these properties assumes that the Corporation has the right to occupy these properties and will receive economic benefits in perpetuity. In

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134

the event that the right of occupation is disputed or expires, the valuation of these properties may be overstated. In terms of the accounting policy these rights are assessed on an annual basis and adjustments may be effected to the valuation of these properties if necessary. Group Figures in Rand thousand

2011

Company

2010

2009

2011

2010

2009

2. Investment property (continued) â&#x20AC;˘ Municipality The title is registered to different municipalities within the Eastern Cape, but improvements have been made by the Corporation. Group Figures in Rand thousand

2011

Company

2010

2009

2011

2010

2009

3. PROPERTY, PLANT & EQUIPMENT Group

Land

2011

2010

Cost / Accumulated Carrying Valuation depreciation value

8,272

8,352

429,004

(52,961)

376,043

398,614

(37,187)

361,427

Leasehold property

(48)

(32)

Plant and machinery

1,841

(1,681)

160

2,031

(1,807)

224

Furniture and fixtures

5,332

(2,002)

3,330

2,676

(1,646)

1,030

Motor vehicles

1,448

(343)

1,105

1,361

(594)

767

Office equipment

1,661

(663)

998

817

(578)

239

IT equipment

23,023

(14,369)

8,654

14,663

(10,362)

4,301

Computer software

3,474

(3,459)

3,474

(3,391)

Other property, plant and equipment

2,760

(2,305)

455

2,756

(2,099)

657

476,895

(77,831)

399,064

434,824

(57,696)

377,128

Buildings and infrastructure

Total Group

2009 Cost / Valuation

Accumulated depreciation

Carrying value

Land

21,914

Buildings and infrastructure

539,764

(4,087)

535,677

Leasehold property

(16)

Plant and machinery

1,986

(1,733)

253

Furniture and fixtures

2,584

(1,368)

1,216

Motor vehicles

1,330

(371)

959

814

(595)

219

IT equipment

11,945

(7,560)

4,385

Computer software

3,458

(3,298)

160

Other property, plant and equipment

2,805

(2,095)

710

Office equipment

135

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Total

586,680

Group Figures in Rand thousand

2011

(21,123)

565,557

Company

2010

2009

2011

2010

2009

3. PROPERTY, PLANT & EQUIPMENT (continueD) COMPANY

2011

2010

Cost / Accumulated Carrying Valuation depreciation value

Land

3,265

Buildings and infrastructure

19,535

(2,941)

16,594

19,535

(2,550)

16,985

Furniture and fixtures

1,734

(1,362)

372

1,694

(1,194)

500

Motor vehicles

184

(27)

157

(97)

Office equipment

527

(321)

206

476

(326)

150

IT equipment

5,862

(4,994)

868

5,667

(4,376)

1,301

Computer software

3,474

(3,459)

3,474

(3,391)

Other property, plant and equipment

1,733

(1,397)

376

1,776

(1,223)

553

36,354

(14,501)

21,853

35,994

(13,157)

22,837

Total COMPANY

2009 Cost / Accumulated Carrying Valuation depreciation value

Land

3,265

Buildings and infrastructure

15,527

(2,159)

13,368

Furniture and fixtures

1,653

(1,019)

634

Motor vehicles

(87)

Office equipment

487

(380)

107

IT equipment

4,685

(3,768)

917

Computer software

3,458

(3,298)

160

Other property, plant and equipment

1,635

(1,042)

593

30,807

(11,753)

19,054

Total

Reconciliation of property, plant and equipment - Group - 2011

Land Buildings and infrastructure

Opening balance

Additions

Transfers and disposals

Revaluations

Depreciation

Total

8,352

(80)

8,272

361,427

53,784

(27,384)

3,959

(15,743)

376,043

Leasehold property

(16)

Plant and machinery

224

(64)

160

Furniture and fixtures

1,030

2,663

(363)

3,330

767

423

(219)

134

1,105

Motor vehicles Office equipment IT equipment Computer software

239

926

(1)

(166)

998

4,301

8,453

(37)

(4,063)

8,654

(68)

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

136

Other property, plant and equipment

657

(2)

(214)

455

377,128

66,263

(27,723)

3,959

(20,563)

399,064

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

3. PROPERTY, PLANT & EQUIPMENT (continueD) Reconciliation of property, plant and equipment - Group - 2010

Opening balance

Additions

Transfers and disposals

Revaluations

Depreciation

Total

Land

21,914

(17,162)

3,600

8,352

Buildings and infrastructure

535,677

182,298

(349,007)

4,008

(11,549)

361,427

Leasehold property

(16)

Plant and machinery

253

(74)

224

Furniture and fixtures

1,216

107

(204)

(89)

1,030

959

(224)

767

Motor vehicles Office equipment

219

102

(5)

(77)

239

4,385

2,727

(2,872)

4,301

Computer software

160

(93)

Other property, plant and equipment

710

167

132

(352)

657

565,557

185,493

(366,184)

7,608

(15,346)

377,128

IT equipment

Reconciliation of property, plant and equipment - Group - 2009 Opening balance

Additions

Land

17,186

4,820

(92)

21,914

Buildings and infrastructure

541,117

158,381

(178,777)

25,338

(10,382)

535,677

Leasehold property

(16)

Plant and machinery

332

(79)

253

Furniture and fixtures

1,444

129

(16)

(341)

1,216

Motor vehicles

289

774

(104)

959

Office equipment

210

116

(6)

(101)

219

5,412

1,750

(41)

(2,736)

4,385

IT equipment

Transfers and Other changes, Depreciation Disposals movements and Impairements

Total

Computer software

384

(252)

160

Other property, plant and equipment

354

488

(5)

(127)

710

566,728

166,486

(178,857)

25,338

(14,138)

565,557

137

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Group Figures in Rand thousand

2011

Company

2010

2009

2011

2010

2009

3. PROPERTY, PLANT & EQUIPMENT (continueD) Reconciliation of property, plant and equipment - Company - 2011 Opening balance

Additions

Disposals

Depreciation

Total

Land

3,265

Buildings and infrastructure

16,985

(391)

16,594

500

(168)

372

423

(219)

(47)

157

150

120

(64)

206

1,301

210

(643)

868

Computer software

(68)

Other property, plant and equipment

553

(2)

(179)

376

22,837

797

(221)

(1,560)

21,853

Furniture and fixtures Motor vehicles Office equipment IT equipment

Reconciliation of property, plant and equipment - Company - 2010 Opening balance

Additions

Land

3,265

Buildings and infrastructure

13,368

4,008

(391)

16,985

Furniture and fixtures

634

(175)

500

Motor vehicles

(10)

Office equipment

107

(39)

150

IT equipment

917

1,054

(10)

(660)

1,301

Computer software

160

(93)

Other property, plant and equipment

593

161

(1)

(200)

553

19,054

1,354

(11)

4,008

(1,568)

22,837

Disposals Revaluations Depreciation

Total

Reconciliation of property, plant and equipment - Company - 2009 Opening balance

Additions

Disposals

Depreciation

Total

Land

3,265

Buildings and infrastructure

13,603

(310)

13,368

Furniture and fixtures

781

102

(16)

(233)

634

Motor vehicles

(24)

Office equipment

(6)

(52)

107

IT equipment

915

759

(41)

(716)

917

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

138

Computer software

384

(252)

160

Other property, plant and equipment

206

482

(3)

(92)

593

19,272

1,527

(66)

(1,679)

19,054

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

3. PROPERTY, PLANT & EQUIPMENT (continueD) A register containing the information required by paragraph 22(3) of Schedule 4 of the Companies Act is available for inspection at the registered office of the Corporation. Land, buildings and infrastructure Included in the carrying amount of the groupâ&#x20AC;&#x2122;s buildings and infrastructure is East London Industrial Development Zone (Proprietary) Limited infrastructure of R327million (2010:R332 million) (2009: R 509 million) Land and buildings are valued by a sworn appraiser every three years. Valuations are normally based on comparable sales in the area or in the income earning potential of the building.

