ECDC_Corporate Strategy 2011_2015

C O R P O R AT E S T R AT E G Y 2011 - 2015 CORPORATE BUSINESS PLAN 2011 - 2013

ANNUAL PERFORMANCE PLANS BUDGET

CORPORATE

STRATEGY 2011 - 2015

List of acronyms BSC DEDEA ECDC ELIDZ IDZ IPAP2 PFMA PGDP PIDS MTEF DFI GRA NGP FDI LDI BCTWF DFI ROI SLA MOU GDP R&D AG WSP MSP SWOT KPI SMART

Balanced Scorecard Department of Economic Development and Environmental Affairs Eastern Cape Development Corporation East London Industrial Development Zone Industrial Development Zone Industrial Policy Action Plan Public Finance Management Act (1999) Provincial Growth and Development Plan Provincial Industrial Development Strategy Medium Term Expenditure Framework Development Finance Institution Gross return on assets National Growth Path Foreign Direct Investment Local Direct Investment Best Company to Work For Survey (undertaken by Deloitte Consulting) Development Finance Institution Return on Investment Service Level agreement Memorandum of understanding Gross domestic product Research and Development Auditor General Work skills plan Master Systems plan Strengths, Weaknesses, Opportunities and Threats Key performance indicator Refers to objectives that are specific, measurable, achievable, realistic and time bound

Table of contents 1.

Introduction ............................................................................................................................................... 3

2.

Analysis and strategy alignment ............................................................................................................... 5

2.1 ECDC overview ..................................................................................................................................... 5 2.2 Strategic alignment with key policies ................................................................................................... 5 2.3 Key initiatives that affect the strategy .................................................................................................. 6 2.4 Situation analysis (SWOT) .................................................................................................................... 8 3. A compelling case for change ................................................................................................................. 10 3.1

Financial performance ........................................................................................................................ 10

3.1.1 ECDC’s financial health ............................................................................................................. .....10 3.1.2 Property portfolio ............................................................................................................................ 13 3.1.3 Loans ................................................................................................................................................ 14 3.1.4 Government funding ....................................................................................................................... 15 3.2 Human resources of the corporation.................................................................................................. 17 3.3

Key outcomes of the organisational diagnosis .................................................................................. 18

4.

Strategic planning process ..................................................................................................................... 19

5.

Purpose of ECDC ..................................................................................................................................... 20 5.1

Vision .................................................................................................................................................. 21

5.2

Mission ................................................................................................................................................ 21

6.

Strategic Goals ........................................................................................................................................ 22

7.

Visioning of a sustainable ECDC by 2015 ............................................................................................... 23 7.1

Figure 8: Strategy mapping model and visioning .............................................................................. 23

7.2

Key performance indicators ............................................................................................................... 24

8.

Key strategic objectives .......................................................................................................................... 26

9.

Top risks .................................................................................................................................................. 33

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OFFICIAL SIGN OFF It is hereby certified that this Strategic Plan was developed by the Management of the Eastern Cape Development Corporation under the guidance of the Board of ECDC and the Shareholder The 5 year strategic plan takes into consideration all the relevant policies, legislation and other mandates for which the ECDC is responsible and accurately reflects the strategic goals and objectives which the Eastern Cape Development Corporation will endeavour to achieve over the period. The Strategy is also accompanied by a corporate business plan as well as relevant annual performance and operational plans.

Msulwa Daca

Signature:

Chief Financial Officer

Sitembele Mase

Signature:

Chief Executive Officer

Oyama Mabandla Chairperson of the Board

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Signature:

1.

Introduction

The Eastern Cape Development Corporation (ECDC) strategic plan has been developed in accordance to the requirements of provincial public entities stated in Part C, schedule 3 of the Public Finance Management Act (1999) (PFMA). The purpose of the strategic plan outlined in this document is to set a new direction for the corporation. It shows components of the medium and long term objectives that are to be implemented by ECDC over the upcoming five-year period. As a tool, it is intended to assist ECDC departments to prioritise the progressive implementation of new key strategic projects in alignment with its mandate. It is anticipated that the strategic planning process and implementation will instill new ethos in the corporation in which people practice and work together to achieve the new strategic goals and realise ECDC’s new vision.

The key strategic outcomes are: • Build a new business model that promotes noticeable social and economic outcomes in the province.

• Identify an appropriate fund model.

• Strategic alignment with government and other stakeholders.

• Review of the current Asset Conversion Policy for the property portfolio.

• Identify innovative ways to spearhead investment promotion and re-model development micro-finance.

• Strengthen the relationship between the corporation and the ECDC Board so that it is in line with the corporate governance protocol.

• Organisational and human resource development.

• Develop key performance indicators (KPIs) for the key strategic drivers.

• Develop a reporting framework to measure business and individual performance.

By changing not only the way we think and do things, but also the way we perceive ourselves, we can create a more efficient and productive corporation. This strategy was developed with the inputs of the Member of the Executive Committee, head of the Department of Economic Development and Environmental Affairs (DEDEA), Chairperson of the Board and Board members, executives and senior management, and all ECDC employees who engaged robustly and dynamically during the strategy session.

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2.

2.1

Analysis and strategy alignment ECDC overview

ECDC is the official economic development corporation for the Eastern Cape owned by the provincial Department of Economic Development and Environmental Affairs (DEDEA). It is a provincial government business enterprise which reports to its Board of Directors. The ECDC is led by the economic development priorities of the provincial government, as stated in the Provincial Growth and Development Plan (PGDP), and key strategic focus of the new Provincial Industrial Development Strategy (PIDS) and Industrial Policy Action Plan (IPAP2).

The corporation works in tandem with provincial and national government ministries, chambers, private business, communities and other development agencies to implement the economic development policies of the Eastern Cape provincial government. However, despite existing development policies and strategies, there has been a very limited impact on poverty reduction and social marginalisation levels in the Eastern Cape. This has been attributed to mainly the poor implementation process.

2.2

Strategic alignment with key policies

To address these challenges, ECDC embarked on an inclusive and unprecedented strategic planning process that included: • Research on the socio-economic environment of the province. (See Annexure A, Socio-economic analysis of the Eastern Cape) • An assessment of stakeholder perceptions on ECDC’s role and efficiency in achieving its mandate.

• A board retreat to assess the role and strategic direction of the corporation.

• A staff workshop attended by 160 employees to assess the strengths and weaknesses of the ECDC and provide input.

• A management workshop attended by 25 senior managers of the corporation to review board and staff input in order to develop the strategic framework going forward.

The outcome of the strategic planning process was a consensus that the new strategic focus of ECDC should be to promote growth and economic development in the Eastern Cape through its role as a leading development finance institution. By aligning its objectives to the PGDP, the new PIDS, IPAP2 and redefining its objectives in key priority sectors of the economy, ECDC will increase its role significantly in driving economic growth and development in the province.

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2.3

Key initiatives that affect the strategy

During the strategy planning process, the following key areas were considered to be short to medium-term initiatives that the corporation will undertake. The key initiatives, approach and possible way forward have been tabled to the Board and shareholder for a mandate to implement. These key initiatives will influence the performance of the corporation, its strategic direction, budgeting and resourcing. These are critical initiatives to building a sustainable development finance institution in the future. The detailed action plans of these key initiatives will be contained in the corporate business plan for 2011/12 and 2012/13.

Item Property portfolio ECDC property portfolio constitutes around 40% of our asset base. However, our return on investment (ROI) is very poor approximately 10% per annum. This demonstrates that the asset class is non productive. There are other sociopolitical risks associated with the management portfolio especially the residential portfolio.

Investment promotion ECDC has subsidiaries such as Coega and East London industrial development zones (IDZs) who are promoting investments and trade. Municipalities and districts also do the same. ECDC is perceived to be the leader with respect to investment and trade however there is no clarity on the roles of the various institutions.

Funding model The Auditor General has raised an issue of going concern and sustainability based on the loan losses and inadequate recapitalisation by the shareholder.

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Way forward and due dates

An alternative to be sought with respect to the current Asset Conversion Policy to maximize the return to the corporation.

The alternatives should be developed by management in conjunction with the ECDC Board sub-committee.

The alternatives and implementation plan should be presented to the shareholder by the end of the first quarter of the 2011/12 financial year.

An alternative model needs to be developed to maximize the investment and trade promotion function so that it serves the province optimally as well as consider other similar entities such Coega and East London IDZs and municipalities.

The plan should be presented to the Board by the end of the first quarter of the 2011/12 financial year.

Investigation should be conducted into the development of a private equity fund model for mega catalytic projects.

The alternative modalities will be developed by ECDC in conjunction with the Board sub-committee by the first quarter of the 2011/12 financial year.

Item Developmental Micro finance In the current funding model, there is a mixture of micro developmental loan portfolio within a larger portfolio of long and medium-term loans. The culture and processes for managing micro loans is not the same. Consequently, developmental micro finance is meant to build social capital by expanding households and family business through building their asset base and provide access to their own equity so that they can trade in the market place.

Organisational development and redesign There has been intensive interaction and consultation with key staff, stakeholders and management. Human resources (HR) processes and practices were interrogated and hence management identified certain organisational inefficiencies resulting in the conclusion that current staff relative to throughput is not sustainable.

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Way forward and due dates

An investigation be conducted and a report tabled to the Board for discussion on how to create a special purpose vehicle to ensure the effectiveness and efficiency of the micro-developmental loan portfolio.

This should be tabled by the end of the first quarter of the 2011/12 financial year.

ECDC should embark on a capacity and organisational alignment and redesign exercise to pave way for implementation of the new strategy.

This exercise should be finalised by the second quarter of the 2011/12 financial year however implementation of actions could span into the middle to outer years of the planning period.

2.4

Situation analysis (SWOT)

As part of our strategic planning process, the board, management, staff and stakeholders identified ECDC strengths and weaknesses in relation to the opportunities and threats it faces. Below is a synopsis of the issues identified in the SWOT analysis.

Strengths Weaknesses Internal specialist skills Sound financial management Good corporate governance Stable information technology (IT) systems (networks and availability) • Shareholder support • Regional and satellite offices • • • •

• Units working in silos • Human resources administration • Human capacity and skills for a Development Finance Institution (DFI) • Weak employer/employee relations • Ineffective internal communication within the organisation • Organisational structure (matrix operating hierarchy) • Inadequate profiling of the ECDC • Lack of IT infrastructure (hardware and application systems not up to date) • Overlap of services offered e.g. Small Enterprise Development Agency (Seda) • Succession plan.

Threats • • • • •

• •

• • •

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ECDC mandate perceived to be too wide Decrease in government financial support Political instability and influence Perceptions of ECDC by the public Overshadowed by other national development agencies Duplication of services provided by other government institutions and provincial agencies Provincial information communication technology (ICT) and infrastructure challenges are preventing links with the rural areas.

The economic downswing A poor reputation Business sustainability

Opportunities Improve customer care to clients Defined mandate Infrastructure development Identify new opportunities for innovation Identify development problems and create opportunities Leader in economic intelligence in the province Formalise ECDC’s relationship and strategic partnerships with other provincial agencies and entities • Refocus on priority sectors and industries i.e. agriculture and agro-processing, forestry, automotive, renewable energy, tourism, and oil refining

• • • • • • •

From the SWOT analysis it can be observed that there are numerous internal weaknesses and a limited number of strengths. The new strategic plan therefore focuses on organisational alignment processes to minimise these weaknesses and seeks to take advantage of the opportunities. These actions are contained in paragraph 7 and 8 of this document.

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3.

A compelling case for change

After assessing the socio-economic situation within the province (refer to Annexure A), there were additional reasons both financially and non-financially for embarking on a new strategic direction for ECDC. These include the financial performance of the various asset classes and the organisation structure and performance of the corporation.

3.1

Financial performance

3.1.1

ECDC’s financial health

The financial position of the corporation is weak and unsustainable. Firstly, the corporation has had challenges in meeting its operating expenses when compared to its revenue generation, especially from properties and loans portfolios. Break even remains elusive as total revenues have not been able to cover full operating costs since inception. This state of affairs has a profound effect on the “financial sustainability and survival” of the corporation.

Secondly, revenue growth is too erratic and has been declining and does not track the operating expenditure which grows according to inflation. This makes annual planning difficult. This situation has been exacerbated by a historical trend of inadequate capital allocations and funding by its shareholder. In addition no strategic decision has ever been made to adequately fund ECDC, whether once-off or through medium term expenditure framework (MTEF) expenditure allocations to shore up its balance sheet thus building a base for a sustainable DFI. Thirdly, the gross return on asset (GRA) on properties is between 10 and 11 percent per annum which is far less than the market related 20 to 25 percent rate of return per annum. Likewise, the loan portfolio is still very small as a percentage of total assets at 15 percent of the total assets and cannot be expected to provide any significant return, thus making the combination of two poor performing assets. Likewise, impairments on loans have been high - approximately 50 percent for the entire loan book.

Lastly, on average a third of the loan investments are impaired. In other words, for every R1 per loan disbursed the corporation collects approximately 66 cents and loses 33 cents. This could be higher when considering older loans and could be as high as 50 per cent impairment on the entire loan book. Due to the age of certain investment periods of the loan book, recoverability is not guaranteed. This can be partly attributed to the risky nature of the ECDC’s developmental mandate. The corporation takes more risks as the lender of last resort. In most investments both property and loans, the potential for development is higher than

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the risk it takes. Hence, ECDC considers funding risky venture capital projects that may not have commercial returns during early phases as commercial banks would require. ECDC takes more risks as a developmental fund as per its mandate.

It is therefore difficult to adequately plan to resource the ECDC strategy on such erratic, unreliable cash flows and non-dependable returns. Figure 1 below shows an income and expenditure analysis for the corporation between 2004/05 and 2009/10 financial years.

Conclusion: From the above analysis it can be concluded that the operating income from operations does not adequately cover operating expenditure.

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Liquidity Although liquidity has not been in constant decline, it is erratic and not dependable. This is caused partly by erratic capital transfers for loan funding from the department. In addition, rental income is not dependable as a revenue source. The management of the residential property portfolio is highly politicised which makes it difficult to collect rental and arrear revenues.

Loan repayments during the past five years have been on average between 66 and 78 percent, which means the corporation impaired between 22 and 34 percent on all loans issued during 2007/08 to 2009/10. This results in inconsistency of cash flows and liquidity as a percentage of total assets which exposes the corporation to external market forces and makes it very vulnerable to financial shocks. This also poses risks with respect to the going-concern. Figure 2 below shows the variability in cash as a percentage of total assets between 2004/5 and 2009/10.

Conclusion: From the above analysis it can be concluded that there are undependable sources of revenue that threaten liquidity of the corporation and likewise hampers investment decisions.

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3.1.2

Property portfolio

The property portfolio is the corporation’s largest asset class. However, as shown in Figure 3 below, rental income as a percentage of property assets has been declining since 2004/5 financial year.

The performance of this portfolio has been at 10 percent and has been declining because the management of the property portfolio, especially the residential component, is highly political. The market average for performance is 20 to 25 percent. ECDC also spends significant revenues on expenditure for levies, staff overheads, rates and maintenance yet rental collections do not adequately cover these costs.

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Conclusion: This asset is not performing optimally. Its revenues, in terms gross rental income, have been on a constant decline since 2004 thus impacting on the cash resources of the corporation.

3.1.3

Loans

A DFI should ideally have 80 percent of its assets in the loan (project funding) book. While the corporation’s loan book has been increasing steadily since 2004/05, ECDC has however not achieved the aforesaid ideal as its loans comprise only 15 percent of its total assets. Figure 4 and 5 below shows the percentage of loans to the asset base as well as its performance. The upswing in impairments and funding as indicated in Figure 4 and 5 can be attributed to the strict lending criteria that were put in place by the commercial banks during the downswing in the local and global economy.

Conclusion: Although the loan book showed significant improvement from the 2009/10 financial year end, the effects of the downswing in the economy have increased the required impairment provision and hence curtailed further loan book growth. Major capital injection though would be required to increase the percentage asset allocation to the target of 80 percent of loans of total asset. In order to attract this major funding, ECDC would have to review its risk tolerance and appetite and review internal controls in the lending as per the Auditor-General’s recommendations.

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3.1.4

Government funding

Although government has indicated that ECDC should be a self-funding operation in the long-run, direct funding allocation for loans has fluctuated between R45,5m and R36,1m over the past 5 years. These allocations have been erratic and not informed by a strategy to grow and capitalise the book.

Table 1: Government funding allocation ALLOCATION (INCLUDING VAT)

2006/2007

2007/2008

2008/2009

2009/2010

2010/2011

PROMOTION OF SMMEs (PER WHITE BOOK)

45,550,000

31,497,350

75,000,000

99,899,000

99,273,000

-

-

-47,187,000

-51,187,000

-63,123,000

PROVISION OF LOANS

45,550,000

31,497,000

27,813,000

48,712,000

36,150,000

INVESTMENT PROMOTION

9,000,000

14,910,000

17,000,000

19,000,000

20,900,000

TRADE DEVELOPMENT DEVELOPMENT PROJECTS PROGRAMS (ENTERPRISE DEVELOPMENT SERVICES AND PROJECTS) ECDC ALLOCATION FOR NON-FINANCIAL SUPPORT

4,000,000

4,500,000

6,000,000

7,000,000

7,700,000

17,450,000

35,502,650

47,187,000

51,187,000

63,123,000

30,450,000

54,912,650

70,187,000

77,187,000

91,723,000

OTHER FUNDS

35,200,000

58,000,000

20,000,000

-

-

AUTOMOTIVE INDUSTRY DEVELOPMENT CENTRE

-

5,500,000

6,888,000

7,000,000

7,606,000

ASGISA EASTERN CAPE

-

-

100,000,000

150,000,000

-

DEVELOPMENT PROJECTS PROGRAMS

STEINHOF TIMBER

66,931,000

30,300,000

37,400,000

-

-

CO-OPERATIVES

-

-

-

50,000,000

52,600,000

CONDUIT FUNDS

102,131,000

93,800,000

164,288,000

207,000,000

60,206,000

TOTAL VOTED & TRANSFERRED TO ECDC

178,131,000

180,209,650

262,288,000

332,899,000

188,079,000

FOR ECDC PURPOSES

76,000,000

86,409,650

98,000,000

125,899,000

127,873,000

FOR CONDUIT PURPOSES

102,131,000

93,800,000

164,288,000

207,000,000

60,206,000

178,131,000

180,209,650

262,288,000

332,899,000

188,079,000

43%

48%

37%

38%

68%

TRANSFER SPLIT

% TOTAL TRANSFERS FOR UTILISATION BY ECDC

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As can be seen from the table and graph above, non-financial support for services that ECDC conducts on behalf of government has increased quite substantially over the 5 year period. In line with this, ECDC has allocated increased funding to specific units’ project expenditure.

What is slightly more alarming and noteworthy however is the erratic nature of government’s allocation for loans which has varied during the years from a low in 2008/09 at R27m to a peak in 2009/10 of R48m, once again tapering off in 2010/11 financial year (as it previously did in the middle years ended 31 March 2008 & 2009 respectively). This has made planning for growth of development finance very difficult. Despite plans and strategies presented to the shareholder requesting additional resources to recapitalise ECDC (loan book, investments, etc), capital allocations have not kept pace with these needs. The obvious direct impact of this is the negative effect it has on the ability of ECDC to grow the loan book sufficiently to provide a sustainable income stream into the future.

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3.2

Human resources of the corporation

Table 2: Human capital (trends and statistics) Category

2005/6

2006/7

2007/8

2008/9

2009/10

Total

Bonuses paid

Nil

Nil

R2,251,139

R3,616,774

R2,4m

Average of R2,8m

Dismissals Terminations (death, resignation, contract or ill health) Retirement Appointments Average age Actual employees Establishment

0 28

4 23

1 6

1 10

2 6

8 73

3 17

1 5

2 24

2 8

176 181

153 181

0 9 43 148 183

159 183

157 186

8 69 43 Average of 159 Average of 182

Over the 5 year period, 89 employees have left the establishment and only 69 people have been employed. This has been a net loss of 20 personnel. The peak of the loss occurred during the 2006/2007 financial year. And since that time, ECDC have not made considerable steps to reach the approved establishment figures, which are as a result of inter alia, the following: • HR matters such as performance management (bonus payments, target setting and performance contracting etc), succession planning and talent management (training, development and promotions) have been inadequate.

• The regional matrix structure which is ineffective and inefficient. The organisational culture is hierarchical and bureaucratic which makes it very contradictory and inefficient.

• Role clarification and authority levels are not clear and there is confusion which results in very poor employee relations, unnecessary conflicts, mistrust and under performance.

• Inadequate skills amongst HR to deal with staff related attraction, development and retention.

Human capital initiatives are being planned to capacitate and improve the skill of current staff. The current vacancy rate at 18% is relatively high, and needs to be addressed with appropriate interventions. In addition, a clear succession planning model and development is critical to address issues of the average age of 43 years.

