Annual Report
EXPLORING
THE PROVINCE’S
POTENTIAL 2009/10
FORESTRY
FORESTRY FURNITURE
AGRICULTURE
FORESTRY
FILM
Mthatha ARTS & CRAFTS
TOURISM
MINERALS WOOL AGRICULTURE
Queenstown
TEXTILES
PHARMACEUTICALS
METALS & ENGINEERING
BPO Bhisho ELECTRONICS
East London AUTOMOTIVE
AQUACULTURE
PHARMACEUTICALS Port Elizabeth
Honourable M Jonas Member of the Executive Council for Economic Affairs, Environment and Tourism I have the honour to submit the Annual Report of the Eastern Cape Development Corporation for the period 1 April 2009 to 31 March 2010.
Mr Sitembele Mase Chief Executive Officer Eastern Cape Development Corporation
Published by: Eastern Cape Development Corporation Ocean Terrace Park, Moore Street Quigney, East London PO Box 11197 Southernwood 5213 South Africa Š Eastern Cape Development Corporation, 2010 Enquiries: Marketing Department Eastern Cape Development Corporation Telephone: +27 43 704 5600 Fax: +27 43 704 5700 info@ecdc.co.za www.ecdc.co.za PR256/2010 ISBN: 978-0-621-39615-7
2008 2009
What ECDC achieved in 2008/09: More than 800 Small Medium and Micro Enterprises (SMMEs) received financial support from the Eastern Cape Development Corporation (ECDC) in the 2008/2009 financial year compared to 130 in 2007/2008 due to a successful turnaround strategy. The Corporation disbursed R312 million to business initiatives last year exceeding its annual target of R147 million. Of this amount, R214 million was collected on the total loan book. ECDC launched a set of new financial products in 2007 which ensured that ECDC improved its developmental impact in the province. The Corporation extended its reach in the Eastern Cape providing loans to 53 locations across the province. The Corporation’s 630% growth in short-term loans not only ensured the effective delivery of short-term poverty alleviation projects such as the Department of Education’s school nutrition scheme and the Department of Health’s food parcel distribution to poor areas, it also enabled economic growth in line with the Provincial Growth and Developmental Plan’s (PGDP) objectives to develop the province.
2009 2010
What ECDC achieved in 2009/10: A key instrument for stimulating business is loan funding. Despite the global economic slowdown and ECDC securing less than the required funding because of provincial budget cuts, the Corporation increased the number of small businesses it financed over the previous year. This provided welcome relief to those businesses that felt the brunt of tighter lending criteria imposed by financial institutions. ECDC’s loan disbursements decreased by 28% to R226 million.* However, the Corporation recorded a 11,8% increase in direct financial support to the number of SMMEs. This means that direct financial support was provided to 907 SMMEs compared to 800 in the previous year. Small businesses in rural areas received the majority of the loans accounting for 59% of the funding. Women-owned businesses received 37% of the funding, while 85% of disbursements went to small enterprises with a turnover less than R500,000. While challenges remain in securing commercial third-party funders for community development projects, ECDC continued to implement 15 development projects because the Corporation has built a firm foundation of projects that are delivering returns in tough times. *Footnote: As per page 69 Note 3
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Success stories
1.
About ECDC
2.
Chairperson’s foreword In his first Chairman’s report, Advocate Oyama Mabandla evaluates the economic and social impact ECDC has made on the people of the Eastern Cape. He also talks about the challenges and opportunities available for ECDC to partner with entrepreneurs to deliver economic returns.
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3.
Incoming CEO’s message
27
4.
Introduction and highlights by the acting CEO
5.
Eastern Cape socio-economic environment in 2009/2010
33
6.
Executive management
37
7.
Corporation’s performance in 2009/2010
43
8.
Human resources management
57
9.
Programme performance
10. 11.
Auditor General’s Report
85
Corporate governance
89
12.
Report of the Audit Committee
93
13.
Directors’ Report
95
14.
Financial reports and annual financial statements
103
15.
List of acronyms
157
16.
List of tables
158
This section provides a pictorial overview and brief description of client success stories in the year under review.
This section gives an overview of ECDC’s mandate, services, strategic priorities as well as its vision and mission.
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ECDC is proud to introduce Sitembele Mase as the Corporation’s Chief Executive Officer (CEO). Born in the Eastern Cape, the new CEO shares his views on the organisation’s priorities for coming year and is upbeat on the province’s opportunities.
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In this report, Msulwa Daca, caretaker CEO for ECDC for part of the period under review, gives a succinct account of the milestones which the Corporation achieved during a period that was evidenced by difficult and challenging conditions as a consequence of the global economic slowdown.
This section provides an overview of the Eastern Cape’s social and economic environment this year as well as the need to bridge the gap between the rural and urban economies.
This section is a brief description of each of the four ECDC executive managers, their professional experience as well as their contributions to the corporation.
This section is a bird’s eye view of the performance of ECDC this year including an account of its successes as well as challenges and opportunities available for further growth.
This section provides a detailed performance report of ECDC’s human resources management.
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This section provides a detailed performance report of ECDC’s five business units.
This section presents ECDC’s approach to managing the organisation which is in line with the Public Finance Management Act.
This overview highlights the unique skills and experience which the existing ECDC directors employ to solve multi-faceted challenges.
The financial reports and annual financial statements are covered in the following section.
Easy-to-use guide of the abbreviations used in the 2009/10 annual report.
Easy-to-use guide of the tables used in the 2009/10 annual report.