4. Investments in subsidiaries Name of company (refer to supplementary information for list of subsidiaries)

Investments at cost Impairment of investment in subsidiaries

Carrying amount 2011

Carrying amount 2010

Carrying amount 2009

27,454

27,453

27,454

27,453

(1,334)

26,120

26,119

Plan to dispose of the ECDC Subsidiaries Windsor Hotel (pty) Ltd In late 2007, the board of directors announced a plan to dispose of the Windsor Hotel. The disposal is consistent with the Groupâ&#x20AC;&#x2122;s long-term policy to focus its activities on its core operations and rationalize those operations where it is financially viable to do so. An active process was entered into and adverts calling for the redevelopment of the hotel went to press during March 2008. A suitable buyer was identified and the Board approved the sale during July of 2008 subject to other precendent conditions for negotiation with the buyer. The primary conditions of which related to the existing labour at the hotel, inter alia. These negotiations are still continuing and are expected to be finalised in the next twelve months. The Group has not recognised any impairment losses in respect of the Windsor hotel and has not reclassified the same as held for sale during or at the end of the reporting period as it does not, as yet, meet the measurement critieria per IFRS 5.

Transido, USICO, TDC Properties, Transkei Share Investments In July 2006 the Board approved a strategy to focus its activities on its core operations and rationalize those subsidiary operations where it is financially viable to do so. The rationalization process will not involve a sale to a 3rd party but rather the net assets will vest in the ECDC and as such no active process was entered into to identify a buyer.

139

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

During October 2008 a Board resolution was passed that confirmed the financial viability of the rationalization of the following subsidiary entities:

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

4. Investments in subsidiaries (continueD) • • • •

Transido (Pty) Ltd, USICO (Pty) Ltd, TDC Properties (Pty) Ltd, and Transkei Share Investments Ltd.

The process of winding up was made contingent on certain internal administrative requirements being met which would assist in limiting the costs of the rationalization thereof. These matters are still in process and as such has not reclassified the same as held for sale during or at the end of the reporting period as it does not, as yet, meet the measurement critieria per IFRS 5.

5. Investments in associates Reconciliation of carrying amount Investments at cost

60,731

58,803

55,109

48,108

46,314

Impairments

(9,329)

51,402

49,474

45,780

38,779

36,985

42,651

42,411

40,360

235

168

101

Bushman Sands Development (Pty) Ltd Assets Liabilities Revenue

240

360

Profit/loss for the period

173

259

The above information is based on reconstructed management accounts of Bushman Sands Developments (Pty) Ltd for the year ended 31 March 2011. Bushman Sands Development (Pty) Ltd disposed of its shareholding in Bushman Sands Hospitality (Pty) Ltd. The group now holds a 50% (2010: 50%) (2009:50%) interest in the associate. Holiday Inn Transkei (Pty) Ltd Assets

32,056

26,713

23,041

Liabilities

7,681

6,223

6,168

Revenue

35,118

31,037

33,233

Profit for the period

3,689

3,615

5,148

The above information is based on the audited financial statements of Transkei Holiday Inn (Pty) Ltd for the year ended 31 March 2011. The group holds a 49.95% (2010: 49.95%) (2009:49.95%) interest in the associate of which 9.95% (2010: 9.95%) (2009: 9.95%) is held by the corporation.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

140

Group Figures in Rand thousand

2011

Company

2010

2009

2011

2010

2009

6. LOANS TO (FROM) GROUP COMPANIES Subsidiaries Eastern Cape Marketing Authority (Pty) LTD (ECMA)

Centre for Investment and Marketing in the Eastern Cape (CIMEC)

14,349

13,052

11,787

Cimvest (PtyP LTD

(5,708)

(5,057)

(4,507)

Transido (Pty) LTD

78,048

78,030

82,078

Umtata Small Industries Complex (Pty) LTD (USICO)

392

390

Transkei Share Investment Company Limited (INTRASHARE)

(15,733)

(15,752)

(15,779)

TDC Property Investments (Pty) LTD

3,467

3,450

3,433

Transdev Properties (Pty) LTD

(13,203)

(10,089)

(7,485)

Windsor Hotel (Pty) LTD

1,015

1,014

1,012

Automotive Industrial Development Centre (AIDC)

2,000

4,706

4,205

3,756

4,706

4,205

3,756

4,706

4,205

3,756

69,371

71,269

76,703

(4,706)

(4,205)

(3,756)

(77,275)

(78,511)

(78,062)

(7,904)

(7,242)

(1,359)

4,333

(4,333)

Non-current assets

26,740

23,656

26,412

Non-current liabilities

(34,644)

(30,898)

(27,771)

(7,904)

(7,242)

(1,359)

Magwa Enterprise Tea (Pty) LTD

Impairment of loans to subsidiaries

Associates Worthytrade 93 (Pty) LTD

Impairment of loans to associates

Reconciliation of provision for impairment of loans to group companies Opening balance Provision for impairment

141

8,538

8,089

9,859

82,844

82,395

87,494

501

449

(1,770)

(1,236)

449

(5,099)

9,039

8,538

8,089

81,608

82,844

82,395

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Group Figures in Rand thousand

Company

2011

2010

2009

2011

2010

2009

1,317

1,190

694

25,000

75,000

25,000

75,000

64,512

60,409

55,140

64,512

60,409

55,140

13,062

12,878

13,062

12,878

19,688

18,068

14,914

19,688

18,068

14,914

84,200

91,539

82,932

84,200

91,539

82,932

(14,380)

(9,880)

(6,779)

(14,380)

(9,880)

(6,779)

69,820

81,659

76,153

69,820

81,659

76,153

96,137

107,849

151,847

94,820

106,659

151,153

At fair value through profit or loss - designated

1,317

1,190

694

Available-for-sale

25,000

75,000

25,000

75,000

Held to maturity

69,820

81,659

76,153

69,820

81,659

76,153

96,137

107,849

151,847

94,820

106,659

151,153

96,137

107,849

151,847

94,820

106,659

151,153

7. INVESTMENTS At fair value through profit or loss - designated Listed shares Available for sale Unlisted shares Held to maturity Fixed Term Investments Other Investments Other financial assets

Held to maturity (impairments)

Total other financial assets Non-current assets

Fair value hierarchy of financial assets at fair value through profit or loss For financial assets recognised at fair value, disclosure is required of a fair value hierarchy which reflects the significance of the inputs used to make the measurements. Level 1 Listed shares

1,317

1,190

694

Short-term investments

60,012

73,470

68,018

60,012

73,470

68,018

Cash and cash equivalents

702,514

625,708

452,084

309,646

281,508

254,500

763,843

700,368

520,796

369,658

354,978

322,518

Investment securities

9,808

8,188

8,135

9,808

8,188

8,135

Loans and receivables

191,546

231,041

277,266

172,179

213,612

246,859

Level 3

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

142

201,354

239,229

285,401

181,987

221,800

254,994

965,197

939,597

806,197

551,645

576,778

577,512

Group Figures in Rand thousand

2011

Company

2010

2009

2011

2010

2009

7. INVESTMENTS (CONTINUED) Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2011 Opening balance

Gains or losses in profit or loss

Purchases

Advances, Rentals and collections

Closing balance

Investment securities

8,188

1,620

9,808

Loans and receivables

231,041

(70,309)

30,814

191,546

239,229

(70,309)

1,620

30,814

201,354

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2010 Opening balance

Gains or losses in profit or loss

Sales

Advances, Rentals and collections

Closing balance

Investment securities

8,135

(3,101)

3,154

8,188

Loans and receivables

277,266

(57,737)

11,512

231,041

285,401

(60,838)

3,154

11,512

239,229

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2009 Opening balance

Gains or losses in profit or loss

PURCHASES

Advances, Rentals and collections

Closing balance

Investment securities

7,770

(1,745)

2,110

8,135

Loans and receivables

143,167

(39,567)

173,666

277,266

150,937

(41,312)

2,110

173,666

285,401

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2011 Opening balance

Gains or losses in profit or loss

PURCHASES

Advances, Rentals and collections

Closing balance

Investment securities

8,188

1,620

9,808

Loans and receivables

213,612

(74,609)

33,176

172,179

221,800

(74,609)

1,620

33,176

181,987

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2010

Investment securities

143

Opening balance

Gains or losses in profit or loss

PURCHASES

Advances, Rentals and collections

Closing balance

8,135

(3,101)

3,154

8,188

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Loans and receivables

246,859

(75,530)

42,283

213,612

254,994

(78,631)

3,154

42,283

221,800

Group Figures in Rand thousand

2011

Company

2010

2009

2011

2010

2009

7. INVESTMENTS (CONTINUED) Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2009 Opening balance

Gains or losses in profit or loss

PURCHASES

SALES

Advances, Rentals and collections

Closing balance

Investment securities

7,770

(1,745)

2,710

(600)

8,135

Loans and receivables

122,579

(39,713)

163,993

246,859

130,349

(41,458)

2,710

(600)