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3.3 • • • • • •

Key outcomes of the organisational diagnosis From the analysis of the income and expenditure of the corporation it reveals that there are disparities that make planning difficult, likewise there are no quick fixes, and systemic change is needed over a medium term i.e. three to five years.

The analysis of cash as an asset indicates that this hampers certainty with respect to investments and financing decisions. This also places the corporation in a ‘potential’ going-concern challenge.

With respect to the properties portfolio, it can be deduced that this asset is not performing optimally and is a cash drain, yet it remains politically and socially sensitive.

The loans portfolio should increase to 80 percent of the total portfolio as the core business of a DFI whilst improving the quality of the loan book.

An analysis of government funding for the loan book has indicated that the balance sheet has not been adequately funded to meet the DFI mandate.

Finally the organisation is ineffective, inefficient and unsustainable.

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4.

Strategic planning process

The section outlines the components of a detailed strategic plan that evolved out of a comprehensive engagement process. The outcomes of this process include ECDC’s new core purpose, customers, customer value proposition and values. It also includes the new vision, mission, strategic goals and objectives. In addition, the key performance indicators, desired strategic outcomes and business risks were identified and aligned to each strategic objective. The strategic planning process utilised the Balanced Scorecard (BSC)1 methodology and tools. Figure 7 below shows the strategic planning process that was undertaken.

Figure 7: Strategic planning

Used Balanced

First Phase

Scorecard

Next Phase: ECDC’s operational plans (including budgets) and individual performance agreements

The Balanced Scorecard method is a strategic approach and management system that enables organisations to translate a company’s vision and strategy into implementation working from four perspectives: financial, customer, business process, and learning and growth perspectives.

1

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5.

Purpose of ECDC

ECDC was established to address prevailing socio-economic challenges and market failures within the Eastern Cape. An act of Parliament, ECDC Act 2 of 1997, legislates the creation of a corporation to be the vehicle to support the policy intervention. Therefore the PURPOSE of ECDC is:

To be a development finance corporation for the promotion of economic growth

in the Eastern Cape FOCUSING on the following customers:

•

Enterprises (emerging and existing)

•

Investors (local and international)

•

Government

CUSTOMER VALUE PROPOSITION is therefore to offer:

•

Business finance to emerging and existing enterprises;

•

Relevant market information and finance to local and international investors;

•

Act as an agency for implementation of Government special projects;

•

Contribute to research and policy innovation.

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The underpinning CORPORATE VALUES are:

•

Integrity, Trust and Transparency

•

Excellence, Professionalism and Accountability

•

Respect, Teamwork and Partnerships

5.1

Vision

ENVISION ECDC to be:

An Innovative leader for promoting sustainable economic growth and development of the

Eastern Cape

5.2

Mission

The mission is:

To promote sustainable economic development in the Eastern Cape through focused:

•

Provision of innovative development finance

•

Leveraging of resources, strategic alliances, investment and partnerships

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6.

Strategic Goals

In order to realise the purpose and achieve the vision and mission, the following five key strategic goals were identified:

1.

Stimulate economic activity through focused investment in vital sectors of the Eastern Cape

economy.

2.

Invest in intellectual leadership.

3.

Optimise all resources so as to maximise investment returns and attain financial sustainability.

4.

Build a strong brand.

5.

Establish integrated partnerships with stakeholders to ensure maximum leverage of resources and development outcomes.

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7.

Visioning of a sustainable ECDC for 2015/16

Below are the strategic visioning and the marching steps towards a sustainable ECDC.

7.1

Figure 8: Strategy mapping model and visioning

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The strategy model and map is built on 5 pillars that emerge from the compelling case for change. The pillars are to: a. Build a viable development finance institution through restructuring the balance sheet. b. Undertake investment and trade promotion in the Province. c. Build a capable organisation for high performance. d. Invest in mega projects. e. Strategically develop properties and related economic infrastructure.

The initiatives that will impact these pillars are situated in the detailed strategic plan and strategy map.

7.2

Key performance indicators

The following are the high level key indicators that will ensure that the corporation will be successful in the execution of its strategy over 4 years. The key performance indicators demonstrate “marching steps’ towards the vision of a viable sustainable entity.

Table 3: Key performance indicators Key performance indicator % quality of the loan portfolio impaired Audit reporting

% of total assets in loans and funding % Collection rate (of the total loan portfolio relative to disbursements)

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Indicators Definition of indicator Impairment of loans across all products (old and new portfolio) Compliance to all legislative requirements

Amount of investments that are in loans relative to the entire portfolio Loans collections

Targets 2012/13 2013/14

Estimated Baseline 2010/11

2011/12

2014/15

62% (total loan book)

50%

45%

40%

35%

Clean audit with emphasis of matter 15%

Clean audit with emphasis of matter

Clean audit with emphasis of matter

Clean audit with no emphasis of matter

Clean audit with no emphasis of matter

25%

45%

50%

60%

66%

60%

65%

70%

80%

Key performance indicator Expense to income ratio Number of Mega projects % customer and employee satisfaction Number of jobs created or saved Number of SMME’s assisted

Amount generated to recapitalise ECDC3

2 3

Indicators Definition of indicator Operational sustainability >R50 million projects engaged Customer and employee satisfaction Number of job created

by Development Finance Unit Number of businesses supported in priority sectors (enterprise development services) Raising of capital through various avenues

2011/12

2012/13

130%

128%

110%

110%

100%

1

2

2

3

3

No base2

10% improvement

2498

Set base 10% improvement 3000

3500

4000

4500

266

350

450

550

650

R0

R100 million

R250 million

R250 million

R250 million

This has not been measured previously and is a new action with no base relative to the targets set.

Subject to successful application to National Treasury for a Section 66 of the PFMA permission to borrow.

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Targets 2013/14

Estimated Baseline 2010/11

10% improvement

2014/15

10% improvement

8.

Key strategic objectives

Using the Balance Scorecard (BSC) approach, the strategic objectives, expected outcomes, key performance indicators and business risks that may affect the strategic plan were identified. Figure 9 below shows ECDC’s strategy map which is a graphic representation of the balance scorecard. It shows how the objectives to be pursued by the corporation are aligned to the four BSC perspectives i.e. financial, customer, internal business processes, learning and growth perspectives.

Subsequently, Table 4 shows the detailed strategic plan which includes objectives, key performance indicators, strategic outcomes and risks according to each BSC perspective. Furthermore, each objective identified has been aligned to address the business risks associated with it.

The SMART principle has been used in the development of the objectives and related indicators and targets and both the map and scorecard (Figure 9 and Table 4) must read in conjunction to fully realise the extent of the SMART objectives. The details of the strategic plan as Table 4 cover an implementation period of 3 years as per Treasury regulations and have led to the development of the Corporate Business plan and respective annual performance plans.

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Figure 9: Eastern Cape Development Corporation strategy map

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Table 4: Details of the strategic plan4 Perspective

Strategic objectives

Development Impact

Economic development of the Eastern Cape

1 FINANCIAL PERSPECTIVE

F1 DECREASE LOSSES ON OPERATIONS

Key performance indicator • • • • • •

Contribution to National Job creation target Contribution to impact of standard of living.

Contribution to the GDP Disposal of property Pricing of loan products.

Impairments (% of total loan book)

Strategic results/outcomes

Risk alignment

• Contribution to NGP

#14

Failure/inability to meet changing shareholder expectations

• Loss reduction.

• Cash reserves/liquidity.

• Quality of the book.

#1

Failure to achieve sustainability Failure to generate sufficient income to cover cost and sustainability of unit.

Slow turnaround time in the disposal of properties Failure to generate sufficient income to cover cost and sustainability of unit.

Insufficient funding for loans.

The balance sheet is not structured to be a DFI. Lack of segregation of duties in the development investment unit between the pre-investment and post investment

#4

#16 F2 OPTIMISE AND GROW RETURNS ON INVESTMENTS AND ASSETS

F3 MAXIMISE COST EFFICIENCY

4

• • • • • • •

• • •

Gearing and leveraging on Infra Fund Value of new loans approved and disbursed GRA : Rentals and arrears collected No. of new investments e.g. per year, per sector.

Value of new investments (FDI and LDI) Value of exports Amount of third party funding leveraged for special development projects

Reduction of property maintenance costs Cost to income ratio Percentage of government transfers to ECDC (dependency ratio)

• New investors from public and private sector • Job creation • New private equity fund • New investment promotion strategy • ROI

• Profitable corporation • Increased liquidity/ reserves • Annual surplus • New investment/ business projects

A full technical indicator document will be developed over 2011/12 and 2012/13 for adoption by the Board of ECDC.

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#4

#6 #13 #3

#4

#13

Failure to generate sufficient income to cover cost and ensure sustainability of the unit The balance sheet is not structured to be a DFI.

Perspective 1 FINANCIAL PERSPECTIVE

Strategic objectives F4 MAINTAIN ADEQUATE LEVELS OF LIQUIDITY

Key performance indicator • Loan repayment rate • Debt to equity ratio • ROI on cash reserves

Strategic results/outcomes • Quality of loan book • Balance sheet efficiency and funding model • New private equity fund

Risk alignment #1

#22

#13 2 CUSTOMER PERSPECTIVE

C1 POSITION THE ECDC AS THE FINANCIER OF CHOICE

C2 INCREASE THE ECDC PROVINCIAL FOOTPRINT

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• No. of firms offered pre-start up assistance and post finance after care support • No. of incubates participating in ECDC mentorship programme • No. of complaints received and addressed on time • Visitor rooms for client’s consultations at ground floor (head office) • Accurate debtor’s statements (billings).

• % of positive media coverage.

No. and value of loans granted per municipality (former Transkei) • Rand value of funds spent in supporting Municipalities (spatial , project planning, etc) • No. of memorandum of understanding (MOU)/service level agreements (SLAs) made per year with other Government bodies • Impact assessment of ECDC products and services in 3 years.

•

• Decrease in default rate • Reduction in days to process an application.

• Reduction in customer complaints • Knowledge hub.

• Rebranding.

• Customer relations model • Positive media report monitoring.

• Improvement in quality of life.

• SLAs implemented and approved.

#11 #13

#6 #17 #22 #8 #6 #14

#5 #11

Failure of ECDC to achieve sustainability Notion that ECDC is perceived as a funder of grants as opposed to development finance/loans.

The balance sheet is not structured to be a DFI. Lender of last resort.

Balance sheet is not structured to be a DFI Insufficient funding for loans.

Failure to provide in-house business support Notion that ECDC is grant funder.

Lack of aftercare.

Insufficient funding for loans Failure/inability to meet changing shareholder expectations High rate of loan defaulters.

Lender of last resort.

Perspective

Strategic objectives

3 CUSTOMER PERSPECTIVE

C3 ESTABLISH STRATEGIC PARTNERSHIPS WITH STAKEHOLDERS

C4 BUILD A BALANCED MARKET PORTFOLIO

Key performance indicator •

• • •

No. of MOU/SLAs made per year with stakeholders/ other DFIs/ agencies etc in the Eastern Cape No. of joint funded and implemented projects Periodic stakeholder satisfaction surveys Programmes initiated with chambers of business

• Develop a Loan Portfolio concentration mix model • New developmental micro-loans model (SMME fund) • Revised Imvaba fund

Strategic results/outcomes

Risk alignment

• Revise ECDC products and services.

• Improved brand awareness (product and services) • Increased uptake of products and services • Streamlined co-operative fund model impacting enterprise development

#13

• Growth of net surplus • New developmental microloan special purpose vehicle • Portfolio management model and analysis report

#15 #11

#14

#6 #22 #11 #20

#13 #22

4 INTERNAL PROCESSES PERSPECTIVE

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P1 DESIGN AND STREAMLINE INNOVATIVE SOLUTIONS

Business Process Reengineering: - Reduction in the turnaround times.

- No. of days required to approve loans and disburse.

- No. of days taken to allocate tenants - Time to answer calls.

• Number of new products researched and launched • Develop new business model (organisation development) • Creation of a research and development (R & D) function.

• New business processes • Structure, people, systems and processes aligned to strategy

#16

#15 #12 #3

#20

The Balance sheet is not structured to be a DFI Failure/inability to meet changing shareholder expectations Insufficient funding for loans.

Notion that ECDC is a grant funder Lender of last resort Limited integration of financial and non-financial services

Low employee morale Lender of last resort (providing financial support to a client base that is non bankable) The Balance sheet is not structured to be a DFI Notion that ECDC is grant funder.

Slow turnaround time in the disposal of properties Low employee morale The organisational structure is not appropriately aligned Lack of segregation of duties in the development investment unit between the pre- and post investment Limited integration of financial and non-financial services

Perspective 4 INTERNAL PROCESSES PERSPECTIVE

Strategic objectives

P2 DEVELOP CUSTOMER MANAGEMENT RELATIONSHIP PROCESSES

Key performance indicator

• Periodic customer satisfaction surveys • Aftercare model and visits from investment and trade promotion unit • Number of hits on the website.

Strategic results/outcomes

External and internal customer and stakeholder satisfaction.

Risk alignment #2 #15 #7

#8 #14 #7

P3 DEVELOP EFFECTIVE RISK MANAGEMENT PROCESSES

5 LEARNING AND GROWTH PERSPECTIVE

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L1 INVEST IN HUMAN CAPITAL IN LINE WITH CORE BUSINESS

• Implement King III and Companies Act readiness program.

• Clean audit with no emphasis of matter • Implement risk tolerance framework.

• Implement A-G and internal audit tracking register.

• Annual number of external cases investigated by the South African Police Services (SAPS) for misappropriation, misallocation and misapplication of ECDC funds • Annual no. of internal and external cases investigated by internal auditors for misappropriation of ECDC funds • Number of reports on the exposures due to future changes in economic conditions.

• Employee satisfaction index (BCTWF) • Vacancy rate of key skills • Value of training programmes implemented.

• Embedded performance management model • Develop and implement six critical HR policies (remuneration, performance, discipline, etc) • Harmonise conditions of employment throughout the entire corporation (organisational development exercise) • Conducive employer/employee relations.

• Implementation of workplace skills plan (WSP) for ECDC.

• Implementation of a credit risk function • Improve compliance to best practice corporate governance framework • Unqualified audit finding and improved control environment

#5 #7

Skills audit/gap analysis Succession plan New skills attracted.

Quality services and products offered to customers and stake holders • Work Skills Programme (WSP) • Performance management system implemented.

#9 #17

• • • •

#11

#2

#10 #21

Lack of skills and capacity Low employee morale Lack of integrity of personnel Lack of aftercare to loanees Failure/ inability to meet changing shareholder expectations The lack of integrity of personnel High rate of loan defaulters The lack of integrity of personnel Lender of last resort.

Lack of succession planning Failure to provide in house business support to emerging entrepreneurs for all sectors Lack of human capital and skills Failure to harmonize conditions of employment.

Poor employee/employer relations affecting

Perspective 5 LEARNING AND GROWTH PERSPECTIVE

Strategic objectives

Key performance indicator

L1 INVEST IN HUMAN CAPITAL IN LINE WITH CORE BUSINESS

• Organisational structure aligned to strategy.

(Organisational development process).

L2 DEVELOP A CULTURE OF EXCELLENCE AND LEADERSHIP

• • • •

•

L3 INCREASE EFFECTIVE DECISION MAKING BASED ON ACCURATE MANAGEMENT INFORMATION AND KNOWLEDGE SYSTEMS L4 BUILD DEVELOPMENT FINANCE AND ECONOMIC INTELLIGENCE

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Management information system for decision making.

Develop a corporate performance measurement tool Market intelligence report.

Periodic / regular reporting and feedback on performance from management.

Codifying leadership skills and behaviours

• Improved productivity and efficiency • Code of conduct and ethics.

• HR policy gap closed.

• Improve internal communication • Continuous improvement process to control quality.

• Corporate reporting system.

Risk alignment

#22

#11

#20 #10

• IT strategy • Master systems plan (MSP)

• •

Strategic results/outcomes

No. of research/information booklets produced per year Knowledge management system.

• • •

Approved MSP Developed IT strategy.

Business intelligence tool (writing reports, etc)

• Number of products developed from research • Knowledge Management System (KMS) implementation including registry

#18

#19

#19

#18

productivity and efficiency.

Notion that ECDC is perceived as funder of grants as opposed to development finance/loans.

Lender of last resort (Providing financial support to a client base that is nonbankable) Limited integration of financial and non-financial services.

Failure to harmonize conditions of employment Loss of critical IT infrastructure and information.

Lack of succession planning and business continuity within IT department.

Lack of succession planning and business continuity within IT department Loss of critical IT infrastructure and information.

9.

Top risks

Below is a list of the top strategic and operational risks (ranked and rated) that were identified during the business risk identification and rating project which took place in April 2010.These risks are aligned to the key objectives for mitigation, monitoring and measurement. These risks have also been aligned to the details of the strategic plan so that risk can be mitigated adequately.

Table 10.1: ECDC risks from highest to lowest #

Description of the risk identified 1

The failure of ECDC to achieve sustainability

2

Lack of human capacity and skill

3

Lack of segregation of duties in the development investment unit between the pre and post investment

4

Failure to generate sufficient income to cover cost and ensure sustainability of the unit

5

High rate of loan defaulters

6

Insufficient funding for loans

7

The lack of integrity of personnel

8 9

Lack of aftercare service to loanees Lack of succession planning

10

Failure to harmonize conditions of employment

11

Lender of last resort (providing financial support to a client base that is non-bankable)

12

ECDC’s organisational structure of the ECDC is not appropriately aligned

13

The balance sheet is not structured to be a DFI

14

Failure/inability to meet changing shareholder expectations

15

Low employee morale

16

Slow turnaround time in the disposals of properties

17

Failure to provide in-house business support to emerging entrepreneurs for all sectors

18

Loss of critical IT infrastructure and information

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#

Description of the risk identified

19

Lack of succession planning and business continuity within the IT department

20

Limited integration of financial and non-financial services

21

Poor employee/employer relations affecting productivity and efficiency

22

Notion that ECDC is perceived as funder of grants as opposed to development finance/loans.

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Eastern Cape Development Corporation

Research into the Socio-economic Environment in the Eastern Cape FINAL REPORT

Executive Summary This initial research report includes both an in-depth desktop analysis of the current socio-economic environment in the Eastern Cape and an institutional analysis of the Eastern Cape Development Corporation (ECDC). This is accompanied by an analysis of the impact of provincial growth and development policies and strategies, with the latter two based on a series of in-depth interviews conducted with a range of stakeholders in the Province. The findings contained in this research report are intended to facilitate the development of the programme agenda for the ECDC Board Strategy Workshop.

Socio-economic Analysis Historically, the Eastern Cape region has been beset by a variety of socio-economic challenges including pervasive poverty and widespread unemployment. The provincial economy is also fundamentally dual in nature: 70 percent of the population is located in the rural areas of the Province, yet these areas collectively contribute just 8 percent of the Province’s secondary output.

Economic growth in the Eastern Cape has been unstable since 1995, and the gross domestic product (GDP) growth rate has declined from 3.3 percent in 1996 to –0.9 percent in 2009. Capital investment expenditure in building, construction, transport, machinery and equipment also declined steadily between 1995 and 2008.

In contrast, trade in goods increased by an annual average growth rate of 18.7 percent between 1995 and 2008. The Province’s major export merchandise has traditionally consisted of motor vehicles, parts and accessories, machinery and equipment, rubber products, textiles and food. In turn, the chief imports include motor vehicle parts and accessories, machinery and equipment and basic chemicals.

Unemployment in the province has remained high, reaching 27 percent in the fourth quarter of 2009. The majority of those employed in the formal sector work in the public sector, with large shares of people also employed in the manufacturing, wholesale and retail trade, and tourism sectors. The informal sector remains a dominant force in the provincial economy and, of the new jobs created in the fourth quarter of 2009, 62 percent were generated in the informal sector. The majority of those employed in the informal sector work in wholesale and retail trade, tourism and construction activities.

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Education remains a constraint to provincial economic growth and development. Although the number of people with no schooling declined from 21.3 percent in 1995 to 17.2 percent in 2008, the uptake into secondary education has been very low. The number of those with a grade 8 to 12 level of education remained steady, averaging 28.9 percent each year between 1995 and 2008. There has been a negligible increase in the proportion of highly skilled people in the Province since 1995, which has severely hampered the level of economic activity in the Eastern Cape.

An analysis of the welfare of individuals and households in the province showed that 58.3 percent of the population was living in poverty in 2008. Furthermore, approximately two-thirds of the population had an income of below R800 a month in 2007. The Amathole and O.R. Tambo districts were home to the largest numbers of people living in poverty between 2004 and 2008.