BUILDING
page 43
BUSINESS SYSTEMS THAT SHAPE SERVICE DELIVERY
EXTENDING
page 44
OUR REACH TO STRATEGIC AND INNOVATIVE DEVELOPMENT PROJECTS
IMPROVING
page 45
ACCESS TO ENTERPRISE FINANCE
SUPPORTING
page 47
EXISTING BUSINESSES
ENSURING
page 49
SKILLS, INFRASTRUCTURE AND POLICIES SUPPORT BUSINESS DEVELOPMENT
CREATING
page 50
OPPORTUNITIES FOR NEW BUSINESS
GROWING
page 51
SUSTAINING EXISTING MARKETS AND DEVELOPING NEW MARKETS
INVESTMENT PLATFORMS THROUGH THE PROPERTY PORTFOLIO
page 55
SUCCESS STORIES
G-WORKS 14 FINANCIAL ASSISTANCE
Pole manufacturer G-Worx Fourteen was acquired by Zolani Ngcingwana in 2009 with ECDC funding of R3,5 million. This funding went towards working capital as well as to the purchase of the previous owner’s assets plant equipment and a steam boiler. The company, whose main activity is the manufacture of South African Bureau of Standards-approved pole products for electricity and telephone transmission, fencing, building, agriculture and vineyards, is located at the Highbury Industrial Estate in Mthatha. “The business has since surpassed the breakeven point and is gearing itself to recapture the Eastern Cape fencing market. The company is aiming to diversify within the timber and building industries by exploring new timber related products and substitutes which include wood and heavy duty plastic (unplasticised polyvinyl chloride) products,” says Ngcingwana.
SUCCESS STORIES
DEBONAIRS FINANCIAL ASSISTANCE
Onke Mankahla has every reason to smile. A partner in three Debonairs franchises in Mthatha, Mankahla is one of the budding youth entrepreneurs financed by ECDC. Mankahla and partner, Sicelo Mntonga, first approached ECDC for the acquisition of two existing Debonairs outlets in Mthatha for R2, 8m funding of which ECDC financed R2,2m. With a dream to be a franchisor, Mankahla says: “The fast food market has been overlooked in Mthatha, yet our investment has paid off handsomely.” Since their takeover, turnover has doubled. Their Mthatha Plaza branch came out tops in the Eastern Cape for Debonairs’ service awards and was voted second nationally. The award for the national competition was an all expenses paid trip to Argentina. The good performance led to the identification of a third store, of which ECDC financed R1,6 m. Mthatha-based ECDC account manager Bulelwa Mahamba says: “It is rewarding to be of assistance to entrepreneurs that clearly demonstrate quality managerial expertise. Mankahla and Mntonga are good role models for youth pursuing opportunities in business.”
SUCCESS STORIES
HI-TECH CONSTRUCTION FINANCE AND IECDM MODEL
The construction of Luvuyweni Primary School in Mthatha’s Mphoko Admin Area is one of six projects for which Hitech Construction owner Mfanelo Mjekula has received R1,2m in financing from ECDC. Mjekula has had a long standing relationship with the Corporation. He participated in its contractor skills development programme, the integrated emerging contractor development model. His participation in the programme has resulted in the Construction Industry Development Board promoting him from a four to six grading level. With this improved grading, he is now eligible for tenders of up to R10 million. Other construction projects for which he has received financing from the Corporation are two schools in Bizana, another in Mthatha as well as two clinics in Flagstaff and Mqanduli.
SUCCESS STORIES
POLYPLAST INDUSTRIAL PROPERTY TENANT
Operating from an ECDC factory in Fort Jackson since 2005, Polyplast manufactures legs for beds and couches from polymer-industrial plastic. German investor Franz Schmidt-Schäffer and local partners, Wanda Mhlamanzana and Wayne King, have 35 full-time employees and distribute their products nationally. Schäffer says: “The premises were the most suitable after scouting possible locations around the country.”
SUCCESS STORIES
ESSENTIAL OILS FINANCIAL ASSISTANCE
The Keiskammahoek essential oil cluster which includes Hogsback, is one of six areas within the province being developed in order to take advantage of a multi-billion global industry with strong growth potential. The hubs will include essential oil extraction sites, related or complementary businesses, such as manufacturers of various toiletry and personal products, scented candles and medicinal products. It is expected that businesses in the cluster will share specialised infrastructure, labour, market and skills. Other regions have been earmarked for possible cluster locations. These include Langkloof/Tsitsikamma, Graaff-Reinet to Middelburg, Greater Bathurst, Port St Johns to Mthatha, and the Tsolo and greater Butterworth area. ECDC has helped project facilitate the six clusters and funded the development of the business plan for the Hogsback project.
SUCCESS STORIES
IKHWEZI EMPOWERMENT CENTRE NON-FINANCIAL ASSISTANCE
The Ikhwezi Empowerment Centre was established in 1999 by Nomagco Qabaka with a vision to empower unemployed people in Mdantsane in Buffalo City (East London). It is only since 2009 that the group started using recycled glass, where they collect empty beer bottles from taverns in the area as the main craft material to produce beads. With a team of 13 women and two men, Ikhwezi Empowerment Centre has obtained its following for its recycled bead products, not only in the Eastern Cape, but internationally as well. In 2009, Ikhwezi Empowerment Centre was one of six craft companies from the province to showcase products in the L’Artigiano de Fiera – one of the biggest craft exhibitions in Milan, Italy. The Milan trip was facilitated by ECDC and the Department of Trade and Industry (dti). Qabaka says: “The exhibition was all about showcasing Proudly South African products. I was so excited to see a positive response to the quality of our work. We sold everything we took with us.” “With the support we receive from ECDC and the dti, we are now preparing ourselves to fully explore the export market,” says Qabaka.