163,993

254,994

Fair value hierarchy of available-for-sale financial assets For financial assets recognised at fair value, disclosure is required of a fair value hierarchy which reflects the significance of the inputs used to make the measurements. Level 2 Investment securities

75,000

25,000

75,000

25,000

75,000

(75,000)

Level 3 Investment securities

Transfers out of level 2 Investment securities

The transfer out of R75 million is as a result of changes to the observable market inputs which in prior years was a primarily independant source to proprietary source Transfers into level 3 Investment securities

75,000

The transfer in of R25 million is as a result of changes to the observable market inputs which in prior years was a primarily independant source to proprietary source. Reconciliation of available-for-sale financial assets measured at level 3 - Group 2011 Opening balance

Closing balance

25,000

Investment securities

Reconciliation of available-for-sale financial assets measured at level 3 - Group -

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

144

2010 Opening balance

Gains or losses in other comprehensive income

Transfers into level 3

Closing balance

(50,000)

75,000

25,000

Investment securities

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

7. INVESTMENTS (CONTINUED) Reconciliation of available-for-sale financial assets measured at level 3 - Company - 2011 Opening balance

Closing balance

25,000

Investment securities

Reconciliation of available-for-sale financial assets measured at level 3 - Company - 2010

Investment securities

Opening balance

Gains or losses in other comprehensive income

Transfers into level 3

Closing balance

(50,000)

75,000

25,000

8. Deferred tax Deferred tax asset Accelerated capital allowances for tax purposes Other deferred tax

1,057

1,120

Reconciliation of deferred tax asset (liability) At beginning of the year

1,120

Originating temporary difference on tangible fixed assets

(1,055)

1,120

9. Loans advanced Loans advanced

388,073

379,950

344,416

388,055

379,935

344,401

Impairment allowance

(245,552)

(193,307)

(129,683)

(245,552)

(193,307)

(129,683)

142,521

186,643

214,733

142,503

186,628

214,718

Non-current assets

101,586

135,688

111,084

101,568

135,673

111,069

Current assets

40,935

50,955

103,649

40,935

50,955

103,649

142,521

186,643

214,733

142,503

186,628

214,718

Loans advanced

145

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

As previously reported (Group 2010)

Reclassification AND ADJUSTMENTS

Restated

Non-current loans advanced

137,605

(1,917)

135,688

Trade and other receivables

43,686

712

44,398

(111,004)

2,132

(108,872)

Reclassification of assets

Trade and other payables

Group Figures in Rand thousand

Company

2011

2010

2009

2011

2010

2009

27,555

22,758

27,027

20,027

18,858

16,788

Prepayments

644

347

535

(9)

Deposits

VAT

3,160

10,141

901

121

Other receivables

17,652

21,266

24,813

8,748

8,475

15,232

49,025

44,398

62,533

29,676

26,984

32,141

10. TRADE AND OTHER RECEIVABLES Trade receivables Employee costs in advance

11. Cash and cash equivalents Cash and cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Cash and cash equivalents include cash on hand, bank deposits, investments in money market instruments and comprise: Bank balances

408,029

347,089

213,516

15,161

2,889

15,932

Short-term deposits

294,485

278,619

238,568

294,485

278,619

238,568

702,514

625,708

452,084

309,646

281,508

254,500

50 billion “A” shares of 1 cent each

500,000

50 billion “B” shares of 1 cent each

500,000

1,000,000

Authorised

1,000,000 1,000,000 1,000,000 1,000,000 Issued “A” shares of 1 cent each

191,774

173,699

149,342

191,774

173,699

149,342

“B” shares of 1 cent each

191,774

173,699

149,341

191,774

173,699

149,341

383,548

347,398

298,683

383,548

347,398

298,683

Reported as at 01 April 2010

347,398

298,683

270,870

347,398

298,683

270,870

Share capital received

36,150

48,715

27,813

36,150

48,715

27,813

383,548

347,398

298,683

383,548

347,398

298,683

Reconciliation of number of shares issued:

13. Reserves Pre-incorporation reserves Pre-incorporation reserves represent the net book value of asset and liabilities transferred

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

146

from previous corporations, adjusted for any changes in the value of these assets due to information which has been established during the current and prior years that refer to the value of assets taken over. Property revaluation reserve The property revaluation reserve represents the total revaluation of land and buildings and fair value adjustments on investment properties. Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

13. RESERVES Fair value adjustment available-for-sale-assets reserve Fair value reserves comprise all fair value adjustments that are recognised directly in equity and / or transfers from retained earnings. Pre-incorporation reserve

394,856

394,673

384,265

Property revaluation reserve

254,142

327,108

271,654

349,980

307,578

263,970

Fair value adjustment on available-for-sale reserve

24,173

74,173

24,180

74,180

673,171

745,954

740,500

758,425

716,023

722,415

(12)

14,366

15,973

17,646

14,343

15,912

17,563

14,386

15,973

17,634

14,343

15,912

17,563

2,867

14,429

16,068

2,847

14,429

16,080

11,519

1,544

1,566

11,496

1,483

14. INTEREST BEARING BORROWING At fair value through profit or loss Finance lease Development Bank of Southern Africa

Non-current liabilities At fair value

Current liabilities Fair value through profit or loss

15. Retirement benefit obligation Defined contribution plan The Corporation provides retirement benefits to employees by contributing to the Eastern Cape Development Corporation pension fund. An actuarial valuation of the fund was conducted and the actuary found the fund to be in a sound financial position. The pension fund is governed by the Pension Funds Act, 1956. Retirement benefit costs are expensed in the income statement as and when incurred.

147

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

15. Retirement benefit obligation (CONTINUED) Defined Benefit Plan The Corporation is responsible for 50% of the contributions to medical aid funds of retired employees. Present value of the defined benefit obligation

(24,175)

(20,389)

(18,073)

(24,175)

(20,389)

(18,073)

867

(63)

2,069

867

(63)

2,069

(23,308)

(20,452)

(16,004)

(23,308)

(20,452)

(16,004)

20,452

16,004

10,756

20,452

16,004

10,756

Contributions by members

(237)

(214)

(195)

(237)

(214)

(195)

Net expense recognised in profit or loss

3,093

4,662

5,443

3,093

4,662

5,443

23,308

20,452

16,004

23,308

20,452

16,004

Net actuarial gains or losses not recognised

Changes in present value Opening balance

Net expense recognised in the income statement Current service cost

1,456

1,110

847

1,456

1,110

847

Interest cost

2,226

1,483

1,260

2,226

1,483

1,260

Actuarial (gains) losses

(589)

2,069

3,336

(589)

2,069

3,336

3,093

4,662

5,443

3,093

4,662

5,443

Health care cost inflation

8.25 %

7.75 %

8.25 %

7.75 %

8.25 %

Discount rate used

9.25 %

7.25 %

9.25 %

7.25 %

Active members

21,097

17,525

15,018

21,097

17,525

15,018

CAWMs liability

3,078

2,864

3,055

3,078

2,864

3,055

24,175

20,389

18,073

24,175

20,389

18,073

15,218

12,741

11,278

15,218

12,741

11,278

781

532

476

781

532

476

4,522

3,845

3,281

4,522

3,845

3,281

Past (accrued) and future service liability

Present value of accrued liability

Future service liability Active members

Effect of 1% change in assumed medical cost trend rates 1% increase - effect on current service cost & interest cost 1% increase - effect on accumulated benefit obligation

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

148

1% decrease - effect on current service cost & interest cost 1% decrease - effect on accumulated benefit obligation

(615)

(423)

(371)

(615)

(423)

(371)

(3,612)

(3,088)

(2,593)

(3,612)

(3,088)

(2,593)

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

16. Deferred income Non-current liabilities Current liabilities

1,110,926

1,025,749

496,833

406,708

313,793

520,385

26,411

30,128

30,508

1,517,634

1,339,542

1,017,218

26,411

30,128

30,508

26,411

30,128

30,508

26,411

30,128

30,508

1,491,029

1,309,261

986,710

194

153

1,517,634

1,339,542

1,017,218

26,411

30,128

30,508

Analysis per group company Eastern Cape Development Corporation East London Industrial Development Zone (Pty) Ltd Automotive Industrial Development Centre

Government grants are deferred to the extent that they are un-spent

17. TRADE AND OTHER PAYABLES Trade payables

26,882

53,919

57,035

1,359

1,470

771

506

13,067

6,289

Accrued leave pay

8,405

6,991

5,831

5,994

4,800

4,039

Accrued bonus

1,717

1,660

1,433

1,535

1,266

1,078

Accrued expenses

6,996

9,050

10,163

6,007

8,048

9,174

Deposits received

4,959

3,938

3,597

3,225

2,702

2,482

Other payables

16,306

20,247

15,896

6,335

8,070

12,134

65,771

108,872

100,244

24,355

26,365

29,678

163,037

190,747

189,320

163,037

184,570

183,143

VAT

18. Project grants Project grants

Details of the project grants are presented in Annexure 3.