Access to basic services has also deteriorated across the Province. There has been a decline in the proportion of households with access to electricity for lighting from 46.9 percent in 2001 to 45.9 percent in 2008. Similarly, the number of households with access to piped water inside their dwelling or yard declined from 37.8 percent in 2001 to 36.5 percent in 2008. Worryingly, more than two-thirds of the households in the Amathole and O.R. Tambo districts had no toilet facilities in 2007. The prevalence of HIV/AIDS in the Province has also grown steadily from 2.4 percent in 1995 to 16.7 percent 2007. The majority of those infected are between the ages of 25 and 49.

Within this context, the ECDC, as the official economic development and investment agency for the Eastern Cape, has an important role to play in driving the economic growth and development of the Province.

Institutional Analysis Among most stakeholders there was a feeling that the ECDC should play a prominent role in driving the future growth and development of the Eastern Cape.

However, the general feeling is that the ECDC’s current mandate is too wide and needs to be refocused if the Corporation is to effectively fulfil its role as a development institution.

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There was consensus among a number of stakeholders that the ECDC is best placed to focus on its role as a development finance institution in the Province. One prominent view was that the ECDC should drive funding targeted at the segments of the market that are not served by commercial banks. Linked to this, there was a belief that the Corporation should also play a role in the development of viable investment projects in the Eastern Cape and provide support for development activities. At the same time, some stakeholders have questioned whether the ECDC has the financial resources and operational capacity to simultaneously perform other functions such as export and investment promotion.

Across the various provincial and national agencies operating in the Eastern Cape there is a degree of overlap in terms of the functions that they currently perform. These overlapping functions provide opportunities to establish strategic relationships between agencies while, at the same time, creating a need to define more clearly the roles of the various institutions. This will require a thorough review of the mandates of the various provincial agencies and entities operating in the development space in the Eastern Cape.

To date, the performance of the ECDC has been affected by a number of internal and external factors. First and foremost, the Corporation’s wide ranging mandate has meant that its resources have been stretched thinly, and this has affected its ability to perform multiple functions effectively. In recent years, the performance of the ECDC has also been affected by a significant degree of institutional instability. The focus on stabilising the institution internally has meant that less focus has been placed on addressing the ECDC’s previous external market failures.

The operational capacity of the ECDC continues to be affected by technical capacity shortages. The Corporation does not possess sufficient in-house technical skills for certain financial and non-financial support functions and the skills problem is exacerbated by the high average age of ECDC employees. Another challenge that has confronted the ECDC is the poor image of the Corporation in recent years.

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Impact of Provincial Growth and Development Policies and Strategies Despite the best intentions of the existing provincial development policies and strategies, they have achieved only a very limited impact in terms of reducing the levels of poverty and social marginalisation in the Eastern Cape. Much of the limited impact of these policies and strategies can be attributed to a lack of implementation, together with a lack of coordination of resources and a lack of matching of resources to prioritised needs.

The goals of the Provincial Growth and Development Plan (PGDP) have been labeled by some stakeholders as unrealistic given the existing levels of capacity and resources available in the Eastern Cape. It has also been argued that the PGDP has not been internalised by government departments in the Province, and that departmental planning has not been operationalised along the imperatives of the PGDP. The existing provincial growth and development policies and strategies have also failed to effectively address weaknesses in rural development in the Eastern Cape. Much of this is due to the continued absence of meaningful economic linkages between the region’s major urban and peri-urban areas and the rural parts of the Province.

Growth and development in the Province has been affected by trade promotion strategies that have been reactive rather than pro-active. In addition, the impact of policies and strategies on provincial growth and development has also been constrained by certain investment climate barriers in the Eastern Cape. These include significant infrastructure deficiencies and institutional instability, which have affected the Province’s ability to attract much needed investment.

A need was identified to re-focus the sectors within the provincial economy that should receive priority attention. The long list of priority sectors identified in the PGDP has been described by some stakeholders as a “wish list”. Based on the input of key stakeholders, attention should be given to prioritising the following sectors as drivers of job creation and poverty alleviation in the Eastern Cape: Agriculture and agro-processing Forestry Automotive industry Renewable energy Tourism Oil refining

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Emerging Issues Based on the findings contained in this research report, the following critical challenges to socio-economic development in the Eastern Cape need attention: Lack of progress in terms of rural development.

Poor implementation of provincial growth and development policy strategies.

Refocusing priority sectors for job creation and poverty alleviation.

Diversifying the Province’s trade and investment promotion strategies.

Directing provincial financial resources to drive socio-economic development initiatives more effectively.

Focusing on the repositioning of the ECDC and reformulating the Corporation’s strategy, the following issues should receive attention during the ECDC Board Strategy Workshop: Defining the ECDC’s core business and focus as well as the products/services that it offers.

Avoiding duplication and mission creep between provincial agencies and entities by clarifying mandates and roles.

Keeping the ECDC sustainable and commercially viable.

Managing the ECDC’s property portfolio in a manner that contributes effectively to the financial sustainability of the organisation.

Addressing the shortage of technical capacity within the ECDC. Managing the reputation and image of the ECDC. Addressing the institutional instability within the ECDC. Formalising the ECDC’s relationships and strategic partnerships with other provincial agencies and entities.

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Table of Contents 1. Context ...............................................................................................................................................................3 2. Socio-economic Analysis .....................................................................................................................................5 2.1 Economic growth ..........................................................................................................................................6 2.2 Population dynamics .....................................................................................................................................8 2.3 Investment....................................................................................................................................................9 2.4 Trade ......................................................................................................................................................... 11 2.5 Labour trends ............................................................................................................................................. 13 2.6 Education ................................................................................................................................................... 16 2.7 Literacy ...................................................................................................................................................... 17 2.8 Poverty ....................................................................................................................................................... 18 2.9 HIV and AIDS ............................................................................................................................................. 23 3. Institutional Analysis .......................................................................................................................................... 25 3.1 The current state of the ECDC .................................................................................................................... 25 3.2 The future direction of the ECDC ................................................................................................................. 28 4. Analysis of the Impact of Existing Provincial Growth and Development Policies and Strategies ........................... 30 4.1 Provincial growth and development policy frameworks ................................................................................. 30 4.2 Analysing the impact of existing provincial growth and development policies and strategies .......................... 32 4.3 Refocusing priority sectors .......................................................................................................................... 33 5. Emerging Issues ............................................................................................................................................... 36 References ........................................................................................................................................................... 38 Appendix I ............................................................................................................................................................ 39

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List of Acronyms AIDS

Auto Immune Deficiency Syndrome

AsgiSA

Accelerated and Shared Growth Initiative of South Africa

DBSA

Development Bank of Southern Africa

ECDC

Eastern Cape Development Corporation

ECSECC

Eastern Cape Socio Economic Consultative Council

ELIDZ

East London Industrial Development Zone

GDP

Gross Domestic Product

HIV

Human Immunodeficiency Virus

IAPA2

New Industrial Policy Action Plan

IDC

Industrial Development Corporation

IDZ

Industrial Development Zone

ISRDS

Integrated Sustainable Rural Development Strategy

MIDP

Motor Industry Development Programme

PGDP

Provincial Growth and Development Plan

PIDS

Provincial Industrial Development Strategy

SME

Small and Medium Enterprise

STATS SA

Statistics South Africa

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1.

Context

In April 2010, Mthente Research and Consulting Services (Pty) Ltd was commissioned by the Eastern Cape Development Corporation (ECDC) to conduct research into the economic environment of the Eastern Cape and facilitate the ECDC Board Strategy Workshop at the end of May 2010. This report represents the initial output from the research process, which has involved both an in-depth desktop analysis of the current socio-economic environment and economic performance in the Eastern Cape, and a series of in-depth interviews with a variety of stakeholders in the Province ranging from key government officials to representatives of other agencies and entities operating in the Eastern Cape. The findings contained in this research report are intended to facilitate the development of the programme agenda for the ECDC Board Strategy Workshop.

The Eastern Cape is the second largest province in South Africa after the Northern Cape, with a total population in 2009 of 6.3 million people. 1 The provincial economy is heavily reliant on the manufacturing sector (which is dominated by the automotive industry) as well as finance, real estate and business services clusters among the secondary and tertiary industries, respectively.

Historically, a variety of socio-economic challenges – many of which are related to pervasive poverty and widespread unemployment – have beset the Eastern Cape region. In recent years, however, significant progress has been made towards addressing the high levels of poverty and unemployment in the Province.

Since 2004, more than 200 000 people have been “lifted out of poverty”; and, at the same time, the unemployment rate in the Province declined by more than 6 percent from 29.6 percent in 2004 to 23.1 percent in 2007.2 Growth in the provincial economy has reached 5.3 percent, increasing from just 2 percent in 2002.3 Much of this good growth performance has been underpinned by the strong performance of the Province’s Industrial Development Zones (IDZs), which have benefitted from rapidly increasing levels of investment. For instance, investment in the East London Industrial Development Zone (ELIDZ) increased from R450 million in 2006 to reach R755 million the following year, with the number of investors rising from four to 11 over the same period.4 Despite this, the Province has experienced a recent surge in unemployment on the back of the global economic crisis. Specifically, the provincial unemployment rate reached 27 percent in the fourth quarter of 2009, with the number of discouraged job seekers increasing by 30.4 percent since 2008.

Significant challenges to economic development in the Province still remain. At the heart of these challenges is the reality that the provincial economy is fundamentally dual in nature. Approximately 60 percent of the Province is rural,5 and the spatial distribution of the majority of the provincial population is located in the former homelands areas – which are distant from the main centres of economic activity in the Province. Individuals living in these areas survive mostly on subsistence agriculture, migrant labour and welfare grants.

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“The Eastern Cape economy very much conforms to the President’s metaphor of “two economies” – a modern industrial, financial, and services sector located in Buffalo City and the Nelson Mandela Metropole, and a “marginalized” economy located primarily in the former bantustans, characterized by underdevelopment, containing most of the population, contributing very little to GDP, and being incapable of self-generated growth and development.” 6 As a result, the Eastern Cape is characterised by uneven development. The Province’s four Integrated Sustainable Rural Development Strategy (ISRDS) nodes (comprising the O.R. Tambo, Chris Hani, Ukhahlamba and Alfred Nzo district municipalities) collectively contribute just 8 percent of the region’s secondary output, yet are home to 70 percent of the provincial population.7 In turn, a significant proportion of the Eastern Cape population does not participate in “wealth creating entrepreneurial activity”.8 This not only has a significant impact on household incomes in the Province, but also places considerable pressure on the social safety net and provincial and local government revenue bases in the Eastern Cape.

In recognising these challenges, the Eastern Cape Provincial Government has launched the Provincial Growth and Development Plan (PGDP) to provide a blueprint for growth and development in the Province. Much of the focus of the PGDP is on the transfer of skills and productive assets to the poor in order to facilitate more broad-based participation in the provincial economy. The PGDP targets an annual provincial economic growth rate of between 5 percent and 8 percent; and seeks to reduce the number of households living below the poverty line by 80 percent by 2014.9 The Plan also aims to ensure that the Eastern Cape is food self-sufficient by 2014, and that basic services such as clean water and sanitation (all sanitation backlogs to be eliminated by 2010) are available to all.10 At the same time, the Province’s Framework for Growth and Development 2004-2014 outlines a number of strategic focus areas designed to drive economic growth and development in the Eastern Cape. The specific focus areas are: agrarian transformation and food security; poverty eradication; manufacturing diversification and tourism; public sector transformation; infrastructure development; and human resource development.

The ECDC, as the official economic development and investment agency for the Eastern Cape, has a primary role to play in driving the economic growth and development of the Province. The agency works in tandem “with provincial and national government ministries, chambers, private business, communities and other development agencies to implement the economic development policies of the Eastern Cape provincial government.”11 The mandate of the ECDC is closely aligned to the strategic intent of the Eastern Cape’s PGDP, and the agency is focused on supporting existing businesses in the Province, creating opportunities for new business, growing and sustaining existing markets and developing new markets, improving access to enterprise finance, and ensuring that skills and infrastructure are developed in the Eastern Cape.12

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2.

Socio-economic Analysis

This section outlines the current state of the provincial economy and analyses growth trends in specific sectors. It aims to provide a snapshot of the performance of various socio-economic indicators relevant to the conceptualisation of a strategic development plan for the Province.

The table below presents a summary of the socio-economic indicators that are analysed in the subsequent subsections.

Table 1: Socio-Economic Indicators for the Eastern Cape [Source: Statistics South Africa] Indicator 1. Economic Growth

Measure GDP growth rate (nominal terms)

1996 3.3%

Trend and Performance 2000 4.3%

2008 1.9%

2. Investment

Capital investment expenditure in EC as a % of total investment in SA

7.8%

7.6%

7.3%

3. Labour

Unemployment rate

29.1%

23.5%

4. Education

% of population with no schooling/grade 0 % of population with grade 1 - 7 % of population with grade 8 -12 % of population with cert/dip & grade 12 % of population with degree/higher degree

21.3% 34.3% 27.8% 1.8% 0.7%

18.2% 37.7% 29.1% 2.1% 0.9%

17.4% 39.0% 29.2% 2.2% 0.9%

5. Literacy

Literacy rate

59.3%

64.1%

65.5%

6. Poverty

% of population living in poverty

57.9%

64.2%

58.3%

7. Energy

% number of households with electricity for lighting

36.5%

45.0%

45.9%

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8. Water

% number of households with piped water inside dwelling or yard

37.0%

37.7%

36.5%

9. Sanitation

% number of households with flush or chemical toilets

33.1%

34.8%

34.1%

10. HIV & AIDS

% of population with HIV & AIDS (age 15-64)

3.75%

10.5%

16.7% (2007)

2.1 Economic growth According to Statistics South Africa (Stats SA), the provincial economy grew by an annual average of 2.3 percent from 1996 to 2000 (See Figure 1) and by 3.1 percent from 2001 to 2005. Annual gross domestic product (GDP) growth in 2006 was 5 percent and 4.7 percent in 2007. The Eastern Cape’s estimated seasonally adjusted GDP stood at -5 percent in the second quarter of 2009. It recovered during the third quarter to 0.8 percent and rose again during the fourth quarter of 2000 to 2.8 per cent.13 Across the Province, GDP and employment distribution remains heavily concentrated in the Nelson Mandela Bay Metropolitan Municipality and the Amathole District Municipality.

Eastern Cape Growth Rate

6.0

5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0

1996

1997

1998

1999

2000

2001

2002 Year

2003

2004

2005

2006

2007

2008

2009

Figure 1: Eastern Cape GDP Growth Rate, 1996-2009 [Source: Stats SA] (c) Mthente Research and Consulting Services (Pty) Ltd, May 2010

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Table 2 shows the contribution to GDP of key economic sectors in the province. Approximately 53.5 percent of the provincial GDP between 2003 and 2007 was derived from the three fastest growing sectors: government services, manufacturing, and finance, real estate and business services. Of these sectors, the financial, real estate and business services sector has consistently been a key driver of growth in the economy. Since 2004, these industries have steadily outperformed the public sector (government services) in contributions to provincial GDP. Their contribution has grown from 17.3 percent in 1995 to 19.7 percent in 2007. Despite this, the public sector still plays a significant developmental role in the economy. Although the public sector’s contribution to economic growth decreased from 21.1 percent in 1995 to 17.7 percent in 2007, it has been the second largest source of GDP growth since 2004. This is closely followed by the manufacturing sector. The steady decline in the performance of the agriculture, forestry and fishing sector underscores the need for collaboration among all stakeholders in order to attract investment in agro-processing, aquaculture and fisheries if the Province is to achieve its strategic objectives. In addition, the tourism (hotels and restaurants), wholesale and retail trade, transport and communication sectors are potential growth sectors in the economy.

Table 2: Provincial GDP contribution by Industry [Source: Stats SA] Industry Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity and water Construction Wholesale & retail trade; hotels & restaurants Transport and communication Finance, real estate and business services Community, social and other personal services General government services Taxes less subsidies on products

2003 2.3 0.1 16.4 1.2 2.1 14.1 8.8 18.3 9.1 18.7 9.1

Percentage of Total GDP(Eastern Cape) 2004 2005 2006 2.2 2.2 2.0 0.1 0.1 0.1 16.4 16.2 16.0 1.1 1.1 1.1 2.1 2.3 2.3 14.2 14.3 14.4 8.7 8.7 8.6 18.9 19.1 19.4 8.9 8.9 8.9 18.4 18.2 17.9 8.9 9.0 9.2

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2007 1.9 0.1 16.0 1.1 2.5 14.4 8.6 19.7 8.9 17.7 9.2

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2.2 Population dynamics The Eastern Cape had a total population of 6 294 274 in 2008. Between 1995 and 2008, the population growth rate was 0.5 percent, in spite of negative growth among the Coloured and White population groups. Table 3 shows the population distribution for each district municipality between 2004 and 2008. The Amathole and O.R. Tambo districts recorded the largest populations during this period.

Table 3: Total Population Distribution by District Municipality, 2004 – 2008 [Source: Stats SA] District Cacadu District Municipality

2004

2005

2006

2007

2008

387,685

386,685

385,448

383,163

385,019

Amathole District Municipality

1,658,030

1,653,790

1,646,156

1,635,433

1,641,661

Chris Hani District Municipality

801,681

796,954

789,954

780,667

783,652

Ukhahlamba District Municipality

345,571

346,660

347,202

347,253

349,783

O.R. Tambo District Municipality

1,711,938

1,722,005

1,728,596

1,731,862

1,751,820

Alfred Nzo District Municipality

409,025

416,520

424,580

433,363

437,707

Nelson Mandela Metropolitan District Municipality

984,712

974,218

960,519

943,785

944,632

6,298,642

6,297,153

6,282,455

6,255,526

6,294,274

Eastern Cape Province

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2.3 Investment

Fixed Investment in R Millions

Capital investment expenditure in building and construction works, machinery and equipment as well as transport in the Easter Easternn Cape grew from R147 517 million in 1995 to R181 557 million in 2008 (see Figure 2). This represented a year on year average growth of 1.6 percent.

200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

Figure 2: Capital Investment Expenditure in the Eastern Cape, 1995 – 2008 [Source: Stats SA] Even though capital investment expenditure in these areas has grown since 1995, the performance has been less impressive when considered in relation to national investment statistics. For instance, in 2008 capital investment expenditure in building and construction works, machinery and equipment and transport in the Eastern Cape accounted for 7.3 percent of the national fixed investment. Furthermore, capital investment expenditure in these areas has declined steadily from 7.8 percent in 1995. Any further reduction in capital investment is likely to hamper general economic activity in the province.

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% of National Capital Investment

7.9 7.8 7.7 7.6 7.5 7.4 7.3 7.2 7.1 7.0 1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Figure 3: Capital Investment Expenditure National Comparison, 1995 – 2008 [Source: Stats SA] Table 4 shows the capital investment expenditure in the various district municipalities since 2004. The Amathole District Municipality and Nelson Mandela Metropolitan Municipality received the highest investment expenditure between 2004 and 2008. Both account for an average of 60 percent of the provincial investment expenditure in that period. Alfred Nzo District Municipality has received the smallest absolute share of investment expenditure since 2004.

Table 4: Capital Investment Expenditure by District Municipality, 2004 – 2008 [Source: Stats SA] Investment in R Millions District

2004

2005

2006

2007

2008

Cacadu District Municipality

15,831

16,947

18,537

19,977

21,509

Amathole District Municipality

44,285

44,975

45,816

46,889

48,076

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Investment in R Millions District

2004

2005

2006

2007

2008

Chris Hani District Municipality

12,827

13,461

14,189

15,051

15,939

Ukhahlamba District Municipality

6,491

7,264

8,164

9,177

10,228

O.R. Tambo District Municipality

17,211

17,634

18,172

18,836

19,605

Alfred Nzo District Municipality

4,136

4,255

4,397

4,569

4,756

Nelson Mandela Metropolitan District Municipality

58,765

59,212

59,702

60,530

61,446

Total investment Eastern Cape Province

159,546

163,748

168,797

175,030

181,557

2.4 Trade The Eastern Cape’s trade in goods totaled R87 billion in 2008. This represented 11.3 percent of South Africa’s overall trade in goods. Exports in goods were valued at R44.3 billion in 2008. Major export merchandise included motor vehicles, parts and accessories, machinery and equipment, rubber products, textiles and food. The Province’s exports of motor vehicles, parts and accessories contributed 57.6 percent of the total export value in 2008. The annual average export growth rate between 1996 and 2008 was 24 percent.

The top five export destinations in 2008 were the United States, Germany, Japan, Australia and Spain. Mozambique was the only African country included among the 20 top export destinations in that year. Thereafter, China replaced Australia among the top five export destinations in 2009.14 Mozambique and Zimbabwe were the only African countries among the top 20 export destinations in 2009.