SUCCESS STORIES
SUNTEX COMMERCIAL PROPERTY TENANT
Suntex is a textile manufacturer which operates from an ECDC factory in Butterworth. The industrial and household fabrics’ manufacturer has a long history with ECDC, having initially rented the premises from ECDC’s predecessor, Transkei Development Corporation in 1989. With 100 full-time employees, a sales office in East London and agents throughout the country, the company sells fabrics nationally and also exports to Ghana, Zimbabwe, the United Kingdom and Ireland.
SUCCESS STORIES
BUILD IT FINANCIAL ASSISTANCE
Mandisa and Anele Siwahla, a mother and son team, opened hardware franchise Build It in Qumbu in June 2010 after being financed by ECDC. Anele says: “Our clients, although mainly from the rural surrounding communities, demand SABS approved hardware and this was the motivation to open the store. We are already making plans to expand the premises to accommodate a brick yard and crush stone in order to meet the increasing local demand. With the R3, 5m funding secured from the Corporation, the team bought into the franchise, refurbished the building they are operating from and purchased stock.
SUCCESS STORIES
FURNTECH COMMERCIAL PROPERTY TENANT
Furntech is South Africa’s only centre for people looking for information on business incubation and / or skills development in furniture manufacturing. Having expanded to seven other centres in South Africa, the Mthatha-based facility was launched in April 2009 and operates from the ECDC-owned building in the Vulindlela Industrial Area in Mthatha. The Mthatha centre is assisting 10 manufacturing entrepreneurs through a structured programme which covers developing technical expertise, shared-use of facilities with modern equipment, and accredited training programmes. The incubators are also provided with a suitable space to work, store raw material and display finished products.
SUCCESS STORIES
ABSA CALL CENTRE BUSINESS PROCESS OUTSOURCING
Local banking group Absa has become the first investor at the Coega Industrial Development Zone’s business process outsourcing (BPO) park, with plans to open a 105-seat outbound call centre. The 18,900 m2 facility is to be built at estimated cost of R173 million and should be completed by March 2011. A working model of a call centre, the Absa Contact Centre, already employs 94 people at the zone. ECDC assisted with the facilitation of the project.
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1 ECDC
ABOUT
The Eastern Cape Development Corporation (ECDC) is a wholly-owned entity of the Eastern Cape provincial Department of Economic Development and Environmental Affairs. It is the official economic development agency for the Eastern Cape Province. ECDC reports to its board of directors, which represents government, business and labour, as appointed by the provincial MEC for Economic Development and Environmental Affairs. The Corporation’s head office is located in Ocean Terrace Park, Moore Street, East London. It extends its operational activities through five regional offices in Port Elizabeth, Queenstown, Butterworth, King William’s Town and Mthatha and satellite offices in Mount Ayliff and Aliwal North.
1.1. SERVICES RENDERED BY THE ECDC
ECDC renders services related to the following operational areas: • Development Finance • Enterprise Development Services • Investment Promotion • Project Development • Trade Promotion • Property Management and Development
1.2. VISION, MISSION AND STRATEGIC PRIORITIES
ECDC’s vision and mission statements were developed within the frameworks of the national and provincial government, and are aligned with the Eastern Cape Provincial Growth and Development Plan (PGDP). ECDC’s close relations with municipalities ensures alignment with their respective Integrated Development Plans (IDP). The government of the Eastern Cape envisages: An Eastern Cape, devoid of the inequalities of the past and unified through integrated and sustainable economic, social and cultural development, thus providing an acceptable quality of life for all its people in the context of a united, non-racial, non-sexist and democratic South Africa. ECDC is a critical interface between the public and private sectors. With a vision where:
“The socio-economic goals of the Eastern Cape province can be achieved through innovative and developmentally conscious private sector development.” Mission statement To positively contribute to government’s development objectives for the Province and to overcome the constraints of poverty, unemployment, inequality, under-development and apartheid inheritance. Corporate objectives ECDC aims to: • Provide short and long term development finance to entrepreneurs • Realise maximum return on investment assets • Serve as a catalyst for economic development through the provision of financial and nonfinancial support services and trade and investment promotion • Optimise our financial management and performance by applying sound business principles in all operations.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
See page 67-84
Overview About ECDC
Priorities To facilitate and support development in the Eastern Cape by: • Supporting existing business • Creating opportunities for new business • Growing and sustaining existing markets and developing new markets • Improving access to enterprise finance • Ensuring that skills, infrastructure and policies support socio-economic development. With these priorities and corporate objectives in mind, the following imperatives have been identified for the 2009/10 financial year in terms of the Corporation’s five-year strategic plan: • Mandate sharpening The Eastern Cape government (the shareholder) has defined various policy objectives, including the Provincial Industrial Development Strategy, which guides development priorities. Given that ECDC currently has a perceived broad mandate and faces resource and capacity constraints in addressing all aspects of its mandate, it is necessary to refine the mandate to heighten focus on delivery. This is a long-term goal and interactive process with government so that ECDC is repositioned. • Stakeholder and customer satisfaction ECDC is intrinsically linked to its partners, communities and business. In order to ensure that Eastern Cape citizens share in the development of the Province, ECDC seeks to engage stakeholders and customers to improve its offering. This will take place through stakeholder engagement in order to ensure that ECDC’s value proposition is communicated effectively throughout the Province. • Development impact ECDC should play a key coordination role in development interventions in partnership with stakeholders and roleplayers who have an interest in and are affected by the economic development of the province. The focus is on the quality of interventions with other development agencies and third parties in high impact projects in the Province so as to fasttrack the pace of development, eliminate duplications and the “start-and-stop” of development projects. To achieve this impact, the Corporation will also embark on: • A synergised and holistic approach to development (integrated rural economic development) • Assisting with infrastructure rollout • Expanding the footprint with the establishment of new regional offices • Financial sustainability The core of ECDC must remain sustainable while delivering on the key priorities of government and communities. In order to achieve this, risks, business efficiency and effectiveness as well as aftercare are critical to ensure that the sound principles of lending and collections are implemented. • Funding and resource mobilisation Funding is critical to servicing communities and business in the Province. With this in mind, it is envisaged that all efforts will be made to ensure that the developmental priorities are achieved through proper funding and financial sustainability.