19. REVENUE

149

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Rendering of services

25,988

21,348

17,386

4,670

6,370

7,108

Rental Income

85,852

76,451

65,783

56,825

54,464

51,921

Interest received on loans

20,647

26,774

18,511

20,647

26,774

18,511

132,487

124,573

101,680

82,142

87,608

77,540

2009

2011

Group Figures in Rand thousand

2011

2010

Company 2010

2009

19. REVENUE (CONTINUED) Comparative figures The comparative amount for revenue has been restated due to reclassification as tabulated below: Administration fees

6,370

7,108

6,370

7,108

Miscellaneous other revenue

(250)

6,120

7,108

6,370

7,108

20. OPERATING LOSS Operating loss for the year is stated after accounting for the following: Operating lease charges Premises â&#x20AC;˘ Contractual amounts

2,606

2,287

2,147

2,063

1,823

1,690

816

751

629

804

740

617

3,422

3,038

2,776

2,867

2,563

2,307

Profit (loss) on sale of property, plant and equipment

164

(66)

(161)

(11)

(66)

Loss on sale of investment property

(103)

(1,595)

(855)

(103)

(1,660)

(865)

Gain on de-recognition of liabilities

1,622

Bad debts recovered

2,637

3,399

6,521

2,637

3,399

6,521

Impairment on property, plant and equipment

(329)

4,500

3,101

8,074

4,500

3,101

11,074

501

449

(5,526)

(1,236)

(5,099)

Impairment of loans advanced

52,245

63,624

27,779

52,245

63,624

27,779

Impairment on trade and other receivables

17,866

11,788

20,546

11,906

11,934

(5,887)

Equipment â&#x20AC;˘ Contractual amounts

Reversal of impairment on property, plant and equipment Impairment on investments Impairment on loans to group companies Reversal of impairment on loans to group companies

Reversal of impairment on trade and other receivables

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

150

Amortisation on intangible assets

Depreciation on property, plant and equipment

20,921

15,410

14,171

1,560

1,568

1,679

Employee costs

121,254

122,480

101,676

77,391

84,013

70,017

Direct property operating expenditure

71,883

70,962

48,081

51,031

54,757

48,081

Group Figures in Rand thousand

Company

2011

2010

2009

2011

2010

2009

2,259

1,642

1,664

1,912

1,220

1,381

Subsidiaries - Local

28,686

Associates - Local

100

125

137

100

28,686

755

746

995

1,289

1,254

363

Short-term deposits

17,633

16,516

37,421

17,633

16,516

37,421

Investments

4,696

5,224

7,338

4,696

5,224

7,338

643

376

599

643

376

599

23,727

22,862

46,353

24,261

23,370

45,721

23,766

22,987

46,490

24,261

23,470

74,407

21. AUDITORSâ&#x20AC;&#x2122; REMUNERATION Fees

22. INVESTMENT INCOME Dividend income

Listed financial assets - Local

Interest income Current accounts

Interest source 3

23. Fair value adjustments through profit or loss Investment property

5,389

Other financial assets

127

496

(29)

127

496

5,360

1,595

1,608

1,579

1,595

1,608

2,011

1,604

1,628

1,579

1,595

1,608

2,011

24. FINANCE COSTS Finance leases Interest on Long term Loans

151

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Group Figures in Rand thousand

Company

2011

2010

2009

(3,208)

2011

2010

2009

1,495

108

(1,713)

(12)

(2)

(1,953)

25. Taxation Major components of the tax (income) expense Current Local income tax - current period Local income tax - recognised in current tax for prior periods

Deferred Originating and reversing temporary differences Arising from prior period adjustments

1,057

(12)

1,055

(1,920)

(1)

1,163

(3,633)

Reconciliation of the tax expense Reconciliation between accounting profit and tax expense. Accounting profit (loss)

(12,304)

14,723

(45,922)

(62,271)

28,631

Tax at the applicable tax rate of 28% (2010: 28%)(2009:28%)

4,122

Tax effect of adjustments on taxable income Other temporary differences

(12)

1,055

(12)

Exempt income

(1,746)

Reversal of tax provision

(6,101)

Tax losses carried forward

Prior yearâ&#x20AC;&#x2122;s under-provision

108

(1)

1,163

(3,633)

The Corporation has been granted exemption from South African normal taxation in terms of Section 10(1)(cA)(i) of the Income Tax Act.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

152

Group Figures in Rand thousand

2011

Company

2010

2009

2011

2010

2009

(12,304)

14,723

(45,922)

(62,271)

28,631

20,613

15,352

12,635

1,560

1,568

1,086

(60)

1,656

921

264

1,671

931

(1,203)

(1,928)

(1,898)

(2,701)

(39)

(125)

(137)

(100)

(28,619)

(44,374)

(48,544)

(64,851)

(44,908)

(50,144)

(64,219)

Finance costs

1,604

1,628

1,579

1,595

1,608

2,011

Fair value adjustments

(127)

(496)

(5,360)

Impairments

75,112

61,287

42,115

76,055

79,080

45,688

Movements in retirement benefit assets and liabilities

2,856

4,448

5,248

2,856

4,448

5,248

Trade and other receivables

(22,660)

26,529

(40,304)

(23,237)

(6,749)

(31,071)

Trade and other payables

(43,101)

8,630

41,389

(2,010)

(3,313)

6,044

Deferred income

178,092

322,324

182,984

(3,717)

(380)

(6,987)

166,051

378,487

187,038

(37,464)

(34,582)

(41,257)

1,779

1,913

(4,014)

(11)

(108)

1,713

2,517

(425)

(1,779)

(1,913)

1,343

(1,697)

26. Cash generated from (used in) operations Profit (loss) before taxation Adjustments for: Depreciation and amortisation (Profit) loss on sale of assets Profit on sale of non-current assets and disposal groups Income from equity accounted investments Dividends received Interest received

Changes in working capital:

27. TAX REFUNDED (PAID) Balance at beginning of the year Current tax for the year recognised in profit or loss Reversal of tax provision (exemption granted) Prior year under-provision

28. Contingencies The Corporation has exposure to litigation of R18,2 million (2010: R 1,25 million) (2009: R1,3 million) against it, as tabulated below.

153

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Matters under consideration: 1. Claim for outstanding payment on a government contract for which ECDC issued a performance guarantee.

• Approximate potential liability: R200, 000

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

1,243

28. Contingencies (CONTINUED)

Status of matter: This matter has been to court a number of times with the claimant requesting postponements. It is still pending

2. Damages for termination of lease

• Approximate potential liability: R500, 000

Status of matter:

The claimant appears to be reluctant to pursue the matter. We have not put them to terms to avoid the re-start of the proceedings. The matter is still pending.

3. Claim for outstanding employee transfer costs and short payment of performance bonuses.

• Approximate potential liability: R500, 000

Status of matter:

The matter was initiated in December 2010 and is being defended.

4. Claim for damages and loss of earnings/ profit for alleged breach of lease agreement

• Approximate potential liability: R17, 000, 000

Status of matter:

Summons was served on ECDC in February 2011. We have filed a plea and counter-claim for outstanding rental and eviction.

29. COMMITMENTS Authorised capital expenditure Already contracted for but not provided for • Purchase of shares

1,243

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

1,243

154

• Balance on contract work already in progress

352,547

160,895

- within one year

2,935

3,691

3,355

2,860

1,667

2,252

- in second to fifth year inclusive

5,635

9,683

8,803

5,635

7,727

7,185

8,570

13,374

12,158

8,495

9,394

9,437

Operating leases – as lessee (expense) Minimum lease payments due

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

29. COMMITMENTS (CONTINUED) Operating lease payments represent rentals payable by the group for certain of its office properties, office equipment. Leases are negotiated for an average term of five years. No contingent rent is payable. Operating leases – as lessor (income) Minimum lease payments due - within one year

21,844

20,390

- in second to fifth year inclusive

61,581

65,000

- later than five years

8,877

1,704

92,302

87,094

Certain of the group’s equipment is held to generate rental income. Rental of equipment is expected to generate rental yields of -% on an ongoing basis. Lease agreements are noncancellable and have terms from 3 to 6 years. There are no contingent rents receivable.