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90 80

Percentage Growth

70 60 50 40 30 20 10 0 -10

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

-20 Exports

Imports

Figure 4: Percentage Growth of Eastern Cape Imports and Exports (Rand values), 1996-2008 [Source: Stats SA] The value of goods imported into the Province stood at R42.1 billion in 2008. Imports increased in Rand value by an annual average rate of 14.9 percent between 1996 and 2008. The majority of imports were in the manufacturing sector, and included motor vehicles parts and accessories, machinery and equipment and basic chemicals.

The top five countries of origin for imports in 2009 comprised of Germany, Britain, Spain, the United States and China. Germany was by far the largest country of origin for imports, with the value of imports from that country amounting to approximately R14 billion in comparison to Britain, Spain and the United States – with the value of imports from those countries totalling approximately R2 billion.15 The dominance of German imports can be attributed to the fact that Germany is the major source of components for firms in the automotive industry.

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2.5 Labour trends Using Stats SA’s narrow definition of unemployment, the unemployment rate in the Eastern Cape declined from 29.1 percent in the first quarter of 2000 to 23.5 percent in the first quarter of 2009. The majority of those employed in the formal sector work in the public sector. This is followed by employment in the manufacturing, wholesale and retail trade and tourism sectors. There has been a steady decline in those employed in the formal sector of agriculture, forestry and fishing from 333 176 in the first quarter of 2000 to 81 935 in the first quarter of 2009. The majority of those employed in the informal sector of the provincial economy work in the wholesale and retail trade, tourism and construction sectors.

40

Unemployment rate

35 30 25 20 15 10 5 0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Figure 5: Annual unemployment rate in Eastern Cape 2000 – 2009 [Source: Stats SA] The most recent unemployment statistics available for the Eastern Cape (shown in Table 5) show that 13 000 new jobs were created in the Province in the fourth quarter of 2009, of which 5 000 (38 percent) were generated in the formal sector. Formal employment in the Eastern Cape fell by 7 percent year-on-year (YoY) and grew by 0.4 percent quarter on quarter (QoQ), while informal employment fell by 7.9 percent YoY and grew by 2.9 percent QoQ. (c) Mthente Research and Consulting Services (Pty) Ltd, May 2010

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During the fourth quarter of 2009 there were 13 000 discouraged job seekers who gave up looking for jobs. The number of discouraged job seekers rose by 30.4 percent YoY, indicating low labour absorption capacity in the Eastern Cape economy. The labour absorption rate stagnated on a QoQ basis and fell by 2.8 percent YoY during the fourth quarter of 2009.

Table 5: Employment Status in the Eastern Cape, 4Q2009 [Source: Stats SA, (Quoted in ECSECC, 2010)] Numbers(000)

Eastern Cape labour market Formal Informal Total Employment Unemployment Labour force Discouraged job seekers Not economically active Population ( age 15-64) Labour absorption rate Labour force participation rate Unemployment rate

3Q2009 1,258 272 1,530 460 1,718 326 2,292 4,010 31.4 42.8 26.8

4Q2009 1,263 280 1,543 468 1,732 339 2,290 4,021 31.4 43.1 27.0

Year on Year change (95.0) (24.0) (119.0) 10 (85.0) 79 133.0 48.0 (2.8) (2.7) 1.8

Quarter on Quarter Change 5.0 8.0 13.0 8.0 14.0 13.0 (2.0) 11.0 0.0 0.2 0.2

Percentage Quarter on Year on Year Quarter change Change (7.0) 0.4 (7.9) 2.9 (7.2) 0.8 2.2 1.7 (4.7) 0.8 30.4 4.0 6.2 (0.1) 1.2 0.3

A disaggregated analysis of employment status and gender in the seven district municipalities shows that the highest levels of both employment and unemployment were found in the Amathole District Municipality and Nelson Mandela Metropolitan Municipality in 2007 (see Table 6).

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Table 6: Labour Force by District Municipality, 2007 [Source: Stats SA (Community survey, 2007)] Employment Status and Gender (%) Employed Male Employed Female Unemployed Male Unemployed Female Not economically Male active Not economically Female active

Cacadu

Amathole

Chris Hani

9.2 7.0 5.5 6.8 4.2

25.3 25.0 29.2 29.6 27.3

7.1 6.6 14.0 14.5 13.1

5.3

26.4

13.0

District Municipality Ukhahlamba O.R. Tambo 4.0 23.4 3.6 29.9 4.0 17.2 3.9 14.4 5.0 28.5 4.9

28.0

Alfred Nzo 4.3 6.0 5.9 5.3 7.6

NMM 26.8 21.8 24.1 25.4 14.3

Total (%) 100 100 100 100 100

8.0

14.3

100

With the exception of the O.R Tambo, Ukhahlamba and Alfred Nzo districts, there were more women than men unemployed in the other four districts. Table 7 below shows the number of people by employment status and gender in the various district municipalities in 2007.

Table 7: Labour Force by District Municipality, 2007 [Source: Stats SA (Community survey, 2007)] Employment Status and Gender Employed M Employed F Unemployed M Unemployed F Not economically M active Not economically F active

Cacadu

Amathole

52,773 37,449 18,890 26,157 32,205

145,475 133,760 99,615 113,715 207,872

Chris Hani 40,599 35,400 47,739 55,789 99,792

54,829

275,218

135,282

District Municipality Ukhahlamba O.R. Tambo 22,948 19,243 13,748 14,861 37,906

134,133 159,689 58,445 55,447 217,075

Alfred Nzo 24,542 32,156 20,039 20,537 58,285

51,519

291,764

83,713

NMM

Total (%)

153,971 116,324 82,200 97,720 109,131

574,440 534,020 340,674 384,232 762,266

149,468

1,041,784

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2.6 Education Figure 6 below shows that the number of people with no school or grade 0 level of education declined from 21.3 percent in 1995 to 17.2 percent in 2008. There has been an increase in those with a grade 1 to 7 level of education from 34.2 percent in 1995 to 39.2 percent in 2008. However, the figure shows that the number of those with a grade 8 to 12 level of education has remained low within a narrow band of an annual average of 28.9 percent. This suggests that there is an increasing number of people unable to continue further than grade 7, possibly due to the prohibitive cost of secondary education given the high levels of poverty in the Province. In 2008, only 2.2 percent of the Eastern Cape population had a certificate or diploma with a grade 12 level of education or university degree.

% of Eastern Cape Population

45.0

40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 1995

1996

1997

1998

1999

2000

2001

2002

2003

Grade 0 or No scholing

Grade 1 - 7

Cert/Dip & grade 12

Degree/Honors/Masters/PhD

2004

2005

2006

2007

2008

Grade 8 - 12

Figure 6: Education Levels in the Eastern Cape, 1995-2008 [Source: Stats SA]

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2.7 Literacy According to Stats SA, literacy levels in the Province have improved from 59.2 percent in 1995 to 65.5 percent in 2008. High literacy rates increase job opportunities and access to higher education which, in turn, influences the nature of the economy.

The percentage of semi-skilled and unskilled workers fell from 49 percent in 1995 to 40 percent in 2007. During the same period, the percentage of skilled workers increased from 34 percent in 1995 to 41 percent in 2007. However, if the Eastern Cape is to grow its economy and attract more investment in its tertiary and secondary industries, the Province should consider ways to increase the percentage of highly skilled workers, which stood at an average of just 19 percent in 2007.

67.0 66.0

% of EC Population

65.0 64.0 63.0 62.0 61.0 60.0 59.0 58.0 57.0 56.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Figure 7: Literacy rate in the Eastern Cape, 1995 - 2008 [Source: Stats SA]

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Table 8: Percentage Distribution of Skill Levels 1995 – 2007 [Source: Quantec 2008 (quoted in ECSECC, 2009)] Skill Levels

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Highly skilled

17

18

19

19

18

18

18

18

20

20

19

19

19

Skilled

34

34

36

35

36

37

37

38

39

39

40

40

41

Semi Skilled & unskilled

49

47

46

46

45

46

46

44

42

41

41

40

40

100

100

100

100

100

100

100

100

100

100

100

100

100

Total

2.8 Poverty An analysis of poverty levels in the Eastern Cape was undertaken in order to understand the welfare of individuals and households in the Province. In this section, the levels of poverty in the Province are considered in terms of a comparison of access to income, access to energy for lighting, piped water and toilet facilities within households.

According to Stats SA, 58.3 percent of the Eastern Cape population was living in poverty in 2008. This amounted to approximately 3 671 348 people, and represented 18.7 percent of the national population living in poverty in that year.

Table 9 shows that 67.4 percent of the population in the Eastern Cape had a monthly income of below R800 in 2007. Women accounted for the majority of the population in this income category. Within this context, it is clear that radical measures must be undertaken in the Province if it is to achieve a reduced poverty rate of 20 percent by 2014.

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Table 9: Income Distribution by Population Group and Gender in the Eastern Cape, 2007 [Source: Stats SA (Community Survey, 2007)] Black

Income Category

Coloured

Indian

White

Sub Total

(%)

Male

Female

Male

Female

Male

Female

Male

Female

Male

Female

Total %

No Income

44.8

50.5

41.0

47.3

38.7

51.6

27.8

37.8

42.6

49.0

45.9

R1-R800

24.9

25.6

12.5

13.6

4.8

5.1

2.0

2.8

21.1

21.9

21.5

R801-R3200

17.9

15.5

21.3

20.6

16.9

17.0

9.2

12.9

17.3

15.8

16.5

R3201 or more

6.2

3.7

12.9

8.5

28.0

16.3

44.1

31.5

11.1

7.1

9

No response

6.2

4.7

12.3

10.0

11.6

10.0

16.9

15.1

7.9

6.3

7.1

Total

100

100

100

100

100

100

100

100

100

100

100

Table 10 shows that, over the period between 2004 and 2008, the district municipalities of Amathole and O.R. Tambo had the highest number of people living in poverty. In 2008, 56.7 percent of the total population that were living in poverty in the Eastern Cape were located in these two districts.

Table 10: Eastern Cape population living in poverty by district [Source: Stats SA] Year

District Municipality

2004

2005

2006

2007

2008

177,827

175,750

165,159

159,744

153,396

Amathole

1,093,088

1,073,995

1,003,383

964,360

936,365

Chris Hani

657,769

653,519

624,633

609,416

593,710

Ukhahlamba

274,385

273,944

256,075

249,142

231,042

O.R. Tambo

1,319,782

1,310,174

1,234,247

1,197,901

1,154,063

Alfred Nzo

367,240

370,458

356,665

354,477

333,090

Nelson Mandela Metropolitan

373,048

363,983

340,192

324,862

319,954

Cacadu

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2.8.1 Access to energy sources The percentage of households in the Eastern Cape with access to electricity for lighting increased from 36.5 percent in 1995 to 46.9 percent in 2001, and declined progressively to 45.9 percent in 2008. Table 11 below shows the proportion of households in each district with electricity as a source of lighting between 2001 and 2008. In 2008, the municipalities with the highest number of households with electricity were Amathole District Municipality and Nelson Mandela Metropolitan Municipality. The Alfred Nzo District Municipality, followed by Ukhahlamba, had the lowest number of households with electricity. The use of cheaper alternative energy sources is critical if the welfare of the provincial population is to improve.

Table 11: Percentage of households (by district) with Electricity as a source of lighting [Source: Stats SA] Year District Municipality

2001

2002

Cacadu District Municipality

4.8

4.8

Amathole District Municipality

14.1

Chris Hani District Municipality

2003

2004

2005

2006

2007

2008

4.8

4.8

4.8

4.8

4.8

4.8

14.1

14.0

14.0

14.0

13.9

13.8

14.0

5.9

5.8

5.8

5.8

5.7

5.7

5.6

5.7

Ukhahlamba District Municipality

2.3

2.3

2.3

2.3

2.3

2.3

2.3

2.4

O.R. Tambo District Municipality

5.6

5.6

5.7

5.7

5.7

5.7

5.7

5.9

Alfred Nzo District Municipality

1.2

1.2

1.2

1.2

1.3

1.3

1.3

1.3

Nelson Mandela Metropolitan District Municipality

13.0

12.9

12.7

12.6

12.4

12.2

11.9

11.9

Total % of EC households with electricity for lighting

46.9

46.7

46.6

46.3

46.1

45.8

45.5

45.9

Note: The balance of the provincial population uses solar, gas, paraffin, candles or others sources of lighting

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2.8.2 Access to water The percentage of households with access to piped water inside their dwelling or yard has remained steady at an average of 37 percent since 1995. The rest of the population has access to water either through a community stand, community borehole, rainwater tank, well, river, spring or water vendor. As was the case with electricity for lighting, the district municipalities of Alfred Nzo and Ukhahlamba had the lowest number of households with access to piped water between 2001 and 2008 (see Table 12). Access to piped water was expanded at an average annual growth rate of just 1 percent between 2007 and 2008; far below the target rate of 12.6 percent between 2007 and 2014 as delineated in the PGDP.

Table 12: Percentage of households (by district) with access to piped water inside dwelling/ yard [Source: Stats SA] Year District Municipality

2001

2002

2003

2004

2005

2006

2007

2008

Cacadu District Municipality

5.0

5.0

5.0

5.0

5.0

5.0

5.0

5.0

Amathole District Municipality

10.2

10.2

10.2

10.1

10.1

10.1

10.1

10.0

Chris Hani District Municipality

4.0

3.9

3.9

3.9

3.9

3.8

3.8

3.8

Ukhahlamba District Municipality

1.5

1.5

1.5

1.5

1.5

1.6

1.6

1.6

O.R. Tambo District Municipality

2.3

2.3

2.3

2.3

2.3

2.3

2.3

2.3

Alfred Nzo District Municipality

0.8

0.8

0.8

0.8

0.8

0.9

0.9

0.9

Nelson Mandela Metropolitan District Municipality

14.1

14.1

13.8

13.6

13.4

13.2

13.0

12.9

Total % of EC households with piped water in dwelling or yard

37.8

37.6

37.4

37.2

37.0

36.8

36.5

36.5

Note: The balance of the provincial population has access to piped water on community stand/ borehole/rain water/river/spring/water vendor/other

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Table 13: Percentage of households (by district) with toilet facilities, 2007 [Source: Stats SA (Community survey 2007)] District Municipality

Toilet Facilities

Cacadu

Flush toilet (with sewerage system)

11.6

Amathol e 28.9

Chris Hani

Ukhahlamba

O.R. Tambo

NMM

Total

3.7

Alfred Nzo 0.8

9.8

2.9

42.3

100

Flush toilet (with septic tank)

18.8

36.2

8.6

4.6

14.5

3.0

14.3

100

Dry toilet facility

1.7

21.8

14.1

11.1

44.0

5.9

1.4

100

Pit toilet with ventilation (VIP)

2.5

20.0

15.6

15.2

31.3

14.4

1.0

100

Pit toilet without ventilation

2.6

33.4

11.0

5.0

29.4

15.3

3.2

100

Chemical toilet

3.6

30.6

14.7

13.3

30.6

4.1

3.0

100

Bucket toilet system

17.6

20.6

9.9

6.9

3.7

3.7

37.6

100

None

1.2

29.5

18.5

5.9

38.8

4.9

1.1

100

2.8.3 Access to sanitation According to Stats SA, the number of households in the Eastern Cape with flush toilets or chemical toilets has averaged around 34 percent between 1995 and 2008. Those households with no toilet facilities at all actually increased from 29 percent in 1995 to 32 percent in 2008. The Community Survey of 2007 found that the Amathole and O.R Tambo districts had the highest number of households with no toilet facilities. In the same year, the Nelson Mandela Metropolitan Municipality had the highest number of households that used the bucket toilet system.

Based on the performance of the three poverty indicators, the Amathole District Municipality and the Nelson Mandela Metropolitan Municipality have the largest number of households that use the bucket system. This is in spite of the fact that they both record the highest number of households with electricity for lighting and piped water within their dwelling or yard. Given that both areas provide the greatest level of employment activity and contribute the most to provincial GDP, this may point to the presence of a large number of informal settlements in these areas. The Alfred Nzo district is home to the lowest level of employment and also makes the smallest contribution to provincial GDP. Furthermore, the district has the smallest percentage of households with electricity as a source of lighting, as

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well as the lowest share of households with access to piped water inside their dwelling or yard, and flush toilet facilities. These areas represent the major pockets of poverty in the Eastern Cape.

2.9 HIV and AIDS According to Stats SA, HIV and AIDS prevalence among people aged between 15 and 64 years increased from 2.4 percent in 1995 to 16.7 percent in 2007.

During this period, the highest prevalence was found to be among the most productive ages of 25 to 49. In 2007, the Eastern Cape accounted for 10.7 percent (634 319 people) of the national HIV population in South Africa.

% Population of Eastern Cape

18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Figure 8: HIV and AIDS prevalence in the Eastern Cape (15-64 years), 1995 - 2007 [Source: Stats SA]

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Table 14: Estimated HIV prevalence among antenatal clinic attendees by province, 2001-2007 [Source: South Africa Department of Health] Province KwaZulu-Natal Mpumalanga Free State Gauteng North West Eastern Cape Limpopo Northern Cape Western Cape National

2001 33.5 29.2 30.1 29.8 25.2 21.7 14.5 15.9 8.6 24.8

2002 36.5 28.6 28.8 31.6 26.2 23.6 15.6 15.1 12.4 26.5

2003 37.5 32.6 30.1 29.6 29.9 27.1 17.5 16.7 13.1 27.9

Percentage Prevalence 2004 2005 40.7 39.1 30.8 34.8 29.5 30.3 33.1 32.4 26.7 31.8 28.0 29.5 19.3 21.5 17.6 18.5 15.4 15.7 29.5 30.2

2006 39.1 32.1 31.1 30.8 29.0 28.6 20.6 15.6 15.1 29.1

2007 37.4 32.0 33.5 30.3 29.0 26.0 18.5 16.1 12.6 28.0

The Department of Health’s national survey on HIV prevalence among women attending public antenatal clinics provides an indication of the percentage of women testing positive for HIV. The study found that HIV prevalence in the Eastern Cape among antenatal clinic attendees amounted to an average of 26.4 percent between 2001 and 2007. Although this survey found that the Eastern Cape boasted lower prevalence figures in comparison to the national incidence rate between 2001 and 2007, HIV prevalence among antenatal attendees grew at an average rate of 3.1 percent. In order to halt and begin to reverse the spread of HIV/AIDS in the Eastern Cape by 2014, far-reaching interventions must be undertaken in the Province.

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3.

Institutional Analysis

This section provides an overview of the institutional direction and performance of the ECDC to date, and also looks at possibilities for the future strategic direction that the ECDC could take. The information contained in this section is drawn predominantly from the views collected through a number of face-to-face and telephonic interviews conducted with relevant stakeholders in the Eastern Cape Province.i

3.1 The current state of the ECDC In order to provide an outline of the current state of the ECDC and its existing role within the provincial economy, stakeholder views on the mandate and role of the ECDC in the Province, together with its recent performance are presented below. Thereafter, stakeholder perceptions of the ECDC’s existing relationships and interactions with other key agencies and entities operating in the Province are outlined.

3.1.1 The ECDC’s mandate and role in the Province The ECDC performs a number of different roles within the development sphere in the Eastern Cape Province. First, the ECDC acts as a property management company, managing a large property portfolio. Second, the ECDC is a loan portfolio manager. The ECDC also performs a role in terms of enterprise development assistance, providing non-financial support to enterprises in the Province. Fourth, the ECDC is a central player in marketing the Eastern Cape brand through its role in trade and investment promotion. This role was previously performed by SIMEC, which, following a merger of the two entities, became a division of the ECDC. Within the context of this wide-ranging mandate, there is a common belief among many stakeholders in the Eastern Cape that the ECDC is “wanting to do everything”. Part of this relates to the disconnect between perceptions and views of what the ECDC is supposed to do and what the Corporation currently does.

The diversity of perceptions regarding the role of the ECDC was captured succinctly by one stakeholder who described the views on the purpose of the Corporation as being driven by “an amalgamation of expectations”. In some quarters, the ECDC is seen primarily as a development finance institution, providing i

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financial packages to clients, particularly to those unable to obtain funding from commercial banks and other financial institutions due to their stringent lending criteria. This role as a development finance institution is also believed to encompass non-financial development support to enterprises and, more broadly, through assistance with infrastructure development projects.

Among most stakeholders there was a feeling that the ECDC should be playing an important role in driving the future growth and development of the Eastern Cape. However, the general feeling emerging from the stakeholder engagements is that the ECDC’s current mandate is too wide and needs to be refocused if the Corporation is to effectively fulfil its role as a development agency in the Province; and fit in with the broader developmental objectives of the Eastern Cape Provincial Government.

Furthermore, across the various provincial agencies operating in the Eastern Cape there is a degree of overlap in terms of the functions that they currently perform. For instance, the ECDC is occupying a similar space to ASGISA-EC in terms of its developmental role. Similarly, SEDA and the ECDC also perform functions within the realm of non-financial support. Moreover, the ECDC’s role as a development finance institution is similar to that performed on a national level by the Development Bank of Southern Africa (DBSA), which also provides development finance.