1.4. LEGISLATIVE MANDATE
ECDC draws its mandate directly from the Eastern Cape Development Corporation Act (Act 2 of 1997) and is led by the economic development priorities of the provincial government, as detailed in the PGDP, the policy and budget speech of the Ministry of Economic Development, Environment and Tourism. The ECDC Act preamble states that the Corporation will “plan, finance, co-ordinate, market, promote and implement development of the Province and its people in the fields of industry, commerce, agriculture, transport and finance”.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
See page 43-56
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2 FOREWORD CHAIRPERSON’S
ADVOCATE OYAMA MABANDLA Chairperson
The end of the 2009/10 financial year presents an ideal opportunity for the Eastern Cape Development Corporation (ECDC) to evaluate the impact it has made on the economic and social upliftment of the people of the Eastern Cape. It gives the Corporation a platform from which to appraise its performance against its stated business objectives and the provincial government priorities as set out in the Provincial Growth and Development Plan (PGDP).
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Overview Chairperson’s foreword
As such, ECDC is continuously evaluating its progress towards becoming the engine of economic activity and development in the province and an intrinsic partner to business and entrepreneurs located in the province.
STRATEGY REVIEW AND ALIGNMENT ECDC regarded this period as an opportunity for long-term growth. The Corporation has now reached the end of its stabilisation and turnaround strategy that spanned 2007 to 2010. This strategy, which came to an end in March 2010, was premised on a need to stabilise in the short term and effect a turnaround in the longer term. Strategy is key to performance, and consequently a need was identified to re-engineer a five-year strategy that positions ECDC for further growth. In this regard, the Corporation is steadily building on past achievements and developing a closer alignment with the PGDP.
In order to achieve this goal, the Board took a decision to review and refocus the ECDC strategy during the year under review: in essence, this was to review ECDC’s business plan and funding model. This is recognition that in these times of financial stress and difficulty, ECDC needs to progressively wean itself of complete reliance on the provincial fiscus. ECDC needs to start investing in business opportunities that will generate financial returns for the Corporation while spurring enterprise and job creation in the province. The Board is currently evaluating the Corporation’s mandate in order to effectively and efficiently deliver on this objective. Due to its historical antecedent as an amalgam of the various development entities in existence before the onset of the democratic dispensation, ECDC has become, in effect, a prisoner of disparate and sometimes disjointed expectations that have made delivering our mandate challenging. In the past, this has opened up the Corporation to criticism. Therefore, the review process is intended to determine the feasibility of continuing with ECDC in its current form. ECDC should ideally carve out its niche as a premier development finance institution (DFI) that delivers on government’s objectives. A broad and unwieldy mandate has the effect of blurring our identity and hindering our effectiveness. The time has come to streamline the mandate and operations of the Corporation in order to render an optimal and more effective impact on the economic needs of the province as defined by the PGDP. Ultimately, through this process, we envisage a symbiosis between ECDC’s objectives and the provincial government’s plans each year. In time, we envisage a seamless coordination between government’s plans and ECDC. As an implementing agent of government and, hopefully, a repository of critical knowledge and economic intelligence, ECDC will be able to respond faster and more efficiently to emerging challenges and difficulties.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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MANDATE DELIVERY Central to ECDC’s objectives is the promotion of economic enterprise, activity and development in the province. Enhanced economic activity invariably leads to reduced unemployment and poverty levels and increased access to basic services for the most marginalised of our people. At 30%, the Eastern Cape’s unemployment rate is 5% higher than the national rate. Rising unemployment, together with increasing social backlogs, adds further impetus for ECDC to accelerate the delivery of its mandate. This environment makes it necessary for ECDC to look at new, job-absorbing and innovative industries in order to create jobs.
However, while the province still bears the scars of marginalisation, our customers, particularly small entrepreneurs, are showing remarkable resilience. Statistics South Africa figures show that the Eastern Cape has one of the highest proportions of entrepreneurs to population, with women leading the group. This is clearly evident in the spread of ECDC loans in the year under review. ECDC has played a pivotal role in advocating access to economic opportunities for small entrepreneurs, particularly in rural areas. This meant that ECDC had to be positioned closer to its clients. Consequently, after a long absence, ECDC opened two satellite offices, one in Aliwal North in the Joe Gqabi District Municipality and one in Mount Ayliff in the O.R. Tambo District Municipality, late in the year. This will assist ECDC in responding to customer challenges. In 2009/10, ECDC disbursed R226 million in loans*, a 28% decrease from the R312 million disbursed in the previous year. The Corporation also recorded a 11,8% increase in direct financial support to small, medium and micro enterprises (SMMEs). ECDC provided direct financial support to 907 SMMEs, compared with 800 in the previous year. Small businesses in rural areas received the majority of the loans, accounting for 59% of the funding. Women-owned businesses received 37% of the funding, while 85% of disbursements were made to small enterprises with turnovers of less than R500,000.