30. Related parties Relationships Subsidiaries

Refer to Annexure 1

Shareholder

Department of Economic Development and Environmental Affairs (DEDEA)

Directors

Refer to the Director’s report

Key management and other senior managers

Eastern Cape Development Corporation M. Daca (Executive Manager: Finance) B. Dlulane (Executive Manager: Development Investments) L. Tsipa (Executive Manager: Property Management and Development) N. Ncokazi (Executive Manager: Development Services) S. Mase (Chief Executive Officer) East London Industrial Development Zone (Proprietary) Limited S. Kondlo (Chief Executive Officer) N Madyibi (Chief Financial Officer) J. Burger (Executive Manager: Technical Services) T. Gwintsa (Executive Manager: Investor Services)

155

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

T. Zweni (Executive Manager: Business Development) AIDC Development Centre Eastern Cape (Proprietary) Limited J. Manilal (Chief Executive Officer) Related party balances Subsidiaries and associates Related party balances with subsidiaries and associates are disclosed in Note 6: Loans to / (from) subsidiaries and associates. Group Figures in Rand thousand

2011

Company

2010

2009

2011

2010

2009

30. Related parties (CONTINUED) Other related parties The Corporation acquires equity investments in certain entities to which it has advanced loan funds as security for these loans or as part of its investment strategy. Outstanding balances with these entities were as follows: Preference/ ordinary shares

LOAN BALANCE

ACCUMULATED IMPAIRMENT

Border Copiers

7,763

(377)

Road safety apparel

433

(433)

Magwa Tea Enterprise (Pty) Ltd.

4,706

(4,706)

S&P Kareedouw

3,361

(3,361)

EC Biomass

3,200

4,551

(910)

Global pack trading

1,500

3,627

(3,627)

Maritime Academy

245

2,987

(2,987)

48,108

1,181

(1,181)

Singisi Forest Products

3,061

Amatola Berries

2,255

8,887

58,369

37,496

(17,582)

Related party

Bushman Sands Development (Pty) Ltd. Ikhala Aloes

Ndlambe Natural Industrial Products (Pty) Ltd.

Related party transactions Subsidiaries and associates Interest from subsidiaries

1,288

1,254

1,196

Rent paid to subsidiaries

1,654

1,429

1,492

Management fees

848

768

772

Border Copiers (Pty) Ltd

714

784

1,010

Ndlambe Natural Industrial Products (Pty) Ltd.

757

1,197

481

2,290

1,136

171

Interest received from related parties

Operational expenditure paid on behalf of Eastern Cape Information Technology Initiative

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

156

Rent received from related parties Department of Social development

Department of Sport, Arts, Recreation and Culture

198

163

Department of Transport

113

Department of Public Works

Department of Health

416

258

237

28,619

Dividends received Transkei Share Investments

Group Figures in Rand thousand

2011

Company

2010

2009

2011

2010

2009

31. Directorâ&#x20AC;&#x2122;s emoluments Non-executive 2011

Audit committee fees

BOARD Fees

Other expenses

Total

For services as directors Non directors

1,100

557

1,657

138

163

138

1,100

582

1,820

Fees

Other expenses

Total

1,120

378

1,498

Fees

Other expenses

Total

669

216

885

2010 For services as directors

2009 For services as directors Compensation to Executive Management

Contribution Contribution to Medical to Retirement Aid benefits Allowances

Basic

Performance Bonus

Chief Executive Officer - Appointed 1 July 2010

838

130

1,085

Chief Financial Officer

949

119

216

1,387

Executive: Development Investments - Resigned 31 July 2010

315

417

Executive: Development Investments - Appointed 1 February 2011

189

Executive: Properties

645

162

1,004

Executive: Development Support Services

657

101

194

1,035

3,487

310

132

324

864

5,117

Total

32. Risk management

157

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Capital Management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of capital levels. The Group’s overall strategy remains unchanged from 2009. Liquidity risk The Group is exposed to liquidity risk through its operational and banking activities. Liquidity risk is measured in terms of a Board approved Investment Policy with appropriate dashboard liquidity risk measures on the basis of which the risk is managed by the Finance function.

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

32. Risk management (CONTINUED) Interest rate risk The Group’s exposure to interest rate risk arises from primarily the following: • Investment in development loans. • Investment of surplus operational cash. The interest rate risk is managed in terms of the Board approved investment and development investment policies. The Group monitors and ensures that the interest rate risk profiles are in line with limits and benchmarks stipulated in the policy. The cash resources of the group are invested mainly with large money market funds and South African banks. Development investments are also made in line with Board policy and would be less profitable as interest rates drop. At year end, financial instruments exposed to interest rate risk were interest-bearing borrowings, held to maturity investments and loans advanced. A 1% decrease in the interest rate applicable to these financial instruments would result in a R 1,379 million decrease in net interest income with an equivalent decrease in retained earnings. Equity price risk The Group is exposed to equity risk through its investment in a number of entities as disclosed in note 7. Concentration risk The Group’s exposure to concentration risk arises primarily from over exposure to any one given investment instrument. Concentration risk is managed in terms of the Board approved Development Investment Policy, which in turn specifies a percentage exposure in any approved investment instrument or economic sector. The aim of the policy is to protect the Group from any over exposure in any investment instrument where the Group could be exposed to liquidity risk in the event of an over exposure in non - tradable instruments like held to maturity assets. The Group could also be exposed to interest rate risk due to over exposure in any investment cluster Post-tax profit for the year would increase/decrease as a result of gains/losses on equity securities classified as at fair value through profit or loss. Other components of equity would increase/decrease as a result of gains/losses on equity securities classified as an available for sale investment.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

158

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

33. Financial assets by category The accounting policies for financial instruments have been applied to the line items below: Group - 2011 Loans and receivables

Fair value through profit or loss designated

Held to maturity investments

Available for sale

Carrying amount

61,329

9,808

25,000

96,137

Loans advanced

142,521

Trade and other receivables

49,025

Investments

Cash and cash equivalents

702,514

191,546

763,843

9,808

25,000

990,197

Loans and receivables

Fair value through profit or loss designated

Held to maturity investments

Available for sale

Carrying amount

74,660

8,189

25,000

107,849

Group - 2010

Investments Loans advanced

186,643

Trade and other receivables

44,398

Cash and cash equivalents

625,708

231,041

700,368

8,189

25,000

964,598

Loans and receivables

Fair value through profit or loss designated

Held to maturity investments

Available for sale

TOTAL

Group - 2009

68,712

8,135

75,000

151,847

Loans advanced

Investments

214,733

Trade and other receivable

62,533

Cash and cash equivalents

452,084

277,266

520,796

8,135

75,000

881,197

Loans and receivables

Fair value through profit or loss designated

60,012

Company - 2011

Investments

159

Held to Available for maturity sale investments 9,808

25,000

Carrying amount 94,820

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

Loans advanced

142,503

Trade and other receivables

29,676

Cash and cash equivalents

309,646

172,179

369,658

9,808

25,000

576,645

Group Figures in Rand thousand

2011

2010

142,503

Company 2009

2011

2010

2009

34. Financial liabilities by category (continued) Company - 2010

Investments

Loans and receivables

Fair value through profit or loss designated

Held to Available for maturity sale investments

Carrying amount

73,470

8,189

25,000

106,659

Loans advanced

186,628

Trade and other receivables

26,984

Cash and cash equivalents

281,508

213,612

354,978

8,189

25,000

601,779

Loans and receivables

Fair value through profit or loss designated

68,018

8,135

75,000

151,153

Loans advanced

214,718

Trade and other receivables

32,141

Company - 2009

Investments

Cash and cash equivalents

Held to Available for maturity sale investments

TOTAL

254,500

246,859

322,518

8,135

75,000

652,512

The accounting policies for financial instruments have been applied to the line items below: Group - 2011 Financial liabilities at amortised cost