These overlapping functions provide opportunities to establish strategic relationships between agencies while, at the same time, creating a need to define more clearly the roles of the various institutions. This will require a thorough review of the mandates of the various provincial agencies and entities operating in the development space in the Eastern Cape.

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3.1.2 Factors affecting the performance of the ECDC To a certain extent, the performance of the ECDC appears to have suffered as a result of having to perform a wide range of different roles. According to one stakeholder, the ECDC is “floundering” because it “tries to be too many things”. This stakeholder argued that, because the institution is only partly a development finance institution, and given that it competes with a number of other development finance institutions such as the Industrial Development Corporation (IDC) and the DBSA at the national level, it has not performed this function very well. Another stakeholder indicated that the ECDC’s large property portfolio has not performed optimally. Furthermore, one stakeholder pointed out that the ECDC has struggled to secure investors for the Province, with the costs associated with trying to bring in investors exceeding the value of investments secured. Another stakeholder remarked that the role of promoting investment in the Eastern Cape region was performed better when SIMEC existed as a stand alone, dedicated investment promotion agency.

In recent years, the performance of the ECDC has been affected by a significant degree of institutional instability. This has been addressed, in part, by a turnaround strategy designed to deal with internal operational issues affecting the institution. However, the impact of the ECDC in the development space in the Eastern Cape has been affected by this turnaround strategy, which was primarily inward-focused. As a result, the focus on stabilising the institution internally has meant that less focus has been placed on addressing the ECDC’s previous external market failures, translating into an impact in the developmental sphere that was described by one stakeholder as “dull”.

Aligned to the problem of institutional instability is the reality that the operational capacity of the ECDC continues to be affected by a shortage of technical capacity. While the Corporation appears to possess an abundance of technical skills to service its property management and developmental project functions, key staff members representing the ECDC indicated that the Corporation does not possess sufficient in-house technical capacity in terms of both its financial and nonfinancial support functions. The technical skills problem is exacerbated by the reality that the average age of ECDC employees is 49 years, and the Corporation is, on average, retiring approximately five to 10 staff members each year.

Another challenge that has confronted the ECDC is the poor image of the Corporation in recent years. This points to a critical reputational management issue that the ECDC needs to address. The poor image of the Corporation has also affected its ability to attract high calibre employees; thereby contributing to the existing technical skills constraints that it faces.

In general terms, there was a feeling among some stakeholders consulted during the research process that the ECDC has not optimised its position as the premier government agency in the Eastern Cape. To a certain extent this relates to a need to recognise the magnitude of the ECDC and make optimal use of the (c) Mthente Research and Consulting Services (Pty) Ltd, May 2010

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assets at its disposal. Despite this negativity, the ECDC has been praised for the progress it has achieved in difficult circumstances, which have included limited funding and operational resources, and frequent leadership instability.

3.1.3 ECDC’s relationships and strategic partnerships with other entities and agencies in the province More encouragingly, several stakeholders representing various agencies and organisations operating in the Eastern Cape reported enjoying a good relationship with the ECDC. The Coega IDZ, for example, currently enjoys a multifold relationship with the ECDC. On a legal level, the ECDC currently holds shares in the Coega IDZ on behalf of both the provincial and national governments. The Coega IDZ also engages with the ECDC as a strategic partner, with the ECDC providing finance to contractors operating within the IDZ. The ECDC also plays an important role in many of the key strategic projects undertaken by district municipalities in the Province, and also provides technical support for events taking place within specific districts.

There is a need, however, to formalise many of the existing relationships between the ECDC and other entities and agencies in the Province by establishing new strategic partnerships or enhancing existing partnerships. In some instances, this requires a change in the structure of engagement between the ECDC and the relevant partner organisation. For instance, engagements between the ECDC and the Border-Kei Chamber of Commerce and the Eastern Cape Socio-Economic Consultative Council (ECSECC) continue to occur on an ad-hoc basis. There is a need to formalise the ECDC’s relationship with these organisations in a manner that is mutually beneficial to both parties.

3.2 The future direction of the ECDC Going forward the institutional performance of the ECDC should be measured in terms of its contribution to job creation in the Eastern Cape and its achievements in terms of furthering the notion of the developmental state. One stakeholder argued that this is likely to require a fundamental change in the “genetic footprint of the organisation”. In any event, there is a need to revisit the institutional elements of the organisation that remain rooted in the legacy of the old Ciskei and Transkei development corporations. The ECDC, as the largest parastatal in the Eastern Cape, is well placed to make a meaningful impact in terms of driving the growth and socio-economic development of the Province if it is positioned correctly.

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Achieving this is likely to require a more focused role for the ECDC as a provincial development agency and a clarification of the position of the ECDC within the provincial landscape. This is also likely to require greater streamlining and separation of functions across the various agencies and entities operating in the developmental space in the Eastern Cape. There was consensus among a number of stakeholders that the ECDC is best place to focus on its role as a development finance institution in the Province. To this end, it was suggested that the ECDC should drive funding targeted at the segments of the market that are not served by commercial banks – particularly small and medium enterprises (SMEs) – and, at the same time, play a more prominent role in venture capital initiatives in the Eastern Cape. Linked to this, there was a belief that the Corporation should also play a prominent role in the development of viable investment projects in the Eastern Cape and provide support for pre-finance development activities.

A focus on its activities as a development finance institution would also allow for a greater level of strategic interaction between the ECDC and the Accelerated and Shared Growth Initiative of South Africa (AsgiSA) Eastern Cape to drive rural development in the Province. For example, it was suggested by one stakeholder that as AsgiSA Eastern Cape unlocks opportunities in the rural development space through its agricultural projects, finance would be required in order to capitalise on these opportunities. Here the ECDC could provide soft loans in the form of free interest subsidies for investment.

Certain stakeholders expressed the view that the ECDC is particularly well placed to focus on providing finance to SMEs operating in the Eastern Cape.

Furthermore, it was suggested that the ECDC could make a particularly significant impact on local economic development in the Province by performing the role of a wholesale fund for high-risk, high impact development projects. To this end, the ECDC could, for example, provide funding to development agencies located in municipalities in the form of guaranteed loans, with the development agencies then free to distribute the funds as they see fit. It was argued by one stakeholder that this would give greater legitimacy to the local economic development process and increase the accessibility of funding in the Province, while, at the same time, reducing the ECDC’s risk exposure.

At the same time, some stakeholders have questioned whether the ECDC has the financial resources and operational capacity to simultaneously perform other functions such as export and investment promotion. It was also felt that these functions may be better performed by agencies or entities focusing on them independently. There was also a feeling that, at least in the two major urban nodes in the Province, the ECDC is disadvantaged in terms of competing for investment with the IDZs in Port Elizabeth and East London because the IDZs are able to offer an entire value chain proposition to investors whereas the ECDC “can only walk alongside investors”. Therefore, instead, of competing with the IDZs in terms of investment promotion, it was suggested by one stakeholder that the ECDC should rather become the lender of first preference to the IDZs.

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4. Analysis of the Impact of Existing Provincial Growth and Development Policies and Strategies 4.1 Provincial growth and development policy frameworks This subsection outlines the various policy frameworks that guide local economic development in the Province. The most prominent of these are the PGDP 20042014, the AsgiSA, and the Provincial Industrial Policy.

The PGDP was formulated in 2004 and sets out the vision and plan for the development of the Eastern Cape until 2014. It is the overarching provincial framework which specifies what will be done to fight poverty, promote economic and social development, create jobs, and generally create a better life for all in the Eastern Cape. It was designed in line with the national policy framework for socio-economic planning at the provincial level. The framework developed quantified targets to guide the implementation of the PGDP. AsgiSA aims to boost sustainable economic growth over the long term with the objective of achieving 6 percent GDP growth in the period 2010-2014, and halving the levels of poverty and unemployment in the Province. It was designed to overcome six binding constraints on growth that include deficiencies in government capacity, currency volatility, low levels of investment in infrastructure and related services, a shortage of skills, uncompetitive sectors and weak sector strategies, and the marginalisation of those in the informal economy.

In the Eastern Cape, AsgiSA forms part of the PGDP. AsgiSA Eastern Cape Pty Ltd, a subsidiary of the Eastern Cape Rural Finance Corporation, was launched in 2007 to implement the national objectives in the Province. That same year, AsgiSA Eastern Cape, when prompted by the provincial government to define high impact priority development programmes, identified agriculture and agro-processing, forestry development, water resources development, alternative energy with a particular focus on hydro power and renewable energy, tourism (eco-tourism), and rural-urban economic renewal related to human settlement. However, as a result of constraints related to the availability of capital resources, AsgiSA Eastern Cape has largely focused on those priority development areas where it feels it can make the greatest impact, leading to a focus on agriculture, forestry, water resources and alternative energy in the Province’s rural areas.

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According to the final report on the assessment of the PGDP by the ECSECC, the Eastern Cape does not have an active industrial policy. Trade liberalisation has had an adverse effect on many industrial sectors of the Province with little intervention from national government. The only sector where the state has consistently intervened, and where the Eastern Cape has benefited, has been the automotive industry through the Motor Industry Development Programme (MIDP). The move to a more active industrial policy through the implementation of a revised Provincial Industrial Development Strategy (PIDS) was highlighted as a key focus area for the Province in a policy speech by the Honourable MEC for Finance and Economic Development and Environmental Affairs, Mr Mcebisi Jonas, in March 2010.

The key pillars of the strategy are to: a) Diversify local manufacturing through targeted investment in social and economic infrastructure, skills development, research and development, and industrial upgrading. b) Design specific sector interventions through value-chain research and engagement with key players. c) Increase linkages between the manufacturing sector and other sectors, such as transport, agriculture and agro-processing.

It is essential that the PIDS is aligned with the new Industrial Policy Action Plan 2010/11-2012/13 (IPAP2), which builds on the National Industrial Policy Framework and the Industrial Policy Action Plan of 2007/08. IPAP2 aims to move the South African economy away from its current reliance on traditional commodities and non-tradable services by creating a more intensified, labour-absorbing industrialisation path, through seven key initiatives. These are: a) Aligning macro and micro economic policies more closely. b) Ensuring greater concessional financing through the IDC. c) Overhauling existing public procurement processes in order to leverage more local procurement. d) Adopting a strategic approach to trade policy and the use of import tariffs in particular. e) Targeting anti-competitive practices. f) Increasing skills levels and innovation. g) Boosting production in a selection of newly targeted sectors, including some with long-term potential. Alignment to IPAP2 may provide a conduit for greater intervention from the state.

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4.2 Analysing the impact of existing provincial growth and development policies and strategies Despite the best intentions of the existing provincial development policies and strategies, they have, to a large extent, achieved only a very limited impact in terms of reducing the levels of poverty and social marginalisation in the Eastern Cape. Much of the failure of these policies and strategies to achieve a meaningful developmental impact on a large scale across all regions of the Province can be attributed to a lack of implementation. According to one stakeholder, the implementation of the PGDP and the PIDS “remains an enormous problem”. Another stakeholder remarked that the implementation of development policies and strategies in the Province “has failed dismally”. This lack of implementation can, at least in part, be attributed to a lack of coordination of resources and a lack of matching of resources to needs. This has been exacerbated by comparatively high levels of political instability in the Eastern Cape region.

The PGDP, in particular, has come in for a significant amount of criticism, some of it directed at a more conceptual level. One stakeholder argued that achieving the goals of the PGDP is unrealistic given the existing levels of capacity and resources available in the Eastern Cape. Others have been more scathing, suggesting that the PGDP is outdated and has “no teeth”, or that it is not focused. There was also a suggestion that the PGDP has not been internalised by government departments in the Province and that departmental planning has not been operationalised along the imperatives of the PGDP. The PGDP has also been criticised for spelling out development policies that are not spatially referenced, meaning that the policies delineated in the plan are not customised according to the unique and diverse challenges confronting the various regions of the Province.

The existing provincial growth and development policies and strategies have also failed to effectively address weaknesses in rural development in the Eastern Cape. Much of this is due to the continued absence of meaningful economic linkages between the region’s major urban and peri-urban areas and the rural parts of the Province. The acceleration of rural development in the Eastern Cape is also likely to require a greater level of coordination between local economic development strategies in terms of what is developed at the provincial level and what is implemented at the local government level.

Spending by the Eastern Cape government continues to sustain much of the economic activity in the Province. Indeed, provincial expenditure accounts for a significant proportion (almost half) of the overall provincial GDP. While the level of resources injected into the provincial economy by the government is admirable, the over-reliance on government expenditure does suggest that the productive component of the economy requires strengthening.

Growth and development in the Province has been affected by trade promotion strategies that have not been pro-active. In many senses, the Province’s trade promotion strategies have tended to be reactive and based on demand rather than taking the form of offensive export strategies. This has seen much of the (c) Mthente Research and Consulting Services (Pty) Ltd, May 2010

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Eastern Cape’s trade remain focused on traditional export markets in Europe, especially Germany and Denmark. Despite this, the Province is increasingly looking to diversify its exports by expanding into African markets as well as markets such as the United States, China and Australia.

The impact of policies and strategies on provincial growth and development has also been constrained by certain investment climate barriers in the Province. The Eastern Cape remains the poorest of South Africa’s nine provinces, and is plagued by significant infrastructure deficiencies. These, coupled with institutional instability, represent huge obstacles to investment and limit the Province’s ability to attract foreign direct investment. Furthermore, the Province does not have the resources to compete for investors with wealthier provinces such as Gauteng and the Western Cape.

4.3 Refocusing priority sectors Another criticism of the existing PGDP has centred on the large number of sectors identified as priority sectors in the Province, with many stakeholders viewing this as a “wish list” given the limited resources available to the Province. Within this context, there is a need to refocus the Province’s priority sectors for government support and promotion by identifying and prioritising those core sectors in terms of their economic growth, job creation and poverty alleviation potential. To this end, as part of the stakeholder engagement process, the stakeholders were asked to identify four or five sectors that they believed should be prioritised in the Eastern Cape context.

Based on the views expressed by key stakeholders in the Province, the following sectors emerged as the most commonly cited sectors that should receive priority attention in promoting the growth and development of the Eastern Cape economy.

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4.3.1 Agriculture and agro-processing Despite the socio-economic importance of the agricultural sector due to its broad reach into the rural areas of the Province – particularly the economically deprived former Bantustan areas – and its potential role as a significant source of rural incomes, the sector’s contribution to provincial GDP has been steadily declining.

Nevertheless, the Eastern Cape’s natural endowments mean that it should, in theory, be strongly competitive in terms of agriculture. This competitive advantage could also be harnessed to produce value added products through agro-processing, thereby linking the Province’s existing economic platform to economic potential.

The development of agriculture and agro-processing also allows for the development of many important subsectors including aquaculture, medicinal plants, fertiliser and biofuels. Furthermore, the potential linkages to the sector in terms of the development of a water resource sector are significant, particularly with respect to the development of both big and small irrigation schemes.

4.3.2 Forestry The Eastern Cape is arguably the only area in South Africa with new forestry potential, with approximately 100 000 hectares potentially available for new forestation. Furthermore, the labour intensive forestry sector boasts huge job creation potential.

4.3.3 Automotive The rapid development of the automotives sector in the Eastern Cape has been one of the key drivers of industrial development in the Province. Consequently, it is important that this sector, and the various industries that link into the automotives value chain, remain supported and allowed to continue to grow. Efforts to continue developing the sector should also focus on deepening internal linkages within the sector. In particular, it is necessary to ensure that ancillary industries emerge in the automotive sector whereby local firms can be integrated into the value chain.

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4.3.4 Renewable energy In many senses, the skills required in the development of a renewable energy sector, through, for example the construction of wind turbines and solar panels, are already housed in the automotive sector in the Province. Consequently, there is scope to position the Eastern Cape as a hub in terms of engineering capacity for renewable energy inputs. The Province also enjoys a number of natural competitive advantages in terms of renewable energy sources.

4.3.5 Tourism The natural beauty of the Eastern Cape presents the region with a significant competitive advantage in the tourism sector. The sector is also important from a socio-economic perspective due to its direct impacts on rural incomes. Furthermore, the job creation potential of the sector is significant, and comparatively few capital inputs are required to expand jobs in the sector. Despite this, the contribution of the tourism sector to the provincial GDP remains negligible. Much of this is due to a lack of infrastructure and transport networks to support it; suggesting that the sector should be prioritised in future development initiatives.

4.3.6 Oil refining In addition to these sectors, plans to establish a new crude oil refinery at the Coega IDZ – dubbed Project Mthombo – could facilitate the development of a viable oil refining sector in the Province should the development go ahead. Some reports have suggested that the project could generate 5 000 direct jobs during operations and a further 20 000 indirect jobs.16 This aside, the real benefits to the Eastern Cape from the development of the oil refinery are likely to be felt through the jobs created in the downstream industries linked to the refinery. Furthermore, the development of a prominent oil refining sector offers potential for the establishment of links to the crucial automotive and agricultural sectors in the Province.

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5.

Emerging Issues

Based on the findings of this research, it is suggested that a number of themes should form the focus of the engagement and debate regarding the repositioning of the ECDC and its future strategy framework. These themes are organised into emerging issues related to the broad socio-economic context in the Eastern Cape, and decision points related specifically to the ECDC’s future strategic direction. In terms of the former, the reformulation of the ECDC’s strategy and positioning needs to take cognisance of these developmental constraints.

OBJECTIVE 1:

Generating solutions to address critical challenges to socio-economic development in the Eastern Cape Province

Discussion Theme 1

Discussion Theme 2

Addressing the lack of progress in terms of rural development Addressing the poor implementation of provincial growth and development policy

strategies

Discussion Theme 3

Refocusing priority sectors for job creation and poverty alleviation

Discussion Theme 4

Diversifying the Province’s trade and investment partners

Discussion Theme 5

Directing provincial financial resources to drive socio-economic development

initiatives more effectively

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OBJECTIVE 2: Repositioning the ECDC strategy within the provincial context

Discussion Theme 1

Defining the ECDC’s core business and focus as well as the products/services that it offers

Discussion Theme 2 Discussion Theme 3

Discussion Theme 4

Avoiding duplication and mission creep between provincial agencies and entities

by clarifying mandates and roles Keeping the ECDC sustainable and commercially viable Managing the ECDC’s property portfolio in a manner that contributes effectively to

the financial sustainability of the organisation

Discussion Theme 5

Addressing the shortage of technical capacity within the ECDC

Discussion Theme 6

Managing the reputation and image of the ECDC

Discussion Theme 7

Addressing the institutional instability within the ECDC

Discussion Theme 8

Formalising the ECDC’s relationships and strategic partnerships with other

provincial agencies and entities

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References Eastern Cape Department of Economic Development and Environmental Affairs, 2010, “Policy Speech by the Honourable MEC for Finance and Economic Development and Environmental Affairs” Eastern Cape Development Corporation, 2010, “About Us”, http://www.ecdc.co.za/about_the_eastern_cape_development_corporation [24 March 2010] Eastern Cape Provincial Government, “PGDP Launch – Outline of Provincial Growth and Development Plan by the Honourable Premier Mrs. Nosimo Balindlela” Eastern Cape Socio-Economic Consultative Council, 2010, “Quarterly Economic Update”, March 2010 eProp Commercial Property News in South Africa, 2008, “Coega oil refinery plans on track”, http://www.eprop.co.za/news/article.aspx?idArticle=9849 [21 May 2010] Ministry of Finance, 2010, “Budget Speech 2010” South African Government Information, 2008, “Province geared http://www.info.gov.za/speeches/2008/08091910451004.htm [23 March 2010]

to

improve

economy,

increase

jobs

and

reduce

poverty”,

South African Revenue Services, 2010, “Exports and Imports Data” Statistics South Africa, 2010, “Bulletin of Statistics”, http://www.statssa.gov.za/publications/statsdownload.asp?PPN=Bulletin&SCH=4620 [7 May 2010]

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Appendix I The table below documents the stakeholders interviewed during the research process.

Table A1: Provincial stakeholders interviewed Name Mr Simphiwe Somdyala Mr Msulwa Daca Mr Lesley Govender

Organisation ASIGISA Eastern Cape ECDC ECDC

Mr Andrew Murray

Eastern Cape Socio Economic Consultative Council Border-Kei Chamber of Commerce Eastern Cape NGO Coalition Province of the Eastern Cape Provincial Treasury Province of the Eastern Cape Provincial Treasury

Mr Les Holbrook Ms Margaret Kusambiza MEC Mcebisi Jonas Mr Xola Pakati

Mr Pepi Silinga

Mr Duma Magxwalisa

Coega Development Corporation (Pty) Ltd Port Elizabeth Regional Chamber of Commerce and Industry (PERCCI) Cacadu District Municipality

Dr Solomzi Makohliso

Ayanda Biosystems

Mr Kevin Hustler

Designation Chief Executive Officer Acting Chief Executive Officer Strategy and Corporate Planning Manager Executive Director

Executive Director Director MEC for Finance and Economic Development and Economic Affairs Chairperson of the Portfolio Committee on Economic Affairs, Environment and Tourism Chief Executive Officer Chief Executive Officer Project Manager of Local Economic Development Chief Executive Officer

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Endnotes 1

Statistics South Africa, 2010, http://www.statssa.gov.za/publications/statsdownload.asp?PPN=Bulletin&SCH=4620 [7 May 2010] South African Government Information, 2008, http://www.info.gov.za/speeches/2008/08091910451004.htm [23 March 2010] 3 Ibid.