See page 45-46
RURAL FOCUS Absorbing rural people into the formal economy remains an imperative. ECDC’s litmus test is our ability to leverage government spending as a catalyst for rural development and agrarian transformation. As such, ECDC disbursed the majority of its loans (59%) to rural enterprises to promote economic opportunities. This allowed ECDC to play a meaningful role in government’s renewed focus on rural development. Partnerships and collaboration with other development entities, such as the rural development agency, the Accelerated Shared Growth Initiative of South Africa Eastern Cape, and the East London and Coega industrial development zones, have become crucial in addressing these challenges. The year under review resulted in improved coordination between these and other entities.
*Footnote: As per page 69 Note 3
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
See page 48
Overview Chairperson’s foreword
FOCUS ON INNOVATIVE INDUSTRIES ECDC, like many other DFIs during this period, had to play a significant role in financing public investments as private financiers were reluctant to offer larger amounts of credit due to the recession. The recession led to tighter credit conditions with credit becoming scarcer and also more expensive. ECDC had to take on more risk, and finance those who had been refused credit by other development and private finance institutions. The recession also allowed the Corporation to actively pursue innovative projects that have a high economic impact. The downturn also reinforced the diversification of the provincial economy to value addition and beneficiation of existing sectors of the economy. As such, ECDC financed investments in infant industries, such as aquaculture and renewable energy, as well as those that encourage innovation. The recent review of the PGDP’s key strategic goals reiterates the role of ECDC in supporting the diversification and growth of the provincial economy. ECDC intends to champion these objectives.
INSTITUTIONAL STABILITY One of ECDC’s challenges has been to ensure ongoing stability at Board and executive management level, which had an effect on the delivery of our mandate. Institutional stability will ensure that ECDC becomes an effective DFI. Improved stability has the effect of establishing institutional memory, which is a critical prerequisite for operational efficiency and delivery. The Board has committed itself to addressing issues of institutional stability and memory with the shareholder. These highlights have placed the Corporation on a sound footing for sustained growth as ECDC seeks to entrench its relevance to positively impact on the economic landscape of the Eastern Cape.
APPRECIATION On behalf of the Board, my gratitude goes to the Honourable MEC for Economic Affairs, Environment and Tourism, Mcebisi Jonas, for his insightful leadership and unstinting support, and to the former acting CEO and chief financial officer of ECDC, Msulwa Daca, his executive team and the staff for their steadfast support and dedication during this challenging period. The challenge remains to further entrench ECDC as a driver and catalyst of economic opportunities for our people.
Advocate Oyama Mabandla Chairperson Eastern Cape Development Corporation
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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3 MESSAGE
INCOMING CEO’S
SITEMBELE MASE
Incoming Chief Executive Officer
Firstly, I wish to thank the board for its confidence in allowing me the opportunity to lead a dynamic yet complex institution such as ECDC. Born in Engcobo, I am no stranger to the Eastern Cape. I spent the early part of my career working in the province where I gained valuable intimate knowledge of the abundant opportunities and challenges that the Eastern Cape presents. I also spent thirteen years at ECDC’s predecessor, the Transkei Development Corporation (TDC), initially as a business analyst. When I left TDC, I was a senior manager responsible for Queenstown, Cradock and Aliwal North.
Overview Incoming CEO’s message
APPRECIATION For me, this is a coming back home, and I intend making an invaluable contribution to ECDC and positively impact the citizens of the province. I have spent almost all of my professional life in the development and micro finance space where I have gained extensive experience. Before joining ECDC I was CEO of a micro finance institution the South African Micro Finance Apex Fund (SAMAF), which is an agency of the Department of Trade and Industry. I intend to use this experience to leverage off the solid foundation laid by the previous ECDC leadership.
MY TOP PRIORITIES One of my top priorities is to refocus, unbundle the assets of ECDC, and review and consolidate the balance sheet since it is not performing optimally. Ideally, for a DFI, 80% of the balance sheet should be loans, which is our core business. I intend to practise an inclusive leadership style. As such, together we will review the vision and mandate of ECDC. I will also start a process of developing five key strategic objectives which will define my tenure for the next five years. Upon completion, they will be communicated internally to staff and every employee will have an input in the development of the objectives.
ECDC STAFF MY FIRST LINE OF ATTACK AND DEFENCE My role at ECDC is to provide strategic leadership to ensure its sustainability and that it enhances its socio-economic impact on the people of the province. I can only achieve this goal through the cooperation of ECDC employees. We will be central if we are to change ECDC into a sustainable organisation. We need staff with the right attitude, skills, competencies and to provide the right incentives we then will be able to change the reputation and perceptions of ECDC. ECDC’s alignment with provincial government’s priorities will come automatically if the right systems and the right people are in place.
ECDC’S COMPETITIVE ADVANTAGE There are many DFIs and micro lenders in the market. Together, we must determine the unique selling points that will set ECDC apart from its competitors. Our competitive edge should be the members of the ECDC family. Every employee should at least have skills in three critical areas such as finance, leadership and development in terms of identifying economic opportunities. So that we can link opportunities with the needs of the people of this province.
THE EASTERN CAPE, A LAND OF PROMISE The Eastern Cape has a plethora of economic opportunities which it can leverage. We have dams and land. This provides an ideal opportunity for the province to be a leader in green industries, aquaculture and biofuels. Opportunities also lie in tourism. Agriculture and agro-processing hold the greatest potential in linking the rural underdeveloped economy of the former Transkei with the developed urban economy.
ACKNOWLEDGEMENT I also take this opportunity to express my deep sense of gratitude to Msulwa Daca, the executive team and senior managers for steering the ECDC ship.