Carrying amount

Interest bearing borrowings

14,386

Trade and other payables

65,771

80,157

Group - 2010 Financial liabilities at amortised cost

Carrying amount

Interest bearing borrowings

15,973

Trade and other payables

108,872

124,845

Group - 2009

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

160

Financial liabilities at amortised cost

Carrying amount

17,634

Interest bearing borrowings Trade and other payables

100,244

117,878

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

34. Financial liabilities by category (continued) Company - 2011 Financial liabilities at amortised cost

Carrying amount

Interest bearing borrowings

14,343

Trade and other payables

24,355

38,698

Financial liabilities at amortised cost

Carrying amount

Interest bearing borrowings

15,912

Trade and other payables

26,365

42,277

Financial liabilities at amortised cost

Carrying amount

Company - 2010

Company - 2009

Interest bearing borrowings

17,563

Trade and other payables

29,678

47,241

161

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

35. New standards and interpretations New standards The following new standards have not been early-adopted by the group: IFRS 9 Financial Instruments The IASB has issued IFRS 9 Financial Instruments, which is the first step in its project to replace IAS 39 Financial Instruments: recognition and measurement, in its entirety. The project has three main phases: • Phase I: Classification and measurement of financial instruments; • Phase II: amortised cost and impairment of financial assets; and • Phase III: Hedge accounting. IFRS 9, as currently issued, includes requirements for the classification and measurement of financial assets and liabilities derecognition requirements and additional disclosure requirements. The main requirements include the following: • Financial assets are to be classified and measured based on the business model for managing the financial asset and the cash flow characteristics of the financial asset. There are two measurement approaches, namely fair value and amortised cost. The financial asset is carried at amortised cost if it is the business model of the entity to hold that asset for the purpose of collecting contractual cash flows and if those cash flows comprise principal repayments and interest. All other financial assets are carried at fair value. • A financial asset that would otherwise be at amortised cost may only be designated as at fair value through profit or loss if such a designation reduces an accounting mismatch. • The classification and measurement of financial liabilities include requirements similar to those contained in the existing standard IAS 39 Financial Instruments: recognition and measurement. • For financial liabilities designated as at fair value through profit or loss, a further requirement is that all changes in the fair value of financial liabilities attributable to credit risk be transferred to other comprehensive income with no recycling through profit or loss on disposal. • The requirements for derecognition are similar to those contained in the existing standard IAS 39 Financial Instruments: recognition and measurement, with certain additional disclosure requirements. Management does not anticipate these requirements to have a significant impact on the group’s financial statements. IFRS 9 is effective for the group for the year commencing 1 April 2013. However, the IASB adopted a phased approach for the release of IFRS 9, with the requirements for the classification and measurement of financial assets having been released in 2009 and the

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

162

requirements for the classification and measurement of financial liabilities and derecognition having been released in 2010. Accordingly, the requirements released in 2010 cannot be early-adopted without the simultaneous adoption of the 2009 requirements. However, the requirements released in 2009 may be separately early adopted. The IASB intends to expand IFRS 9 in 2011 to address the requirements for the offsetting of financial assets and financial liabilities, impairment of financial assets carried at amortised cost and hedge accounting. The implementation of IFRS 9 is anticipated to have a significant impact on the group’s financial statements. The group is evaluating the impact of the standard.

35. New standards and interpretations (CONTINUED) Revised standards The following revisions to IFRS have not been early-adopted by the group: IFRS 7 financial instruments: disclosures The following amendments were made to this standard during the year: • Clarification of certain qualitative and quantitative disclosures relating to the nature and extent of risks. The amendment is effective for the group for the year commencing 1 April 2011. • Additional disclosure requirements relating to the transfer of financial assets. This amendment is effective for the group for the year commencing 1 April 2012. These amendments address disclosure in the annual financial statements and will therefore not affect the financial position of the group. IFRS 3 Business combinations The amendment clarifies the measurement of non-controlling interests and provides additional guidance on unreplaced and voluntarily replaced share-based payment awards. The amendment is effective for the group for the year commencing 1 April 2011 and is not expected to have a significant impact on the group. IAS 12 income taxes the amendment provides a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair-value model in IAS 40 Investment property. The amendment is effective for the group for the year commencing on or after 1 April 2012 and is not expected to have a significant impact on the group as the holding company is exempt from income tax. IAS 24 Related parties The amendment provides exemptions from certain disclosure requirements in respect of government-related entities and clarifies the definition of a related party. The amendment is effective for the group for the year commencing 1 April 2011. This amendment addresses disclosure in the annual financial statements and will therefore not affect the financial position of the group. Furthermore, the revisions to the disclosures are not expected to have a significant effect on the group. IAS 32 Classification of rights issues’ issued in October 2009. The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency

163

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Notes to the Consolidated financial statements

in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8. Accounting policies, changes in accounting estimates and errors’. The group will apply the amended standard from 1 April 2011.

35. New standards and interpretations (CONTINUED) Annual improvement project As part of its third annual improvement project the IASB has issued its 2010 edition of annual improvements. The annual improvement project aims to clarify and improve the accounting standards. The improvements include those involving terminology or editorial changes, with minimal effect on recognition and measurement. There are no significant changes in the improvement of the current year that will affect the group and the improvement is effective for the group commencing 1 April 2011. Interpretations The following interpretations of existing standards are not yet effective and have not been early-adopted by the group: IFRIC 19 extinguishing financial liabilities with equity instruments The interpretation addresses divergent accounting by entities issuing equity instruments to extinguish all or part of a financial liability (often referred to as ‘debt for equity swaps’). The interpretation concludes that the issue of equity instruments to extinguish an obligation constitutes consideration paid. The consideration should be measured at the fair value of the equity instruments issued, unless that fair value is not readily determinable, in which case the equity instruments should be measured at the fair value of the obligation extinguished. Any difference between the fair value of the equity instruments issued and the carrying value of the liability extinguished is recognised in profit or loss. If the issue of equity instruments is to settle a portion of a financial liability, the entity should assess whether a part of the consideration relates to a renegotiation of the portion of the liability that remains outstanding. The adoption of this standard is not expected to have a material impact on the group’s annual financial statements. The standard is effective for the group for the year commencing 1 April 2011. IFRIC 14 Prepayments of a minimum funding requirement. The amendments correct an unintended consequence of IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. The group will apply these amendments for the financial reporting period commencing on 1 April 2011. Standards and interpretations adopted in the current year Revised standards The following revisions to IFRS have been adopted by the group as their application has become mandatory for the reporting period: Amendments to IFRS 2 group-settled arrangements The amendment provides additional guidance on the accounting for share-based payment

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

164

transactions among group entities. The most significant change is that the entity receiving the goods or services will recognise the transaction as an equity-settled share-based payment transaction only if the awards granted are its own equity instruments or if it has no obligation to settle the transaction. In all other circumstances the entity will measure the transaction as a cash-settled share-based payment. The scope of IFRS 2 has also been amended to clarify that the standard applies to all share-based payment transactions, irrespective of whether or not the goods or services received under the share-based payment transaction can be individually identified. The adoption of the amendments to the standard did not have an effect on the group’s financial statements as the group is not party to share based payments arrangements.

35. New standards and interpretations (CONTINUED) IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’. The amendment clarifies that IFRS 5 specifies the disclosures required in respect of noncurrent assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. IAS 1 (amendment), ‘Presentation of financial statements’. The amendment clarifies that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or noncurrent. By amending the definition of current liability, the amendment permits a liability to be classified as noncurrent (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. IAS 36 (amendment), ‘Impairment of assets’, effective 1 January 2010. The amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8, ‘Operating segments’ (that is, before the aggregation of segments with similar economic characteristics). Annual improvement project As part of its second annual improvement project, the IASB issued its 2009 edition of annual improvements. The annual improvement project aimed to clarify and improve the accounting standards. These improvements included those involving terminology or editorial changes with minimal effect on recognition and measurement. No significant changes were made to the group financial statements for the revisions that were effective for the year commencing 1 April 2010. Interpretations The following amended IFRIC’s have been adopted by the group as their application has become mandatory for the reporting period: IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009). The interpretation was published in November 2008. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. The adoption of the amendments to the standard did not have an effect on the group’s financial statements. IFRIC 18, ‘Transfers of assets from customers’, Effective for transfer of assets received on or after 1 July 2009. This interpretation clarifies

165

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Notes to the Consolidated financial statements

the requirements of IFRSs for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). In some cases, the entity receives cash from a customer that must be used only to acquire or construct the item of property, plant, and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both). The adoption of this interpretation did not have an effect on the group’s financial statements.