4 Ibid.

5 Jonas, 2010 6 Eastern Cape Provincial Government 7 Ibid.

8 Ibid.

9 Ibid.

10 Ibid.

11 Eastern Cape Development Corporation, 2010, http://www.ecdc.co.za/about_the_eastern_cape_development_corporation [24 March 2010] 12 Ibid.

13 Eastern Cape Social Economic Consultative Council, 2010 14 South African Revenue Services, 2010 15 Ibid.

16 eProp Commercial Property News in South Africa, 2008, http://www.eprop.co.za/news/article.aspx?idArticle=9849 [21 May 2010] 2

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CORPORATE

BUSINESS PLAN 2011 - 2013

INCLUDING: ANNUAL PERFORMANCE PLANS BUDGET

TABLE OF CONTENTS 1. INTRODUCTION

3

2. CORPORATE BUSINESS PLAN

5

3. ANNUAL PERFORMANCE AND OPERATIONAL PLANS 3.1 CREDIT RISK

12

3.2 DEVELOPMENT FINANCE

16

3.3 DEVELOPMENT PROPERTIES

20

3.4 DEVELOPMENT SERVICES

25

3.4.1

ENTERPRISE DEVELOPMENT SERVICES

3.4.2

DEVELOPMENT PROJECTS

3.4.3

INVESTMENT AND TRADE PROMOTION

4. BUDGET

1|Page

38

List of acronyms and abbreviations BSC DEDEA ECDC ELIDZ IDZ IPAP2 PFMA PGDP PIDS SWOT MTEF DFI GRI GRA NGP FDI LDI BCTWF DFI ROI SLA MOU GDP R&D AG WSP MSP

2|Page

Balanced Scorecard Department of Economic Development and Environmental Affairs Eastern Cape Development Corporation East London Industrial Development Zone Industrial Development Zone Industrial Policy Action Plan Public Finance Management Act (1999) Provincial Growth and Development Plan Provincial Industrial Development Strategy Strengths Weaknesses Opportunities and Threats analysis Medium Term Expenditure Framework Development Finance Institution Gross return on investments Gross return of assets National Growth Path Foreign Direct Investment Local Direct Investment Best Company to Work For Survey (undertaken by Deloitte Consulting) Development Finance Institution Return on Investment Service Level agreement Memorandum of understanding Gross domestic product Research and Development Auditor General Work skills plan Master Systems plan

PERCII SMME NAFCOC DIU DSU ITP EDS DPP ICT CRM PROMUN Man Coms SAPS HR HIPP’s R&D Prop.

Exec the dti SEDA EMIA CFO

Port Elizabeth Chamber of Industry Small, Medium and Micro Enterprises National African Chamber of Commerce Development Investments Unit Development Services Unit Investment and Trade Promotion Enterprise Development Unit Development Projects Programme Information Communication Technology Customer relations Management model Accounting system used by ECDC Manager Communication South African Police Service Human Resources High impact priority projects Research and Development Properties Executive The Department of Trade and Industry Small Enterprise Development Agency Export Marketing investor assistance Chief Financial Officer

1. INTRODUCTION 1.1 Current scenario with respect operations The corporate business plan is the first step of a five year process to transform ECDC into a fully functional development finance institution. In 2011/12 it is anticipated that ECDC’s financial performance will decline however is expected to improve in the middle and outer years. Currently there are challenges with respect to: 1.1.1 High impairments on loans and rentals.

1.1.2 Poor people management especially performance management.

1.1.3 Properties portfolio is not performing optimally relative to the asset base.

1.1.4 Inappropriate funding model and portfolio mix (15% loans and 45% properties) to guarantee viability.

1.1.5 Erratic levels of liquidity and government allocations.

1.2 Pillars going forward- Implementing the Strategy The problems facing ECDC are systemic. Whilst the core of the ECDC strategy is to dispose of non-performing assets while investing in mega projects, this is underpinned by increasing quality throughput using competent and professional personnel. To date the following has been achieved in transforming into a DFI. 1.2.1 Transfer R27 million of properties that reduces costs with respect to maintenance and rates.

1.2.2 Geared and trained staff through communication of the strategy and Board and shareholder expectations.

1.2.3 Total buy-in from organised labour to the organisational development plan.

1.2.4 On track with the disposal of properties.

1.2.5 Plans to build the Infra Fund are advanced.

1.2.6 Creation of SMME fund.

1.2.7 Refocusing the investment and trade function.

Therefore this business plans is built on initiatives that have begun and will impact operations in the 2011/12. Although the corporate business plan is expanded it is necessary to ensure that in the first year rigorous monitoring and evaluation occurs. This plan is also linked to the budget and budgetary period.

3|Page

Eastern Cape Development Corporation strategy map

4|Page

2. CORPORATE BUSINESS PLAN 2011/12 TO 2013/14 The ECDC corporate business plan is meant to create a stepping stones between the strategy and annual performance plans. The corporate business plan contains SMART objectives linked to the strategy map as well provide a basis to measure each objective whilst the annual performance plans contains detail with respect to each business unit within the ECDC. The measures listed in the corporate business plan are those required so as to measure corporate performance and my include support functions critical to success of the strategy whilst those in the annual performance plans measure the contributions of the individual core business units or line functions of the ECDC. Perspective DEVELOPMENT IMPACT

Strategic objective Creation of jobs Disbursement of funding on all loan products Contribution to GDP

FINANCIAL PERSPECTIVE

F1 DECREASE LOSSES ON OPERATIONS

F2 OPTIMISE AND GROW RETURNS ON INVESTMENTS AND ASSETS

1

Key performance indicator

Owner All

Target 11/12 5030

Target 12/13 6310

Target 13/14 7200

Contribution of job creation to National Target Number contribution to impact of standard of living of livelihoods (Jobs created x 4 dependants) % contribution of ECDC activities to GDP

All

20,120

25,240

28,800

All

Develop a tool to measure contribution R286m

Implement and set base

Measure

Rand value disposal of property portfolio 1 Pricing of loan products

Exec Prop

% impairments (% of total loan book)

Credit Risk and DIU CFO

Gearing and leveraging on Infrafund2 Value of new loans approved and disbursed3 GRA on properties:4 Rentals and arrears collected Number and value of new investments (FDI and LDI) 5

Strategic drivers Contribution to NGP Contribution to NGP

Control Yes/No No No

Contribution to Provincial GDP

No

Asset conversion policy Pricing policy

No Yes

Impairment policy

Yes

R286m

0

Prime +3 to prime -2% 50%

Prime +3 to prime -2% 45%

Prime +3 to prime -2% 40%

R250mil

R250mil

R250mil

Infra Fund model

No

Exec DIU

R200 million

R250 million

R300 million

Investment policy

Yes

Exec Prop

12% R46m 15 R750m

15% R44m 18 R800m

20% R48m 20 R1b

Rentals policy

Yes

Macro-economic policy

No

Exec DIU

Exec DSU

Assumed part disposal will occur in 2011 (half of the total portfolio).

Assumed that the Infra Fund will be approved and that there will be investor uptake.

3 Partly based on allocations from Government.

4 Assumed that sale of properties will not necessarily improve the GRA since rentals are not at market value and may be the existing portfolio. The part disposal is assumed at end of the 4th quarter of 2011/12.

2

5|Page

Risk Alignment #14

#1 #4 #16

#4 #6 #13 #3

Perspective FINANCIAL PERSPECTIVE

Strategic objective F2 OPTIMISE AND GROW RETURNS ON INVESTMENTS AND ASSETS F3 MAXIMISE COST EFFICIENCY

F4 MAINTAIN ADEQUATE LEVELS OF LIQUIDITY CUSTOMER PERSPECTIVE

C1 POSITION THE ECDC AS THE FINANCIER OF CHOICE

Key performance indicator Value of exports6

Exec DSU

Target 11/12 R900m

Amount of third party funding leveraged for special development projects

Exec DSU

R75m

R90m

R110m

Reduction of property maintenance

Exec Prop

20%

30%

40%

Maintenance policy

Yes

Cost to income ratio Percentage of government transfers to ECDC (Dependency ratio) Loan repayment rate (Value of current collections per month/year)7 Debt to equity ratio

CFO CFO

128% 30%

110% 29%

110% 28%

n/a MTEF

Yes No

Exec DIU

60%

65%

70%

Investment policy

Yes

CFO

20%

15%

15%

n/a

Yes

CFO

Steffi Call

Steffi Call

Steffi Call

No

Exec DIU

Develop a model and implement

Implement and measure

200 companies

Cash investment policy Investment policy

Exec DSU

90 Incubates - 20 ICT, - 70 Creative Industry Develop a CRM model Design and implement visitor rooms 80%

100 Incubates - 25 ICT, - 75 Creative Industry Implement and measure n/a

120 Incubates - 30 ICT, - 90 Creative Industry 100%

ROI on cash reserves Number of firms offered pre-start up assistance and post finance after care support Number of incubates participating in ECDC mentorship programme

Number of complaints received and addressed on time Visitor room for client’s consultations at ground floor (head office) Accurate debtor’s statements (% accurate billings sent). % positive media coverage.

5 6 7

Assumption that this function will be in ECDC. Assumption that this function will be in ECDC. Expected collections divided by actual collections per annum/month.

6|Page

Owner

Man Coms CFO

CFO Man Coms

80%

Target 12/13 R1bn

Target 13/14 R1.2bn

Strategic drivers Macro- economic policy Development Projects policy

Control Yes/No No

Risk Alignment

Yes

Yes

Enterprise Development Policy

Yes

CRM model

Yes

n/a

n/a

Yes

90%

95%

PROMUN

Yes Yes

90%

90%

Media and coms policy

#4 #13

#1 #22 #13

#11 #13 #6 #17 #22 #8

Perspective

Strategic objective

CUSTOMER PERSPECTIVE

C2 INCREASE THE ECDC PROVINCIAL FOOTPRINT

C3 ESTABLISH STRATEGIC PARTNERSHIPS WITH STAKEHOLDERS

C4 BUILD A BALANCED MARKET PORTFOLIO

INTERNAL PROCESSES PERSPECTIVE

7|Page

P1 DESIGN AND STREAMLINE INNOVATIVE SOLUTIONS

Key performance indicator Number and value of loans granted per municipality (emphasis on former Transkei) Rand value of funds spent in supporting municipalities (spatial, special projects, etc) Number of memorandum of understanding (MOU)/service level agreements (SLAs) made per year with other Government bodies Impact assessment of ECDC products and services in 3 years.

Owner Exec DIU

Target 11/12 45%

Target 12/13 48%

Target 13/14 50%

Exec DSU

R3 m

R5 m

R7 m

All

2

2

Implement

2

Impact assessment of products 2

Investment policy

Control Yes/No Yes

Development Projects policy

Yes

Joint agreements, SLA, partnership agreements.

Yes

n/a

Yes

Yes

Number of MOU/SLAs made per year with stakeholders/ other DFIs/ agencies etc in the Eastern Cape Number of joint funded and implemented projects

Exec DIU

Launch new/ pilot new or retain products 2

Exec DIU

2

2

2

Periodic stakeholder satisfaction surveys

Man Coms

Improve by 10%

Improve by 10%

Programmes initiated with chambers of business (NAFCOC, PERCII, Border Kei, etc) Develop a Loan Portfolio concentration mix model New developmental micro-funds model (SMME fund) Revised Imvaba fund

Exec DSU

Determine baseline through survey 4

Joint agreement/ SLA/ partnership agreements Joint agreement/ SLA/ partnership agreements n/a

4

4

SLA with DEDEA

Yes

Man Credit Risk Exec DIU

Develop model and implement Pilot model

Review

Review

Concentration risk model New SMME model

Yes

Exec DIU

Develop and implement guidelines Develop and implement standard for all 100% of core ECDC processes

Revised Imvaba fund

No

OD project

Yes

Business Process Reengineering: For example on number of days required to approve and disburse loans, to allocate tenants, answer calls, turnaround times for all product, etc.

All

2

Strategic drivers

All Exec OD

Implement model fully Implement guidelines

Review model

Implement standard

Review standard

Review guidelines

Yes

Yes

Yes

Risk Alignment #6 #14

#5 #11

#13 #14 #6 #22 #11 #20

#15 #11 #13 #22

#16 #15 #12 #3 #20

Perspective INTERNAL PROCESSES PERSPECTIVE

Strategic objective

Key performance indicator

Owner

P1 DESIGN AND STREAMLINE INNOVATIVE SOLUTIONS

Number of new products researched and launched Develop new business model for ECDC (organisation development) Creation of a research and development (R & D) function.

All

P2 DEVELOP CUSTOMER MANAGEMENT RELATIONSHIP PROCESSES

Periodic customer satisfaction surveys

Man Coms

Aftercare model from investment and trade promotion unit and reports

Exec DSU

P3 DEVELOP EFFECTIVE RISK MANAGEMENT PROCESSES

8|Page

Increase number of hits on the website.

Implement King III and Companies Act readiness program.

Man HR Exec OD Man HR Exec OD

Man IT Man Credit Risk

Clean audit with no emphasis of matter

All

Implement risk tolerance framework.

All

Implement A-G and internal audit tracking register.

All

Annual number of external cases investigated by the South African Police Services (SAPS) for misappropriation, misallocation and misapplication of ECDC funds

All

Target 11/12 2 Develop and pilot Appoint Economist and set up Unit + 1 research paper 1 survey Set baseline Develop and implement a aftercare model for 63 135 hits Readiness assessment and implement Clean audit with emphasis of matter Implement Q1 and Q2Implement 100% findings of previous year.

Q3-Q4- 50% of current year findings done.

0

Target 12/13 2

Target 13/14 2

Align and Implement 2 research papers

Review 3 research papers

1 survey 10% improvement Implement, monitor and report

1 survey 10% improvement Implement, monitor and report

69 500 hits

77 000 hits

Implement findings

Review

Clean audit with emphasis of matter Review and implement

Clean audit with NO emphasis of matter Review and implement

Q1 and Q2Implement 100% findings of previous year.

Q3-Q4- 50% of current year findings done.

Q1 and Q2Implement 100% findings of previous year.

Q3-Q4- 50% of current year findings done.

0

0

Strategic drivers

Control Yes/No Yes

n/a

Yes

Research and development policy

Yes

Marketing and Coms policy

Yes

Aftercare model for ITP

Yes

Marketing and Coms strategy Credit risk policy

Yes

n/a

Yes

Board approved document AG Management letter

Yes

Internal Audit

Yes

Yes

Yes

Risk Alignment #2

#15 #7 #8 #14 #7

#5 #7 #11

Perspective INTERNAL PROCESSES PERSPECTIVE

LEARNING AND GROWTH PERSPECTIVE

Strategic objective

Key performance indicator

Owner

P3 DEVELOP EFFECTIVE RISK MANAGEMENT PROCESSES

Annual Number of internal and external cases investigated by internal auditors for misappropriation of ECDC funds Number of reports on the exposures due to future changes in economic conditions.

All

L1 INVEST IN HUMAN CAPITAL IN LINE WITH CORE BUSINESS

Employee satisfaction index (conduct annual surveys) Vacancy rate of key vacancies Value of training programmes implemented.

Embedded participation in the performance management model Develop and implement six critical HR policies (remuneration, performance, discipline, etc) Harmonise conditions of employment throughout the entire corporation Conducive employer/employee relations.

Implementation of workplace skills plan (WSP) for ECDC. Organisational structure aligned to strategy. (Organisational development process).

Management information system for decision making.

Develop a corporate performance measurement tool

L2 DEVELOP A CULTURE OF EXCELLENCE AND LEADERSHIP

Market intelligence report.

9|Page

Target 11/12 0

Target 12/13 0

Target 13/14 0

Man Credit Risk

1

1

1

Man HR

50%

70%

Man HR Man HR

10% R3m

5% R2m

Man HR

70%

Man HR

100% complete

80% Implement

Strategic drivers Internal audit

Control Yes/No Yes

Risk Alignment

Credit risk policy

Yes

80%

n/a

Yes

5% R1m

HRD policy HRD policy

Yes Yes

#2

100%

PMS policy

Yes

#10

Implement

n/a

Yes

#21

Implement findings

OD process

Yes

Agency shop agreement WSP

Yes

#9 #17

#22

Man HR

OD project

Man HR Man HR

1 agency shop agreement 1 WSP

Man OD

OD project

Implement findings

Implement findings

OD process

Yes

Man IT

1 MIS developed and designed Implement 1 corporate performance measurement tool 1 report

Implement

Implement

n/a

Yes

#11

Implement tool

Implement tool

Reporting guidelines

Yes

#20

Man Strategy

Man Coms

Implement findings 1 agency shop agreement 1 WSP

1 agency shop agreement 1 WSP

Yes

#10 Implement findings

1 report

n/a

Yes

Perspective LEARNING AND GROWTH PERSPECTIVE

Strategic objective

Key performance indicator

Owner

Target 12/13 1 town hall meeting

Target 13/14 1 town hall meeting

Develop leadership cadre

Embed

Embed

Design and Develop IT strategy.

Design, develop and document the MSP

Implementation

Implement the MSP

L2 DEVELOP A CULTURE OF EXCELLENCE AND LEADERSHIP

Periodic/regular reporting and feedback on performance from management to staff Codification of Leadership and Management behaviours

L3 INCREASE EFFECTIVE DECISION MAKING BASED ON ACCURATE MANAGEMENT INFORMATION AND KNOWLEDGE SYSTEMS L4 BUILD DEVELOPMENT FINANCE AND ECONOMIC INTELLIGENCE

Align IT strategy

Man IT

Align Master systems plan (MSP) to Corporate business plans

Man IT

Build a knowledge hub: Number of research/information products produced annually Knowledge management system.

All

2

2

2

Man IT

1 system

Implement

Implement

10 | P a g e

Man Strategy/ Man OD Man HR

Target 11/12 1 town hall meeting

Strategic drivers Strategy planning process

Control Yes/No Yes

n/a

Yes

Implementation

IT strategy

Yes

Review and update the system

MSP

Yes

ITP, DPP and EDS research

Yes

n/a

Yes

Risk Alignment

#18

#19

#18

#19

Top risks: ECDC risks from highest to lowest

#

Description of the risk identified 1

The failure of ECDC to achieve sustainability

2

Lack of human capacity and skill

3 4

Lack of segregation of duties in the development investment unit between the pre and post investment Failure to generate sufficient income to cover cost and ensure sustainability of the unit

5

High rate of loan defaulters

6

Insufficient funding for loans

7

The lack of integrity of personnel

8 9

Lack of aftercare service to loanees Lack of succession planning

10

Failure to harmonize conditions of employment

11

Lender of last resort (providing financial support to a client base that is non-bankable)

12

ECDC’s organisational structure of the ECDC is not appropriately aligned

13 14

The balance sheet is not structured to be a DFI Failure/inability to meet changing shareholder expectations

15

Low employee morale

16

Slow turnaround time in the disposals of properties

17

Failure to provide in-house business support to emerging entrepreneurs for all sectors

18

Loss of critical IT infrastructure and information

19

Lack of succession planning and business continuity within the IT department

20

Limited integration of financial and non-financial services

21

Poor employee/employer relations affecting productivity and efficiency

22

Notion that ECDC is perceived as funder of grants as opposed to development finance/loans.

11 | P a g e

3. ANNUAL PERFORMANCE AND OPERATIONAL PLANS 3.1 CREDIT RISK 3.1.1 PERFORMANCE PLAN 2011/12 to 2013/14 Assumptions made in this plan: a. The appointment of the credit analyst will be finalised.

Perspective and strategic objective

Key Initiative

Performance Indicator

PI definition

Responsibility

Resources a. Indicative b. Allocated c. Deficit

Indicative Baseline 2010/11

No baseline

F1

Operate under a sound well defined credit granting process.

• Number of reports with respect to credit limits framework and new projects and new loans.

• Number of new policies and procedure manuals approved.

• Establish loan sector concentrations • Perform Credit risk report

Man Credit Risk

a. b. c.

F2

Maintain an appropriate credit administration, measurement and monitoring process

• Number of impairment reports per annum.

• Policy document and reporting system on internal risk rating system.

• Number of reports on the exposures due to economic conditions.

• Risk comment on procedures loans, rental portfolio, and project loans.