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4
INTRODUCTION & HIGHLIGHTS BY THE ACTING CEO
MUSLWA DACA
Acting Chief Executive Officer
A key area of focus has been the development of small businesses. It is in this area, in particular, where the Corporation demonstrated its prowess for stimulating provincial trade. For example, ECDC stimulated trade to the value of R431 million through its innovative E-platform initiative. This global marketing platform links registered Eastern Cape services and products with approximately 800,000 international buyers.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Overview 30 Introduction & highlights by the CEO
A YEAR WITH ABUNDANT OPPORTUNITIES FOR LONG-TERM GROWTH The past financial year’s recessionary environment presented ECDC with unexpected opportunities for growth, for entrenching its position as a development finance institution and, ultimately, for implementing its mandate as an economic driver for the province. The net consequence of changes in funding flows, as a result of this financial climate, created opportunities for ECDC to become involved in exciting projects that have placed the Corporation at the forefront of innovation and strategic projects and that created jobs and stimulated business activity. Unashamedly, ECDC has sharpened its focus on the former Transkei, so that it can amplify the role it plays in bridging the gap between the sophisticated, industrialised, urban economy and the poor, underdeveloped, rural economy. The challenge gained more focus as ECDC came to the successful completion of its three-year (2007-2010) stabilisation and turnaround strategy. It has become clear that ECDC, in order to meet its mandate, has to use its substantial resources to better effect. Hence, it led a review process that should result in an enhanced five-year strategy. The review process included the identification of levers that are required in order to meet the Corporation’s objectives. One of the four levers, which will be part of the new five-year strategy, is increased coordination and alignment with government and other development institutions. Gratefully, ECDC’s track record to date shows that it has strong and fruitful relationships with its key stakeholders. The performance report that follows demonstrates the successes that ECDC has achieved in collaboration with other government institutions.
FOCUS ON EMERGING ENTREPRENEURS With estimates pointing to a province which has lost about 39,000 jobs during the recession, ECDC understands the imperative to drive job-absorbing enterprises. With the majority of these jobs being cut from the automotive and manufacturing sectors, it became clear that the province’s economic success is dependent on moving away from overreliance on a single sector. Hence, ECDC is fast tracking sector plans that provide a diagnostic analysis of the current status and future prospects of each sector. These sector development plans are expected to be incorporated into an imminent provincial investment and trade promotion strategy. Another key area of focus has been the development of small businesses. It is in this area, in particular, where the Corporation demonstrated its prowess for stimulating provincial trade. For example, ECDC stimulated trade to the value of R431 million through its innovative E-platform initiative. This global marketing platform links registered Eastern Cape services and products with approximately 800,000 international buyers. The platform is one of many instruments that the Corporation uses daily to create the right environment for growing big and small businesses. ECDC has also improved its footprint in the outlying areas, particularly the former Transkei, with the establishment of two offices, one in Aliwal North and another in Mount Ayliff. This development has helped bring the organisation closer to key stakeholders, namely its clients, allowing it to identify customer needs and respond to these timeously.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
31
FUNDING FOR SMALL BUSINESSES A key instrument for stimulating business has been loan funding. Like many areas of government, this key area of operation was affected by the recession and resulted in cuts in provincial departmental budgets. Consequently, ECDC secured less than the required funding, This resulted in the Corporation’s loan disbursements decreasing by 28% to R226 million*. Notwithstanding this decrease, ECDC still increased the number of small businesses that it financed compared with the previous year. Furthermore, the Corporation recorded a 11,8% increase in direct financial support to small, medium and micro enterprises (SMMEs). This means that direct financial support was provided to 907 SMMEs compared with 800 in the previous year. Small businesses in rural areas received the majority of the loans, accounting for 59% of the funding. Women-owned businesses received 37% of the funding, while 85% of disbursements went to small enterprises with a turnover of less than R500,000.
See page 47
While challenges remain in securing commercial third-party funders for community development projects, ECDC continued to implement 15 development projects, a significant portion of which are being undertaken in the former Transkei. These include the Kwakhetha Hydroponics and Mpafane Concrete Blocks manufacturing projects in Matatiele. The hydroponics project should result in the production of vegetables using cost-effective technology. ECDC has also assisted the concrete blocks project by securing factory space and building material inputs.
INVESTOR ATTRACTION Another project worth noting is ECDC’s securing of R20 million towards a R33 million, renewableenergy investment in the East London Industrial Development Zone (IDZ).
Significant progress has also been made in new sectors, such as business process outsourcing and offshoring, and information and communication technology. ECDC also developed a framework for a provincial, single-number customer care line. Infrastructure is now in place at the Coega and East London IDZs to host a 1,500- and 500-seater call centre, respectively.
See page 53
The construction boom, stimulated by the massive infrastructure investments by government, resulted in the Corporation’s construction contractor’s loans exceeding the targeted R80 million in disbursements and reaching R99,6 million. ECDC’s property portfolio has shown improvement with average occupancy rates in Fort Jackson (Buffalo City) and Vulindlela (Mthatha) now standing at 85%.
See page 55
Despite difficult trading conditions for tenants, ECDC collected R37,4 million. Similarly, the collection of old debt declined marginally to R11,7 million in 2009/10 from R12,9 million in 2008/9.
See page 56
Efficiency has become synonymous with the operations of the organisation. The team is keenly aware that ECDC should be properly organised internally if it aims to make a meaningful impact. Through a strategic collaboration with global business solutions provider IBM, the Corporation evaluated its current business systems in order to make these more efficient and effective.