35. New standards and interpretations (CONTINUED) IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement’, effective 1 July 2009. This amendment to IFRIC 9 requires an entity to assess whether an embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial asset out of the ‘fair value through profit or loss’ category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remains classified as at fair value through profit or loss in its entirety. IFRIC 16, ‘Hedges of a net investment in a foreign operation’ effective 1 July 2009. This amendment states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of IAS 39 that relate to a net investment hedge are satisfied. In particular, the group should clearly document its hedging strategy because of the possibility of different designations at different levels of the group. IAS 38 (amendment), ‘Intangible assets’, effective 1 January 2010. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. First time adopters of IFRS may measure exploration and evaluation assets and assets in the development or production phase (for oil and gas properties) at the amount determined in accordance with their previous GAAP at date of transition. However, these assets should be tested for impairment in accordance with IAS 36 (AC 128) Impairment of Assets at the date of transition to IFRS and, if necessary, reduced. If the exemption for oil and gas assets is applied, then any decommissioning, restoration and similar liabilities at the date of transition shall be determined in accordance with IAS 37 (AC 130) Provisions, Contingent Liabilities and Contingent Assets. The difference between that amount and the amount recognised under previous GAAP shall be recognised directly in retained earnings. Another exemption provides for first-time adopters who made the same determination of whether an arrangement contains a lease in accordance with previous GAAP as required by IFRIC 4 (AC 437) Determining Whether an Arrangement Contains a Lease, but at a date other than that required by IFRIC 4, the first time adopter need not reassess that determination when it adopts IFRS. The effective date of the amendment is for years beginning on or after 01 January 2010. The group has adopted the amendment for the first time in the 2011 consolidated annual financial statements. The impact of the amendment is set out in note Changes in Accounting Policy.

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

166

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

36. FINANCIAL INSTRUMENTS AT FAIR VALUE Group 2011

2010

2009

CARRYING AMOUNT

FAIR VALUE

CARRYING AMOUNT

FAIR VALUE

CARRYING AMOUNT

FAIR VALUE

Fixed term Investments

60,012

60,409

55,140

Other investments

9,808

21,250

21,013

Listed shares at fair value

1,317

1,190

694

Unlisted shares at fair value

25,000

75,000

96,137

107,849

151,847

Interest bearing borrowings

14,386

15,956

17,634

Trade and other payables

65,771

108,872

100,244

80,157

124,828

117,878

Company 2011

2010

2009

CARRYING AMOUNT

FAIR VALUE

CARRYING AMOUNT

FAIR VALUE

CARRYING AMOUNT

FAIR VALUE

Fixed term Investments

60,012

60,409

55,140

Other investments

9,808

21,250

21,013

Unlisted shares at fair value

25,000

75,000

94,820

106,659

151,153

Interest bearing borrowings

14,343

15,912

17,563

Trade and other payables

24,355

26,365

29,678

38,698

42,277

47,241

Determination of fair value Financial instruments with short-term maturities At year end the carrying amounts of cash and cash equivalents, accounts receivable and

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Notes to the Consolidated financial statements

accounts payable approximated their fair values due to the short-term maturities of these assets and liabilities. Unlisted shares carried at fair value During 2009/10, the Corporationâ&#x20AC;&#x2122;s investment in Singisi Forest Products was revalued to its fair value of R 25 million. The minority shareholding in Singisi Forest Products (Pty) Ltd has been valued using the projected dividends receivable from free cash flows (excess cash). The downturn in the world economy coupled with continuing low foreign exchange rates and closer to home, the local building industry (residential market) also having experienced a downswing, has resulting in an oversupply of lumber in the national market. Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

36. FINANCIAL INSTRUMENTS AT FAIR VALUE (CONTINUED) This affected the company revenueâ&#x20AC;&#x2122;s negatively experiencing both a volume and price reduction which has resulted in the marked movement in the valuation from 2009. Unlisted shares carried at cost In accordance with the accounting policy on available-for-sale financial assets, certain unlisted shares are carried at cost as their fair values could not be reliably determined, due to a lack of an active market for these instruments. Held to maturity investments, loans advanced and interest bearing borrowings The fair values of these financial instruments are determined based on discounted cash flow techniques, taking account of market related discount rates appropriate to the instrument and economic conditions current at the balance sheet date. At this date, the fair value of the financial instruments approximated their carrying values.

37. Other comprehensive income Components of other comprehensive income - Group - 2011 Balance Available-for-sale financial assets adjustments Closing balance

24,173

Opening balance

(24,173) -

Movements on revaluation Closing balance

254,142

Opening balance

(327,108) (72,966)

Components of other comprehensive income - Group - 2010 Available-for-sale financial assets adjustments Closing balance Opening balance

24,173 (74,173) (50,000)

Movements on revaluation

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

168

Closing balance

327,108

Opening balance

(271,654) 55,454

Total

5,454

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

37. Other comprehensive income (CONTINUED) Components of other comprehensive income - Group - 2009 Available-for-sale financial assets adjustments Closing balance

74,173

Opening balance

(74,173) -

Movements on revaluation Closing balance

271.654

Opening balance

(231,747) 39,907

Components of other comprehensive income - Company - 2011 Available-for-sale financial assets adjustments Closing balance

24,180

Opening balance

(24,180) -

Movements on revaluation Closing balance

349,980

Opening balance

(307,578) 42,402

Components of other comprehensive income - Company - 2010 Available-for-sale financial assets adjustments Closing balance

24,180

Opening balance

(74,180) 50,000

Movements on revaluation Closing balance

307,578

Opening balance

(263,970)

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TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Supplementary information

46,608 Total

(6,392)

Components of other comprehensive income - Company - 2009 Available-for-sale financial assets adjustments Closing balance

74,180

Opening balance

(74,180) Group

Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

37. Other comprehensive income (CONTINUED) Movements on revaluation Closing balance

263,970

Opening balance

(222,005) 41,965

38. Prior period adjustments Property, plant and equipment and Investment Property The financial statements have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice on a basis consistent with the prior year except for the changes in disclosure of land which was previously disclosed as Property, Plant and Equipment in prior years and is now disclosed as Investment Property as a result of interpretation of IAS 40. Fair valuation for the land was available as at 31 March 2010, therefore fair value adjustments have been accounted for at this date. The consolidated annual financial statements have been restated to correct the effects of these adjustments as tabulated below: Statement of Financial Position Property, plant and equipment

(236,460)

25,338

Retained income/ loss

(105,366)

(55,435)

Reserves

(195,392)

Investment properties

457,190

Deferred income

79,102

30,097

Trade and other payables

926

Profit or Loss Government grants

(49,004)

Revenue

250

Expenses

(1,176)

(49,930)

39. Intangible assets

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

170

Group

2011

2010

Cost / Valuation

Accumulated amortisation

Carrying value

Cost / Valuation

Accumulated amortisation

Carrying value

(48)

Computer software, internally generated

Group Figures in Rand thousand

2011

2010

Company 2009

2011

2010

2009

39. Intangible assets (CONTINUED) Group

2009

Computer software, internally generated

Cost / Valuation

Accumulated amortisation

Carrying value

Reconciliation of intangible assets - Group - 2011

Computer software, internally generated

Opening balance

Additions

Other changes, movements

Amortisation

Total

(65)

Opening balance

Additions

Amortisation

Total

(6)

Reconciliation of intangible assets - Group - 2010

Computer software, internally generated

Reconciliation of intangible assets - Group - 2009 Opening balance Computer software, internally generated

171

TOTAL 36

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Supplementary information

Supplementary information The supplementary information presented does not form part of the consolidated annual financial statements and is unaudited Group

Company

1. Subsidiaries

Name of the subsidiary (consolidated)

Issued share Percentage Shares at capital shareholding cost less provision

Indebttedness less provision

2011 TDC property investments (Pty) Ltd Transdev properties (Pty) Ltd Centre for investment and marketing in the Eastern Cape Cimvest (Pty) Ltd Transkei Share Investments Company Limited AIDC Eastern Cape Transido (Pty) Ltd Umthatha Small Industries Complex (Pty) Ltd East London Industrial Development Zone (Pty) Ltd Windsor Hotel (Pty) Ltd Eastern Cape Marketing Authority (Pty) Ltd

4,000 2,000 120 232,757 100 1,330,200 400 1,000 100 2

100 100 100 100 98 100 100 100 74 100 -

2,000 26,117,248 100 740 100 2

3,467 (13,203) 14,349 (5,708) (15,733) 7,479 392 1,015 38

26,120,190

(7,904)

2,000 26,117,248 100 740 100 2

3,450 (10,089) 13,052 (5,057) (15,752) 2,000 3,724 390 1,014 26

26,120,190

(7,242)

2010 TDC property investments (Pty) Ltd Transdev properties (Pty) Ltd Centre for investment and marketing in the Eastern Cape Cimvest (Pty) Ltd Transkei Share Investments Company Limited AIDC Eastern Cape Transido (Pty) Ltd Umthatha Small Industries Complex (Pty) Ltd East London Industrial Development Zone (Pty) Ltd Windsor Hotel (Pty) Ltd Eastern Cape Marketing Authority (Pty) Ltd