• Report indicating exposure of economic conditions.

Man Credit Risk

No budget required

No baseline

P1

Ensure adequate controls over credit risk

• Number of training sessions with staff.

• Number of work out loan papers submitted.

• Training sessions of all Units for ensure compliance.

Man Credit Risk

a. R1,8m b. R0 c. R1,8m

No baseline

12 | P a g e

R1, 2m 0 R1,2m

Medium term targets 2011/12

2012/13

• Develop Credit limit framework.

• Develop a credit Procedure manual • Develop 3 new policies • Develop Concentrations loan portfolio.

• Credit risk reports for all loans and projects.

• Develop a pricing policy.

• 4 impairment reports.

• New impairment policy • 1 report on economic conditions

• Review credit limit framework, procedure manuals and policies, concentratio n levels

Review credit limit framework, procedure manuals and policies. concentration levels

• 4 impairment reports.

• 1 report on economic conditions

• 4 impairment reports.

• 1 report on economic conditions

• 1 Quarterly training • 60% of qualifying loans

• 1 Quarterly training • 100% of Qualifying loans

• 1 Quarterly training • 10% of qualifying loans

2013/14

Perspective and strategic objective

P2

Key Initiative

Performance Indicator

PI definition

Responsibility

Resources a. Indicative b. Allocated c. Deficit

Indicative Baseline 2010/11

Medium term targets 2011/12

Performance review of unit

by Executive Management / Audit Committee / Risk Committee / Board / Internal audit Assess ECDC credit policy and procedures against King III. Identify and manage credit risk inherent in the high impact products/plan and activities.

Establish an appropriate credit risk environment across all Units

Number of surveys conducted internally.

Participate in internal survey to determine satisfaction levels

Man Credit Risk

No budget required

No baseline

Determine baseline.

Number of reports highlighting compliance

Assessment of ECDC against King III for credit aspects.

A report detailing the risks for each new high impact project.

Man Credit Risk

No budget required

No baseline

1 report

Man Credit Risk

a. R600k b. 0 c. R600k

No baseline

Man Credit Risk

a. b. c.

L2

Provide assurance service to Board

Number of service standards signed with each Unit.

Man Credit Risk

L3

Communicate requirements to IT

Number of new system definitions implemented

L4

Communicating of ideas and lessons learnt to responsible person for development through a committee.

• Constitution of committee drafted and approved.

• Number meeting held.

• Credit risk strategy and polices with proposed risk appetite and tolerance.

• 1 inherent risk reports per product from DIU and Projects.

SLA/ MOU’s to be entered into between CR and other Units Number of new reports systems generated by IT. Minutes on lessons learnt

P3

P3

P3

13 | P a g e

Number of risk reports to Board / Audit Committee

• Approved credit risk strategy and policies.

• Number of reports with respect to credit risks inherent in loan products.

2012/13

2013/14

Improve by 10% internal customer satisfaction index.

1 report

Improve by 20% internal customer satisfaction index.

1 report

50% of all projects

75% of all projects

100% of all projects

No baseline

• Credit and risk strategy.

• 1 inherent risk reports per product

• Credit and risk strategy.

1 inherent risk reports per product

• Credit and risk strategy.

• 1 inherent risk reports per product

No budget required

No baseline

60% compliance

100% compliance

100% compliance

Man Credit Risk

No budget required

No baseline

4 reports

4 reports

4 reports

Man Credit Risk

No budget required

No baseline

4 meetings and reports

4 meetings and reports

4 meetings and reports

R600k 0 R600k

3.1.2 OPERATIONAL PLAN- 2011/12 Perspective and strategic objective

Performance Indicator

PI definition

Reporting frequency

F1

• Number of reports with respect to credit limits framework and new projects and new loans.

• Number of policies and procedure approved.

• Amendments to development investment policy, rental policy and project loans policy.

• Establish concentrations • Perform Credit risk report

Quarterly Per loan/per project

F2

• Number of impairment reports per annum.

• Policy document and reporting system on internal risk rating system to manage credit risk.

• Number of reports on the exposures due to economic conditions.

• Number of training sessions with staff.

• Number of work out loan papers submitted.

Number of surveys conducted internally with staff, management and Board

• Risk comment on procedures loans, rental portfolio, and project loans.

• Report indicating exposure of economic conditions.

Quarterly

• Training sessions of all Units for ensure compliance.

Quarterly

Participate in internal survey to determine satisfaction levels

Annual

Report highlighting compliance

Assessment of ECDC against King III for credit aspects.

Quarterly

P1

P2

P3

14 | P a g e

Annual target

Quarterly targets Q1

Q2

Q3

Q4

• Develop Credit limit framework.

• Develop a credit Procedure manual • Develop 3 new policies • Develop Concentrations loan portfolio.

• Credit risk reports for all loans and projects.

• Develop a pricing policy.

• 4 impairment reports.

• New impairment policy • 1 report on economic conditions

• Establish overall credit limit framework loan portfolio • Procedure manual Nexus • 100% DIU loan reports over R1million

• 1 Development Investment Policy • Procedure manual term loans • 1 pricing policy • 100% of DIU loans

• 1 Rental Policy • Procedure manual Construction • 100% of DIU loans

• 1 Project Policy • Rental policy • 100% of DIU loans

• 1impairment report • New impairment policy

• 1impairment report

• 1impairment report • 1 economic conditions report

• 1impairmen t report

• 1 Quarterly • 1 training sessions quarterly • 10% of qualifying loans Satisfied internal customers satisfied.

• 1 training session • 10% of loans

• 1 training session • 10 % of loans.

• 1 training session • 10% of loans.

Interpret results determine actions.

• 1 training session.

• 10% of loans.

Determine baseline for internal customer satisfaction. n/a

1 report

0

Conduct survey

0

1 report

n/a

Perspective and strategic objective

Performance Indicator

P3

• Approved credit risk strategy and policies.

• Number of reports with respect to credit risks inherent in loan products.

P3

Number of Risk assessment reports

L2

Number of service standards signed with each Unit.

Number of new system definitions implemented • Constitution of committee drafted and approved.

• Number meeting held.

L3 L4

15 | P a g e

PI definition

Reporting frequency

Annual target

• Credit risk strategy and polices with proposed risk appetite and tolerance.

• 1 inherent risk reports on per product from DIU and Projects and Properties.

Risk report for all new products before implementation

Quarterly

Credit and risk strategy, amended policies and inherent risk reports

Depending on new products

1 overall product risk report per new product

SLA/ MOU’s to be entered into with other Units Number of new reports systems generated by IT. Minutes on lessons learnt

Quarterly

60% compliance

Quarterly

4 reports

Quarterly

4 meetings and reports

Quarterly targets Q1

Q2

Q3

Q4

0

Credit risk strategy 33% Inherent Risk report

Amend policy 33% Inherent Risk report

33% Inherent Risk report

100% compliance

100% compliance

100% compliance

100% compliance

0

0

0

1 report

1 report

1 report

60% compliance 1 report

Constitution and procedures

1 report

1 report

1 report

3.2 DEVELOPMENT FINANCE 3.2.1 PERFORMANCE PLAN 2011/12 TO 2013/14 Assumptions of this plan include: a. Estimated organic growth of R50 mil p.a. due to improved in collections process to match the disbursements and expected annual allocation of R50 million. b. Estimated based on R226 achieved in the last year due to funding constraints excludes fees and refunds. c. Availability of funds required to achieve the set targets. d. Training expected cost of R20 000 per employee for approximately 30 staff members. e. Appointment of additional employees to boost capacity. f. Jobs estimated based on current pipeline and trend in historic performance with a provision of 10% escalation p.a. g. Impairments improvement is dependent on the calculation methodology and review of grading process. h. At least one presentation or workshop per month to promote ECDC funding products. No budget required as this is done in collaboration with Development Services Unit. i. MOUs/ SLAs with other entities are highly dependent on negotiation with third parties and the success might be affected by factors beyond control.

Perspective and strategic objective

Key Initiative

Performance Indicator

PI definition

Responsibility

Resources a. Indicative b. Allocated c. Deficit Key staff to be appointed: -Monitoring Manager -Legal Advisor* -Credit Risk Analyst* Attributed to direct expenses8

F1

Improve processes to ensure efficiency and effectiveness.

Value of collections per month/year

Cash receipts from total loan book as percentage of loans disbursed.

Exec: DIU

F2

Source Mega investment projects

Projects over the value of R50m

Exec: DIU

F2

Improve quality of the loan portfolio

Number of mega investment projects identified (build a pipeline) % impairment rate

% impairment rate as per risk appetite and tolerance Loans disbursed (excl. fees, insurance and refunds)

Exec: DIU

Attributed to direct expenses

Exec: DIU

Approx. R200 million required.

Value of new investments

8

Attributed to direct expenses means as per the budget for ECDC in the rest of the document.

16 | P a g e

Indicative Baseline 2010/11

Medium term targets 2011/12

2012/13

2013/14

70%

60%

65%

70%

1 (Joule car)

2

2

3

62% (of the total loan book) R250 million

50%

45%

40%

R200 million

R250 million

R300 million

Perspective and strategic objective

Key Initiative

Performance Indicator

F2

Approval and disbursement of investments.

Jobs created (Temporary, full-time, jobs retained).

C4

Build loans portfolio

New SMME/ Micro Loans Model Revised Imvaba fund.

C1 and C4

Promoting awareness of ECDC products.

C3

Develop a survey for loan recipients

C3

Developing and leveraging on relationship.

No. of MOU/SLAs concluded per year with stakeholders or other DFIs in the Eastern Cape.

P1

Approval and disbursement of investments.

Client relationship management

Turnaround time

P2

L4

Support provided pre and post financing

17 | P a g e

No. of Ads, information workshops done per month, etc (Establish awareness of products and services offered) Number of surveys conducted

No. of complaints from customers and stakeholders Number of products developed to assist pre and post financing

PI definition

Responsibility

Resources a. Indicative b. Allocated c. Deficit Linked to disbursement.

No budget required

Indicative Baseline 2010/11

2011/12

2012/13

2013/14

2 500

3 000

3 500

4 000

Linked to disbursement.

No budget required Linked to disbursements. No budget required Marketing budget.

Attributed to direct expenses

No baseline

Pilot new model

No baseline

Develop and implement guidelines 12

Implement model fully Monitor

Review model Review guidelines

12

12

No baseline

No. of jobs created from loans disbursed SMME/ micro fund Model New guidelines

Exec: DIU

No. of presentations introducing ECDC funding products

Exec: DIU/ Marketing

Develop a survey to check satisfaction of clients No. of MOU/SLAs signed and implemented with external stakeholders No. of days taken to disburse loans

Exec: DIU

No budget required/ Marketing. Attributed to direct expenses

Exec: DIU

Attributed to direct expenses

2

Exec: DIU

Attributed to direct expenses

No baseline

New customer feedback system

Exec: DIU

Attributed to direct expenses

No baseline

Unique products meant to support enterprises before and after financing

Exec: DIU

Attributed to direct expenses

No baseline

Exec: DIU Exec: DIU

Medium term targets

12

Develop survey, run and implement findings 2

Develop, run and implement findings 2

Develop, run and implement findings 2

Develop and implement standard Develop and implement system Develop 2 products (pre and post interventions) and pilot implementation

Implement standard

Review standard

Implement system

Review system

Implement

Review

3.2.2 OPERATIONS PLAN- 2011/12 Perspective and strategic objective

Performance Indicator

F1

Value of collections per year

F2

Number of mega investment projects identified and secured % impairment rate

F2

PI definition

Reporting frequency

Annual target 2011/12

Quarterly targets Q1

Q2

Q3

Q4

Cash receipts from total loan book as percentage of loans disbursed.

Projects over the value of R50m

Quarterly

70%

60%

60%

60%

60%

Quarterly

2

0

1

0

1

Quarterly

50%

50%

50%

50%

50%

Quarterly

R200million

Quarterly

3 000

800

750

700

750

Conclude conceptualisation Develop new guidelines

Pilot model

Pilot model

Pilot model

Implement

Implement

3

3

3

Review the new guidelines and adjust.

3

Develop survey

Run survey

Implement and adjust systems

Review

0

1

0

1

Monitor and take corrective action Implement the system

Monitor and take corrective action

Monitor and take corrective action

Implement the system

Implement the system

F2

Jobs created (Temporary, fulltime, jobs saved).

% impairment rate as per risk appetite and tolerance Loans disbursed (excl. fees, insurance and refunds) No. of jobs created from loans disbursed

C4

New SMME/ Micro Loans Model

SMME/ micro fund Model

Quarterly

Pilot model

Revised Imvaba fund

New guidelines

Quarterly

No. of Ads, information workshops done per month, etc (Establish awareness of products and services offered) Number of surveys conducted

No. of presentations introducing ECDC funding products

Quarterly

Develop and implement new guidelines 12

Develop a survey to check satisfaction of clients

Quarterly

No. of MOU/SLAs concluded per year with stakeholders or other DFIs in the Eastern Cape.

Turnaround time for granting loans

No. of MOU/SLAs signed and implemented with external stakeholders No. of days taken to grant loans

Quarterly

Quarterly

Develop and implement standard

Measure and set limits for each product

No. of complaints from customers and stakeholders

New customer feedback system

Quarterly

Develop and implement system

Develop a system for feedback

Value of new investments

C1 and C4

C3

C3

P1

P2

18 | P a g e

Develop survey, run and implement findings 2

R55 million

R50million

R45million

R50million

Perspective and strategic objective

L4

Performance Indicator

Number of products developed to assist pre and post financing

19 | P a g e

PI definition

Unique products meant to support enterprises before and after financing

Reporting frequency Quarterly

Annual target 2011/12 Develop 2 products (pre and post interventions) and pilot implementation

Quarterly targets Q1

Q2

Q3

Q4

0

0

1

1

3.3 DEVELOPMENT PROPERTIES 3.3.1 PERFORMANCE PLAN 2011/12 TO 2013/14 The following assumptions are critical to the Unit a. Available budget for actual property developments and feasibility studies. b. Rental portfolio collections are based on disposal in part in the 4th quarter. c. Reduction of Operational Costs - Transfer non ECDC registered properties d. Communication Plan – improved stakeholder participation e. Internal referral system between EDS and DIU f. Redeployment and re-skilling of staff (through the OD exercise) g. Complete Disposal – Lock, Stock & Barrel h. Retain & Develop vacant land and participate in property - Cash from strategic disposal Perspective and strategic objective

F1

Key Initiative

Reduction of operational costs in line with sale of residential portfolio Improved property values

F2 and F4

9

Performance Indicator

Reduction of operational cost.

% reduction of operational costs annually

Exec: Properties

Resources a. Indicative b. Allocated c. Deficit Attributed to direct expenses

Amount spent on reactive maintenance

Spend 10% of rental income on reactive maintenance Allocated budget spent on development initiatives

Exec: Properties

Attributed to direct expenses

R8m

R2.4m

R2.4m

R300k

Exec: Properties

R10m R5m CIB R5m – Hillcoombe)

R12.15m

R7.25m

R5.6m

Strategic partnerships in developing vacant land

Exec: Properties

a. R35m b. R15m c. R20m (R20m – Proposed budget) R10m – capital improvements R5m – Hillcoombe) R72m (R30m Owl st) R42m Bunting place)

R42m

0

Implement new property development initiatives

Value of expenditure on project costs

Invest in any other new property initiatives

Value of property investment opportunities identified

Dependant on sale of properties.

20 | P a g e

PI definition

Responsibility

Indicative Baseline 20010/11

n/a

Medium term targets 2011/12

2012/13

2013/14

5%

10%9

30%

40%

(R5m CIB)

R30m

Perspective and strategic objective

F3

Key Initiative

Maximise revenue through rentals

Performance Indicator

Amount of rentals collected Amount of arrear debt collected

PI definition

Responsibility

Amount of rental collected on current rentals Amount of arrears collected

Exec: Properties

Resources a. Indicative b. Allocated c. Deficit Attributed to direct expenses

Exec: Properties

Attributed to direct expenses

Indicative Baseline 20010/11 R40m

R8.7m (Baseline 5% of R174m) R13m

Medium term targets 2011/12

2012/13

2013/14

R34m

R30.8m

R33.8m

R12m (Base R1m per month)

R13.2m (10% growth p.a.)

R14.52m (10% growth p.a.)

R286m

R286m

0

F3

Maximise revenue through disposals (accelerate ACP) and re-invest proceeds to property developments

Value of properties sold

Disposal of property portfolio retain vacant land

Exec: Properties

Attributed to direct expenses

C2

Increased visibility of ECDC properties

% of ECDC properties Branded

% of properties and sites branded

Exec: Properties

Attributed to direct expenses

10%

30%

30%

30%

C3

Establish relationships with internal stakeholders to attract key investors Establish relationships with external stakeholders to realize potential of ECDC investments

Number of Investment opportunities

Collaborate with internal stakeholders / units to attract investors Improved stakeholder relationships in terms of business transactions leveraged % properties profiled in monthly publications and website

Exec: Properties

Attributed to direct expenses

1

1

1

1

Exec: Properties

Attributed to direct expenses

4

4

4

4

Exec: Properties

Attributed to direct expenses

2%

3%

3%

2%

C4

Market existing ECDC’s properties and new property development initiatives

21 | P a g e

Number of Signature events e.g. activities/ engagements with relevant stakeholders (lettings/ developments/ marketing Improve occupancy rates from Base 87% yearly

Perspective and strategic objective

Key Initiative

Performance Indicator

P1

Improve business processes and turnaround

Customer satisfaction survey

P2

Develop customer management relationship model

No. of forums/meetings with customers to improve relations

22 | P a g e

PI definition

• Reduction in lead time to maintain properties. • Timeous resolving of customer queries Stakeholder buy-in on initiatives and ECDC business principles

Responsibility

Exec: Properties

Resources a. Indicative b. Allocated c. Deficit Attributed to direct expenses

Exec: Properties

Attributed to direct expenses

Indicative Baseline 20010/11 No baseline

3 meetings

Medium term targets 2011/12

2012/13

2013/14

Determine baseline

Improve 10% on baseline

Improve 10% on baseline

Develop and implement a CRM model for tenants

Implement model

Review the model

3.3.1.1 OPERATIONAL PLAN- 2011/12 Perspective and strategic objective

Performance Indicator

F1

% reduction of operational costs

F2 and F4

F3

Amount spent on reactive maintenance Value of expenditure on project costs Value of property investment opportunities identified Amount of rentals collected Amount of arrear debt collected

PI definition

Reporting frequency

Annual target

Quarterly targets Q1

Q2

Q3

Q4

Reduction of operational costs by 10% annually Spend 10% of rental income on reactive maintenance Allocated budget spent on development initiatives Strategic partnerships in developing vacant land Amount of rental collected on current rentals Amount of arrears collected

Quarterly

10%

2%

2%

3%

3%

Quarterly

R2.4m

R600k

R600k

R600k

R600k

Quarterly

R3.04m

R3.04m

R3.04m

R3.04m

Quarterly

R12.15m (R5m CIB) R30m

R0.00

R0.00

R0.00

R30m

Quarterly

R34m

R8.5m

R8.5m

R8.5m

R8.5m

Quarterly

R3m

R3m

R3m

R3m

R0

R0m

R0m

R286m

F3

Value of properties sold

Disposal of property portfolio and retain vacant land

Quarterly

R12m (Base R1m per month) R286m

C2

% of ECDC properties Branded

Quarterly

30%

7%

8%

8%

7%

C3

Number of Investment opportunities

% of properties and sites branded Collaborate with internal stakeholders / units to attract investors Improved stakeholder relationships in terms of business transactions leveraged % of Improvement on occupancy rates from base 87% yearly • Reduction in lead time to maintain properties • Timeous resolving of customer queries on rentals, maintenance and disposals

Quarterly

1

0

1

0

0

Quarterly

4

1

1

1

1

Quarterly

3%

0%

1%

1%

1%

Determine baseline

Develop and implement survey

Interpret and implement results of survey

Implement results

Review successes and set baseline

Number of Signature events e.g. activities/ engagements with relevant stakeholders (lettings/ developments/ marketing % properties profiled in monthly publications and website

C4

P1

Customer satisfaction survey

23 | P a g e

Bi-annually

Perspective and strategic objective

Performance Indicator

P2

No. of forums/meetings with customers to improve relationships

24 | P a g e

PI definition

Improved customer satisfaction in terms of improved communication

Reporting frequency Bi-annually

Annual target

Develop and implement a CRM model for tenants

Quarterly targets Q1

Q2

Q3

Q4

Develop a model

Pilot and set up structures

Implement

Review and determine base

3.4 DEVELOPMENT SERVICES 3.4.1 DEVELOPMENT PROJECTS PROGRAMME (DPP) 3.4.1.1 DPP PERFORMANCE PLAN- 2011/12 to 2013/14 Assumptions: The following assumptions are made with respect the plan: a. Stable economy b. Cooperation with Municipalities is secured c. Operating partners are secured d. Equity and loan funding secured to implement projects is secured e. Consistency in projects scopes f. Partners adhere to contractual obligations g. No natural disasters h. Budget availability Perspective and strategic objective

F2

Key Initiative

Performance Indicator

Identification & scoping of high impact projects

No. of projects identified for scoping

Scoping of identified high impact projects

Rand value of Funds spent in scoping Rand value of funds spent supporting implementation of high impact projects Rand value of the total project pipeline created

Leverage funding for the implementation of high impact projects (after scoping is done)

Mobilise resources towards implementation of High impact Priority Projects ( HIPP’s)

25 | P a g e

PI definition

Responsibility

Sum total of all the projects on which scoping will be conducted Resources utilized in determining viability of projects Total budget spent

by DPP in support of project implementation

Programme Head: DPP

Rand value of funds required to implement the project pipeline for HIPPs

Resources a. Indicative b. Allocated c. Deficit Attributed to direct expenses

Indicative Baseline 20010/11

Medium term targets 2011/12

2012/13

2013/14

6 Projects

7

10

12

Programme Head: DPP

R7 m

R5m

R7m

R8m

R10m

Programme Head: DPP

R4 m

R3m

R4m

R6 m

R10m

Programme Head: DPP

Results from scoping as above

New KPA

R1billion

R1.3billion

R1.6billion

Perspective and strategic objective

F2 and C3

Key Initiative

Creation of jobs through the investments in HIPPs & interventions in ailing industries

Support municipalities in the development of economic infrastructure

Performance Indicator

No. of jobs created (Temporary, fulltime, jobs retained) Rand value of funds spent in supporting municipalities

F2

Establish partnerships with third parties to facilitate co-funding of HIPPs

Rand value of funds leveraged from 3rd party funders

L4

Commission research on new economic opportunities available for E.C.