*Footnote: As per page 69 Note 3
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Overview 32 Introduction & highlights by the CEO
PROSPECTS FOR THE NEW YEAR While the Eastern Cape economy has been affected by the recession, prospects in the new year are encouraging. A number of sectors such as tourism, and the struggling general manufacturing sector, led by automotives, are likely to pick up as the country eases out of recession.
There are sectors which hold great potential for growth. Green industries such as renewable energy including but not limited to solar, wind and biomass, agro-processing and upstream industries for processing are well-placed. These will drive manufacturing and commercial activity particularly in the former Transkei. ECDC will work closely with AsgiSA Eastern Cape to fully explore agroprocessing opportunites in the former Transkei and throughout the province. Opportunities for the beneficiation of resources for the people of the province are being actively researched and investigated, with efforts directed towards understanding which supply chains can be located, built and leveraged within the Eastern Cape. This area will be given further impetus by the announcement of a cooperative fund. In our efforts to rebuild the provincial economy in the new year, ECDC’s role will be as a partner to government. However, it is critical that the Corporation identify the main drivers of development. We need to point out to government the type of infrastructure needed to attract investments into the economy. In effect, ours needs to be a consultancy role that is backed by sound research. The coming year holds much promise and I believe that there is significant political will and stakeholder support to build the organisation as a formidable economic force in the province with its impact felt at key points in the economy. I am encouraged by the goodwill and trust that ECDC has accrued. The team and I aim to be astute stewards of an asset that is much more valuable than our balance sheet items and that we aim to grow further. Lastly, my thanks go to the Board, and the team, who have performed admirably during the period under review.
Msulwa Daca Former Acting Chief Executive Officer Eastern Cape Development Corporation
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5
EASTERN CAPE SOCIO-ECONOMIC ENVIRONMENT 2009 TO 2010
5.1. INTRODUCTION The Eastern Cape Development Corporation (ECDC) operated within a socio-economic environment that provided formidable challenges and opportunities for the Corporation in the year under review. These challenges were largely due to the effects of the global economic downturn. Although the downturn occurred within a global context in which the Corporation had little control, ECDC continued to make a meaningful impact on the economic and social landscape of the Eastern Cape. This environment informed ECDC’s overall focus. Five socio-political results were expected from ECDC: • Sharpening the mandate so that ECDC can address the developmental challenge • Improving stakeholder and customer satisfaction • Increasing the development impact through addressing rural economic development, infrastructure roll out and assistance, and expanding its footprint • Achieving financial stability • Mobilising funding and resources.
5.2. SOCIO-ECONOMIC ENVIRONMENT In May 2009, South Africa entered its first recession in 17 years. The Eastern Cape was particularly hard hit, losing an estimated 39,000 jobs, most significantly in the automotive and textile manufacturing sectors. Provincially, unemployment has continually increased during the period under review. Statistics South Africa figures indicate that provincial unemployment grew from 26% in the third quarter of 2009 to 30% in the first quarter of 2010. This is 5% higher than the national unemployment rate, which stands at 25%.
ECDC’s May 2010 socio-economic analysis report states that 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. Of the new jobs created in the fourth quarter of 2009, 62% 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. The report also states that education remains a constraint to provincial economic growth and development. Although the number of people with no schooling declined from 21.3% in 1995 to 17.2% 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% 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. The report’s analysis of the welfare of individuals and households in the province showed that 58.3% of the population were living in poverty in 2008. Furthermore, approximately two-thirds of the
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Overview Eastern Cape socio-economic environment
population had an income of below R800 a month in 2007. The Amathole and OR Tambo districts were home to the largest numbers of people living in poverty between 2004 and 2008. The ECDC report further states that access to basic services has deteriorated across the province. There has been a decline in the proportion of households with access to electricity for lighting, from 46.9% in 2001 to 45.9% in 2008. Similarly, the percentage of households with access to piped water inside their dwellings or yards declined from 37.8% in 2001 to 36.5% in 2008. Worryingly, more than two-thirds of the households in the Amathole and OR Tambo districts had no toilet facilities in 2007. The prevalence of HIV/AIDS in the province has also grown steadily from 2.4% in 1995 to 16.7% 2007. The majority of those infected are between the ages of 25 and 49. Within this context, 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.
5.3. PROVINCIAL MANUFACTURING SECTOR HARD HIT The automotive sector, the bedrock of the Eastern Cape economy, shed thousands of jobs, which led to lower vehicle volumes and loss of income for many households. Recently, an increasing number of reports have suggested that the provincial automotive sector may diminish over the next 10 years. As such, ECDC strengthened its resolve to actively contribute to the diversification of the Eastern Cape economy into value addition and beneficiation in existing sectors. This is to ensure that the Eastern Cape economy is not overly reliant on the automotive sector. The Eastern Cape Socio-Economic Consultative Council (ECSECC) reiterated that provincial manufacturing has continuously declined since the third quarter of 2008. In June 2009, new vehicle sales showed a 58.9% contraction, with only 1,143 new vehicles sold in the Eastern Cape compared with 2,778 in March 2008. In global terms, the province is a small player in the industry, accounting for less than 1% of global automotive manufacturing. There are stronger automotive markets, and to be sustainable, ECDC needs to create more local content and local value.
ECDC partners, such as the Coega Development Corporation and the East London Industrial Development Zone (IDZ), have responded to these challenges in the automotive sector with innovative solutions that will provide a platform for the development and improvement of the sector in South Africa. For example, the East London IDZ has developed a multi original equipment manufacturer (OEM) concept, involving more than one OEM sharing a production facility; this makes it easier for an OEM to establish itself in South Africa without the usual required critical mass. The East London IDZ is now vigorously targeting an OEM to act as an anchor project in the East London IDZ. In his June 2009 policy speech, MEC for Economic Development and Environmental Affairs (DEDEA), Mcebisi Jonas, noted that the economic downturn had resulted in weakened consumer demand and a reduced provincial economic growth rate, which had a negative impact on the fiscus. The contributors to this trend have been inflated fuel prices, volatile interest rates, the electricity crisis, and reduced customer orders. Subsequently, households’ disposable income, particularly the 4.3 million poorer households in the province, has decreased, while food prices have increased dramatically over the same period.