4,000 2,000 120 232,757 100 1,330,200 400 1,000 100 2

100 100 100 100 98 100 100 100 74 100 100

2009

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

172

TDC property investments (Pty) Ltd Transdev properties (Pty) Ltd Centre for investment and marketing in the Eastern Cape Cimvest (Pty) Ltd Transkei Share Investments Company Limited AIDC Eastern Cape Transido (Pty) Ltd Umthatha Small Industries Complex (Pty) Ltd East London Industrial Development Zone (Pty) Ltd Windsor Hotel (Pty) Ltd Eastern Cape Marketing Authority (Pty) Ltd

4,000 2,000 120 232,757 100 1,330,200 400 1,000 100 2

100 100 100 100 98 75 100 100 74 100 100

2,000 26,116,789 75 740 100 2

3,433 (7,485) 11,787 (4,506) (15,779) 2,000 8,162 1,012 17

26,119,706

(1,359)

Non-consolidation of equity interests exceeding 50% Certain of the Group’s equity investments have not been included in the consolidated annual financial statements as the Group does not exercise any control over their operations. The entities affected are Magwa Enterpise Tea (Proprietary) Limited and TIDC (Association incorporated under section 21) Ikhala Aloe has not been consolidated as the shareholding was only acquired as security and the company’s financial information is not material to the Group. Entities which were not equity-accounted Certain equity investments in which the Group holds 20% or more of the equity have not been equity accounted as the investments were only acquired to protect loan advances. The entities affected are Border Copiers and S&P Kareedow. Availability of information A subsidiary, Windsor Hotel (Proprietary) Limited, and an associate, Bushman Sands Developments (Proprietary) Limited, have been consolidated on the basis of limited information due to financial statements for the year ended 31 March 2011 not being available. 2. Interest bearing borrowings Installment R ‘000

Date of final payment

Interest rate (%)

2011 R’000

2010 R’000

2009 R’000

Office Block Loan

700

2,012

3 months JIBAR +0.75

1,427

2,105

2,886

Loan 13942/201

164

2,011

3 months JIBAR +0.75

164

538

831

Loan 13942/301

461

2,016

3 months JIBAR +0.75

2,581

3,061

3,559

Loan 13942/401

10171

2,011

3 months JIBAR +0.75

10,171

10,208

10,287

2013

14,386

15,973

17,634

2011 R’000

2010 R’000

2009 R’000

Group Development Bank of Southern Africa

Finance lease

11,516

COMPANY

Installment R ‘000

Date of final payment

Interest rate (%)

Development Bank of Southern Africa

173

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

Supplementary information

Office Block Loan

700

2,012

3 months JIBAR +0.75

1,427

2,105

2,886

Loan 13942/201

164

2,011

3 months JIBAR +0.75

164

538

831

Loan 13942/301

461

2,016

3 months JIBAR +0.75

2,581

3,061

3,559

Loan 13942/401

10171

2,011

3 months JIBAR +0.75

10,171

10,208

10,287

14,343

15,912

17,563

11,496

3. Project grants Group (Figures in rand thousands) Opening Balance

Transfers in

INTEREST

Written off/ transfers

Payments

Closing balance

12,000

201

(8,357)

3,854

Co-operatives Fund

47,654

52,600

2,860

(16,876)

86,238

Dedea

54,828

2,500

(6,177)

(6,601)

44,550

Drisa

5,038

(440)

4,598

MAGWA

700

(700)

Premier’s Fund

(35)

73,862

(51,814)

22,048

135,257

(135,257)

8,690

(6,906)

1,784

Total 2011

190,747

202,357

3,061

(6,177

(226,951)

163,037

Total 2010

189,32

373,16

2,008

641

(374,384)

190,747

12,000

201

(8,357)

3,854

Co-operatives Fund

47,654

52,600

2,860

(16,876)

86,238

Dedea

48,651

2,500

(6,601)

44,550

Drisa

5,038

(440)

4,598

East London IDZ

135,257

(135,257)

Premier’s Fund

(35)

MAGWA

700

(700)

Treasury (Steinhoff)

73,862

(51,814)

22,048

Mthatha Taxi Rank

8,690

(6,906)

1,784

Total 2011

184,570

202,357

3,061

(226,951)

163,037

Total 2010

183,143

373,16

2,008

641

(374,384)

184,570

Africa Best 350 (Pty)Ltd

Treasury (Steinhoff) East London IDZ Mthatha Taxi Rank

Corporation Africa Best 350 (Pty)Ltd

AB350

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

174

The Corporation has been appointed as an implementing agent to revive bus transportation in the rural areas around Transkei. The funds were advanced by the Department of Roads and Transport for this purpose. Department of Economic Development and Environmental Affairs (DEDEA) The fund represents grants from DEDEA to be administered on their behalf. It is utilised to assist local business service centres, manufacturing technology centres and local economic development units in the Eastern Cape. Transfers to beneficiaries are only made on specific instructions from the respective Departments. Digitisation and Remanufacturing Institute of South Africa (DRISA) DRISA is a section 21 company whose main purpose is Information Communication Technologies for Development, Education and Upliftment. The fund represents amounts that were transferred by DEDEA for this purpose. East London Industrial Development Zone (Proprietary) Limited (ELIDZ) Funds transferred to the Corporation by the Department of Economic Development and Environmental Affairs to forward to ELIDZ. These payments are merely channeled through the Corporation to ELIDZ. Premierâ&#x20AC;&#x2122;s Fund The fund was created by the Office of the Premier. Transfers to beneficiary institutions are only made on specific instructions from the Office of the Premier. Treasury (Steinhoff) The funds are for infrastructure upgrade in Ugie for the Steinhoff milling plant. The Corporation is an implementing agent for these funds. Mthatha Taxi Rank The Mthatha Taxi Rank fund is held to be used to fund the development of a taxi rank in Mthatha by the Eastern Cape Department of Roads and Transport. Magwa Enterprise Tea The Department of Agriculture transferred funds for Magwa Enterprise Tea to fund operational and capital expenditure.

175

TOGETHER, LOOKING FORWARD WITH RENEWED CLARITY ECDC Annual Report 2010/11

LIST OF ACRONYMS ACP BBBEE BER BPO & O DEDEA DFI dti ECDC ECSECC EIA ELIDZ HOA HR ICT IDP LED NERSA PGDP PIDS PMFA RDP SMME VCT

Asset conversion policy Broad-based black economic empowerment Bureau for Economic Research Business process outsourcing and off-shoring Department of Economic Development and Environmental Affairs Development finance institution Department of Trade and Industry (national) Eastern Cape Development Corporation Eastern Cape Socio-Economic Consultative Council Environmental impact assessment East London Industrial Development Zone Homeownersâ&#x20AC;&#x2122; allowance Human resources Information communication technology Integrated development plan Local economic development National Energy Regulator of South Africa Provincial Growth and Development Plan Provincial Industrial Development Strategy Public Finance Management Act Reconstruction and Development Programme Small, medium and micro enterprise Voluntary counselling and testing

HEAD OFFICE Ocean Terrace Park Moore Street, Quigney, East London PO Box 11197, Southernwood, 5213 Tel: +27 (0) 43 704 5600 Fax: +27 (0) 43 704 5700 KING WILLIAM’S TOWN 75 Alexander Road PO Box 498, King William’s Town, 5600 Tel: +27 (0) 43 604 8800 Fax: +27 (0) 43 642 4199 BUTTERWORTH 24 High Street PO Box 117, Butterworth, 4960 Tel: +27 (0) 47 401 2700 Fax: +27 (0) 47 491 0443 MTHATHA 7 Sisson Street, Fort Gale Private Bag X5028, Mthatha, 5099 Tel: +27 (0) 47 501 2200 Fax: +27 (0) 47 532 3548 QUEENSTOWN 22 Cathcart Road Private Bag X7180, Queenstown, 5320 Tel: +27 (0) 45 838 1910 Fax: +27 (0) 45 838 2176 PORT ELIZABETH 152 Cape Road, Mill Park PO Box 1331, Port Elizabeth, 6000 Tel: +27 (0) 41 373 8260 Fax: +27 (0) 41 374 4447

Satellite offices MOUNT AYLIFF SEDA Building Nolangeni Street, Mount Ayliff, 4735 Tel: +27 (0) 39 254 0584 Fax: +27 (0) 39 254 0599 ALIWAL NORTH 98 Somerset Street P O Box 198, Aliwal North, 9750 Tel: +27 (0) 51 633 3007

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