No of research projects commissioned

26 | P a g e

PI definition

Responsibility

Jobs created (Temporary, fulltime, jobs retained)

Programme Head: DPP

Funds spent in partnership with municipalities on economic infrastructure Projects Rand value of funds provided by 3rd parties in cofunding HIPPs

Programme Head: DPP

Programme Head: DPP

Research projects commissioned to determine opportunities

Programme Head: DPP

Resources a. Indicative b. Allocated c. Deficit Attributed to direct expenses

Indicative Baseline 20010/11

Medium term targets 2011/12 2012/13

2013/14

660

700

850

1000

R3 m

R2 m

R3 m

R5 m

R7 m

Negotiations and facilitation of partnerships.

Attributed to direct expenses Attributed to direct expenses

R60 m

R75m

R90 m

R110 m

New Target

1

1

2

3.4.1.2 DPP OPERATIONAL PLAN- 2011/12 Perspective and strategic objective

F2

Performance Indicator

No. of projects identified for scoping Rand value of DPP Funds spent in scoping Rand value of funds spent supporting implementation of high impact projects Rand value of the total project pipeline created

F2 and C3

F2 L4

No. of jobs created/saved through investing in HIPPs or intervention in ailing industries Rand value of funds spent in supporting municipalities Rand value of funds leveraged from 3rd party funders No of research projects commissioned

27 | P a g e

PI definition

Reporting frequency

Annual target 2011/12

Quarterly targets Q1

Q2

Q3

Q4

1

3

2

1

Sum total of all the projects on which scoping will be conducted Resources utilized in determining viability of projects

Quarterly

7

Quarterly

R7 m

R500k

R3 m

R3 m

R500k

Total budget spent by DPP in support of project implementation Rand value of funds required to implement the project pipeline for HIPPs Jobs created from HIPPs or from saved ailing industries Funds spent in partnership with municipalities on economic infrastructure Projects Rand value of funds provided by 3rd parties in co-funding HIPPs Research projects commissioned to determine opportunities

Quarterly

R4m

R250k

R1,250 m

R1 m

R500k

Quarterly

R150m

R250m

R400m

R200m

Quarterly

R1b total value of pipeline created 700

100

300

200

100

Quarterly

R3 m

R500k

R1m

R1m

R500k

Quarterly

R75m

R5m

R35m

R30m

R5m

Quarterly

1

0

0

1

0

3.4.2 ENTERPRISE DEVELOPMENT SERVICES (EDS) 3.4.2.1 EDS PERFORMANCE PLAN- 2011/12 to 2013/14 Assumptions: The following assumptions are made with respect this plan. a. Main focus for business development services being supporting businesses financed or to be financed by ECDC b. There is closer alignment and collaboration with Development Investments. c. Need for mapping out process flow linked with Development Investment d. The unit will focus on pre-financing support and post finance support as and when the required. This needs to be done in collaboration with Development Finance. e. Identification of gaps in the business and entrepreneur will be done collaboratively with Development Investment.

Perspective and strategic objective

C1

Key Initiative

Establish and support enterprises in 2 priority sectors through incubation programme

Facilitate access to markets C2

Facilitate job creation

28 | P a g e

Performance Indicator

Number of entrepreneurs participating in the incubation programme - 50% ownership by women.

- 40% ownership by youth - 2% ownership by people with disability Value of deals/ orders generated from incubation No. of jobs created

PI definition

Responsibility

Number of incubates participating in the programme

Programme Head: EDS

Resources a. Indicative b. Allocated c. Deficit a. R 5m - R2,5m – ICT - R2,5-Creative Industries b. R5m c. R0

Value of deals/ orders generated from intervention.

No. of jobs created

Programme Head: EDS Programme Head: EDS

Indicative Baseline 20010/11

Medium term targets 2011/12

2012/13 100 Incubates - 25 ICT, - 75 Creative Industry

2013/14

75 Incubates - 15 ICT, - 60 Creative Industry

90 Incubates - 20 ICT, - 70 Creative Industry

120 Incubates - 30 ICT, - 90 Creative Industry

Attributed to direct expenses

R457k

R1million

R2million

R3million

Attributed to direct expenses

110

130

160

200

Perspective and strategic objective

C1, C2 and C3

Key Initiative

PI definition

Responsibility

Resources a. Indicative b. Allocated c. Deficit a. R7m

Indicative Baseline 20010/11

Medium term targets 2011/12

2012/13

2013/14

190

200

230

280

b. R2m

360

750

1000

1500

Attributed to direct expenses

100

150

200

200

Provide pre and post enterprise support to ECDC loan applicants, loanees and other entrepreneurs including construction programme.

Facilitate skills development and training of entrepreneurs in order to improve competitiveness

Number of enterprises provided with pre and post finance support.

Enterprises provided with pre and post finance support.

Programme Head: EDS

Number enterprises trained.

Programme Head: EDS

Facilitate company registration including co-operative registration.

Number of companies registered Number of cooperatives registered Number of Seminar held including SMME Summit Number of supplier development programmes

Training of enterprises trained on different aspects business needs.

Training of cooperatives trained on different aspects in line with business needs Companies registered.

Programme Head: EDS

c. R 100 000

4400

6000

6500

7000

Co-operatives registered Empowerment seminars held for entrepreneurs Supplier development programme implemented including service provider support Number of projects supported through partnership with organised business other entities

Programme Head: EDS Programme Head: EDS

Attributed to direct expenses R 1 million

200

300

350

400

8

12

14

14

Programme Head: EDS

R 200 000

2

4

6

7

Programme Head: EDS

R5m

3

4

6

6

Facilitate access to information and empowerment

C3

Performance Indicator

Implement programmes in partnership with organised business.

29 | P a g e

Number cooperatives trained.

Number of projects supported through partnership with organised business/ other entities

Perspective and strategic objective

Key Initiative

Performance Indicator

PI definition

Responsibility

P1

Undertake SMME research.

Complete research report.

Research commissioned and completed

Programme Head: EDS

L4

Information portal at regional offices that will assist self help by entrepreneurs (Business planning, financial records, internet etc) (Business Hub)

Number of portals created and fully functional

User-friendly portal accessible to entrepreneurs

Programme Head: EDS

30 | P a g e

Resources a. Indicative b. Allocated c. Deficit a. R600k

R220k

Indicative Baseline 20010/11 Research on financial skills gap on ECDC financed enterprises n/a

Medium term targets 2011/12

2012/13

2013/14

One complete research report

One complete research report

One complete research report

3 portals

5 portals

7 portals

3.4.2.2 EDS OPERATIONAL PLAN – 2011/12 Perspective and strategic objective

C1

C2 C1 and C2

Performance Indicator

Reporting frequency

Quarterly targets

Annual target Q1

70 Creative Industry 20 ICT

70 Creative Industry 20 ICT

Q4

Programme Head: EDS

Value of deals/ orders generated from incubation

Value of deals/ orders generated from intervention.

No. of jobs created Enterprises provided with pre and post finance support.

Training of enterprises trained on different aspects business needs.

Training of co-operatives trained on different aspects business needs Companies registered.

Programme Head: EDS

R1 million

R200k

R500k

R100k

R200k

Programme Head: EDS Programme Head: EDS

130 200

30 50

30 70

50 40

20 40

Programme Head: EDS

750

150

200

200

200

Programme Head: EDS

150

30

30

30

30

Programme Head: EDS

6000

1500

1500

1500

1500

Co-operatives registered

Programme Head: EDS

300

75

75

75

75

Empowerment seminars held for entrepreneurs Supplier development programme implemented including service provider support Number of projects supported through partnership with organised business other entities

Programme Head: EDS

12

3

3

3

3

Programme Head: EDS

4

1

1

1

1

Programme Head: EDS

4

0

1

2

1

Number of companies registered Number of co-operatives registered Number of Seminar held including SMME Summit Number of supplier development programmes

Number of projects supported through partnership with organised business/ other entities

31 | P a g e

60 Creative Industry 15 ICT

Q3

Number of incubates participating in the programme

No. of jobs created Number of enterprises provided with pre and post finance support.

Number enterprises trained.

90 Incubates - 20 ICT, - 70 Creative Industry

Q2

Number of entrepreneurs participating in the incubation programme - 50% ownership by women.

- 40% ownership by youth - 2% ownership by people with disability

Number co-operatives trained.

C3

PI definition

70 Creative Industry 20 ICT

Perspective and strategic objective

Performance Indicator

PI definition

Reporting frequency

Quarterly targets

Annual target Q1

P1

Complete research report

Research commissioned

Programme Head: EDS

One complete research report

L4

Number of portals created.

User-friendly portal accessible to entrepreneurs

Programme Head: EDS

3 portals

32 | P a g e

Procurement of service provider /partnership concluded Design of the portal completed.

Q2

Q3

Q4

Design of research completed

Fieldwork completed with report.

Completed research report.

Procurement of portal complete

3 Portal installed

3 Operational portals.

3.4.3 INVESTMENT AND TRADE PROMOTION (ITP) 3.4.3.1 ITP PERFORMANCE PLAN- 2011/12 to 2013/14 Investment Promotion Assumptions: The following assumptions are made with this plan: a. The overall budget for IP will increase in response to the increased activities involving coordination of IP activities b. The institutional arrangement will be approved by the Board and supported by DEDEA c. The overall investment climate will improve in response to the economic recovery d. The investment targeted will be more job absorbing and retaining to ensure the targeted jobs are achieved e. The local currency will stabilize to support FDI and Exports f. The Provincial Investment Promotion strategy will be approved by DEDEA g. The IP Head will be appointed to provide leadership to the unit. h. The current year budget will be increased by the inflation factor to R6m

Perspective and strategic objective

Key Initiative

Performance Indicator

PI definition

Trade Promotion Assumptions : The following assumptions are made: a. The rand that continues to strengthen, affecting the exports negatively, will reach stability resulting in improvement in exports b. TP manager will be appointed, thereby bringing about increased capacity and leadership c. Budget will be made available to invest in HR development, and increased knowledge base through research d. The existing organogram will be reviewed to allow for increased capacity to the unit e. Trade Promotion to continue to play the role of lead agency in Trade Promotion in the province f. The newly prepared Trade Promotion Strategy will be approved by the Board and supported by DEDEA for implementation g. The budget will be increased by the inflation factor to R3,5m

Responsibility

Resources a. Indicative b. Allocated c. Deficit

Indicative Baseline 20010/11

2011/12

Medium term targets 2012/13

2013/14

5

4

6

8

130

150

200

220

12 (R500m)

15 (R750m)

18 (R800m)

20 (R1b)

1000

1200

1800

2000

INVESTMENT PROMOTION F2

Develop packaged projects

Leads /pipeline generation

New FDI and LDI/expansions

New and saved jobs facilitated

33 | P a g e

No. of researched and packaged projects Number of leads generated through IP activities Number and value of investments realized

No. of projects researched and packaged for investors Generation of investment enquiries and projects through IP activities No. of and total value of investments landed (New/Expansions)

Programme Head ITP

a.

Programme Head ITP

Number of jobs

Direct new or saved jobs resulting from IP facilitation activities

Programme Head ITP

Attributed to direct expenses Attributed to direct expenses Attributed to direct expenses

Programme Head ITP

R3m

Perspective and strategic objective

Key Initiative

Performance Indicator

PI definition

Responsibility

Resources a. Indicative b. Allocated c. Deficit a. R50k

Indicative Baseline 20010/11

2011/12

Medium term targets 2012/13

No baseline

Set up the forum for Province

n/a

n/a

30

33

36

40

No baseline

1

1

1

2013/14

C3

Maintain a functional provincial IP forum

Functional IP Provincial Forum

Set up and co-ordinate the Provincial IP forum

P2

Aftercare visits

Number of reports from aftercare visits

Reports from aftercare visits to existing investors

Programme Head ITP Programme Head ITP

L4

Develop an annual Provincial investment publication

Data collection, research and publishing of annual provincial investment publication.

Functional Sector Forums

Annual Provincial Investment Publication

Programme Head ITP

Sector specific Reports

Programme Head ITP

a.

R360k

6

4

4

4

Increase the Value of exports

Rand Value of exports

Rand Value of exports

R900m

R1bn

R1.2bn

Value of referrals to DIU

R1m

R2m

R3m

R5m

C2

Increase the number of exporters

Number of new exporters

Value of exporters referred to DIU for Trade Finance Number of new exporters

Attributed to direct expenses Attributed to direct expenses

R840m

Market Trade Finance to exporters

Programme Head ITP Programme Head ITP Programme Head ITP

Attributed to direct expenses

12

15

20

25

C3

Develop programs in partnership with relevant stakeholders for purposes of - information sharing - networking, - capacity building.

Trade stats and trends relevant to customer and stakeholder needs in EC Develop improved systems to respond to enquiries

Number of partnerships established

Partnership with SEDA (export readiness), Exporters’ club, the dti (EMIA)

Programme Head ITP

Attributed to direct expenses

0

4

4

4

Number of Provincial Trade Statistic reports published Number of enquiries responded to within set standard

Quarterly Trade Statistics Reports

Programme Head ITP

a.

R400k

1

4

4

4

Reduced the time to respond to enquiries

Programme Head ITP

Attributed to direct expenses

No base

Determine standard and implement

100% response rate

100% response rate

Sector Forums for information sharing & networking

Attributed to direct expenses a. R300k

TRADE PROMOTION F2

P1

P2

34 | P a g e

Perspective and strategic objective

L4

Key Initiative

Conduct research specifically looking at export opportunities (new or expansion)

35 | P a g e

Performance Indicator

At least 2 reports produced and made available to customers per annum

PI definition

2 Research Reports on export opportunities and relevant markets

Responsibility

Head ITP

Resources a. Indicative b. Allocated c. Deficit a. R600k

Indicative Baseline 20010/11

2011/12

Medium term targets 2012/13

2013/14

1

2

2

2

3.4.3.2 ITP OPERATIONAL PLAN- 2011/12 Perspective and strategic objective

Performance Indicator

PI definition

Reporting frequency

Annual target 2011/12

Quarterly targets Q1

Q2

Q3

Q4

INVESTMENT PROMOTION F2

No. of researched and packaged projects Number of leads generated through IP activities Number and value of investments realized Number of jobs

C3

Value of Investments

C3

Set up forum/ Number of IP Forum record of meetings Number of reports from aftercare visits

P2 L4

Data collection, research and publishing of annual provincial investment publication.

Functional Sector Forums

No. of projects researched and packaged for investors Generation of investment enquiries and projects through IP activities No. of and total value of investments landed (New/Expansions) Direct new or saved jobs resulting from IP facilitation activities Value of Investments landed as a result of Agency Agreement IP Forum Reports/Records on meetings held Reports from aftercare visits to existing investors Research on provincial investments Annual Provincial Investment Publication Sector specific Reports (one per quarter)

Quarterly

4

0

2

1

1

Quarterly

150

30

40

45

35

Quarterly Quarterly

15 (R750m) 1200

3 (R150m) 240

4 (R200m) 320

5 (R250m) 400

3 (R150) 240

Quarterly

R100m

R0m

R20m

R30m

R50m

Quarterly

Set up forum 6

1

1

1

Quarterly

Set up forum 4 meetings 33

10

9

8

Quarterly

1

0

1

0

0

Quarterly

4

1

1

1

1

Rand Value of exports Value of exporters referred to DIU for Trade Finance Number of new exporters Partnership with SEDA (export readiness), Exporters’ club, the dti (EMIA) Quarterly Trade Statistics Reports

Quarterly Quarterly

R900m R2m

R100m R400k

R200m R400k

R300m R600k

R300m R600k

Quarterly Quarterly

15 4

3 1

3 1

4 1

5 1

Quarterly

4

1

1

1

1

TRADE PROMOTION F2

Rand Value of exports No./Value of referrals to DIU

C2 C3

Number of new exporters Number of partnerships established

P1

Number of Provincial Trade Statistic reports published

36 | P a g e

Perspective and strategic objective

P2 L4

Performance Indicator

No. of aftercare reports and interventions to existing exporters At least 2 reports produced and made available to customers per annum

37 | P a g e

PI definition

Reporting frequency

Annual target 2011/12

Quarterly targets Q1

Q2

Q3

Q4

Aftercare reports and interventions

Quarterly

18

4

6

4

4

2 Research Reports on export opportunities and relevant markets

Quarterly

2

0

1

0

1

4. BUDGET 10

50%

8%

8%

ECDC SUMMARY BUDGET 2011/2012 Property Development Investments

Management & Development

Net Rental Income Interest Income on Loans ## Total Revenue Government Grant Income Other Income Total Income Administration expenses Rates & Taxes Security Services Repairs & Maintenance Salaries & Employee benefits Impairment Allowance Government funded projects Other Expenses Total Direct Expenses Share of Corporate expenditure Share of Support units expenditure Total Expenses

Trade &

Projects

Investment Promotion

Development (SMME Support Units Promotion)

ECDC Budget 2011/12

ECDC Budget 2012/13

ECDC Budget ECDC Budget 2013/14 2014/15

58,000

-

-

-

-

58,000

29,000

4,640

4,640

58,000

35,462 35,462

-

-

-

35,462 93,462

53,588 82,588

66,071 70,711

81,886 86,526

-

-

25,589

51,802

-

77,391

82,808

88,605

94,807

20,000

12,436

-

-

-

32,436

13,307

14,238

15,235

78,000

47,898

25,589

51,802

-

203,289

178,703

173,554

196,568

11,810

1,600

40

110

32,160

45,720

40,277

32,350

33,744

23,000 10,500

-

-

-

-

23,000 10,500

11,500 5,250

1,840 840

1,840 840

15,500

-

-

-

1,661

17,161

8,581

1,373

1,373

16,263

17,970

9,106

15,351

38,618

97,308

104,119

111,407

119,206

-

42,054 -

4,288

18,646

-

42,054 22,934

44,998 24,540

48,148 26,258

51,518 28,096

3,850

2,800

40

-

16,475

23,165

18,561

14,376

15,860

80,923

64,424

13,474

34,107

88,914

281,842

257,825

236,592

252,477

4,602 25,489

3,242 25,771

1,360 10,755

2,511 15,184

-11,715 -77,199

-

-

111,014

93,437

25,589

51,802

-

281,842

257,825

236,592

252,477

-

Operating profit /-loss

-33,014

-45,539

-

-

-

-78,553

-79,122

-63,038

-55,909

Investment Income #

-

-

-

-

29,000

29,000

40,530

50,367

60,893

Net profit /-loss

-33,014

-45,539

-

-

29,000

-49,553

-38,592

-12,671

4,984

# = Investment Income includes interest on liquid assets and management fees that are expected to be earned from the Impact fund. ## = Interest income on loans represent returns from investments in developmental financial instruments including loans and equity investments.

10

The budget is subject to change due to awaiting allocations from Provincial Government.

38 | P a g e

HEAD OFFICE ECDC House, 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 Sissons 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 0584 ALIWAL NORTH 97 Somerset Street P O Box 198, Aliwal North, 9750 Tel:+27 (0) 83 399 1427

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