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35
However, the negative impact of the recession on the automotive sector became an opportunity to give accelerated focus to other sectors of the economy, such as agro-processing and tourism, which are expected to create new opportunities. This environment made it necessary for ECDC to look at new, job-absorbing and innovative industries in order to create jobs. ECDC interventions are outlined in the performance report through the implementation of strategic projects that have a high economic impact. The sectors most likely to deliver these returns, and hence those that will receive the most attention and investment, are agriculture and agro-processing, aquaculture, automotives, tourism and general manufacturing.
5.4. DISPARITIES BETWEEN THE RURAL AND URBAN ECONOMIES Absorbing rural people into the formal economy remains an imperative. As such, ECDC disbursed most of its loans (59%) to rural enterprises to promote economic opportunities. Seventy percent of the population is located in the rural areas of the province, yet these areas collectively contribute just 8% of the Eastern Cape’s secondary output. ECDC designed its products to assist smaller businesses in rural areas. This allowed ECDC to play a meaningful role in government’s renewed focus on rural development. Partnerships and collaboration with other development entities, such as rural development agency Accelerated Shared Growth Initiative of South Africa – Eastern Cape, and the East London and Coega IDZs, have become crucial in addressing these challenges. The year under review resulted in improved coordination between these and other entities. Rural areas in the province lack a strong industrial and manufacturing capacity to drive economic development. Manufacturing bases are located in urban areas, which have minimal direct linkages to rural households. There are sectors that hold great potential for growth in the rural setting. Green industries, such as agro-processing and upstream industries for processing, are well placed. This will drive manufacturing and commercial activity, particularly in the former Transkei. Opportunities for the beneficiation of resources are being actively researched and investigated. Efforts are directed towards understanding suitable supply chain locations.
5.5. RESTRICTIVE FISCAL FRAMEWORK The province recently had to endorse a proposal from Provincial Treasury to offset the overexpended provincial budget by cutting departmental budgets for the next three years. This had an immediate impact on ECDC’s ability to implement the high-impact initiatives necessary to positively influence the provincial economy. The potential to expand the economy of the province, and thus reduce dependency on social grants, remains a challenge that must be tackled to ensure that the structural drivers of poverty are addressed, instead of merely dealing with its symptoms.
5.6. INDICATIONS THAT THE PROVINCIAL ECONOMY IS ON A RECOVERY PATH There are some positive indications that the provincial economy will begin to recover in the coming financial year. A number of sectors, led by automotives, are set to pick up as the country eases out of the recession. Although the provincial economy is expected to tread in positive territory, the growth rate will not be sufficient to deal with the substantial service delivery backlogs in the provincial economy. DEDEA also stated that the growth rate would not be sufficient to cushion the province from the effects of a possible second economic dip. The province must therefore develop mechanisms to mitigate possible future shocks, and find innovative ways to advance the optimal utilisation of scarce resources to meet our development objectives.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Overview Eastern Cape socio-economic environment
This will require that the province develop or strengthen linkages between the various sectors of the provincial economy. The transformation of the primary sector must be linked to and driven by local manufacturing throughout the spatial economy of the Eastern Cape.
Construction has continued to be the best-performing sector during this period. This is due, in part, to the massive infrastructure investments that government has committed to the 2010 FIFA World Cup. Government programmes, such as the Expanded Public Works Programme and the Accelerated Shared Growth Initiative of South Africa, have contributed to a major construction boom. ECSECC figures also reveal that although the construction sector makes a small contribution to gross domestic product, it has been the fastest growing sector for three consecutive quarters. An indication is that cement sales increased by 41% between January and June 2009. This trend is likely to continue in 2010/11. ECDC believes that the 2010 FIFA World Cup represented an ideal opportunity to create legacy projects for the country and the province, particularly in the transport sector. The massive global exposure resulting from the World Cup should be followed by aggressive promotional initiatives to attract investors into the Eastern Cape, albeit on a targeted approach, which involves priority sectors and key nodal points.
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37
6 MANAGEMENT
EXECUTIVE 2009 TO 2010
MSULWA DACA Chief Financial Officer
The global economic crisis presented formidable challenges for the Eastern Cape Development Corporation (ECDC) which threatened to derail the strides it has made in ensuring the economic upliftment of our communities. In this regard, ECDC continued to practise financial prudence and the corporation is looking forward to another set of solid financial results this year despite the economic crisis acting as a hindrance to achieving our objectives. A chartered accountant by profession, Msulwa brings a wealth of experience after successful years at leading professional services firm KPMG and the South African Revenue Services. Before joining ECDC, he was chief director of accounting support services at National Treasury in Pretoria.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Overview Executive management
NOLUDWE NCOKAZI Development Services
“The economic recession gave the Corporation an impetus to sharpen its focus. We invested heavily in research in targeted sectors to assist in identifying and packaging new business and investment opportunities especially in emerging sectors. The results thereof have been enormous with key strategic partnerships forged to unleash the latent potential in areas such as renewable energy, agro-processing, aquaculture and the services sector. We have ensured that benefits do not only accrue to the established businesses but created huge scope for local SMMEs and rural communities to partner and be at the centre of economic growth in the province.” Noludwe graduated with a Bachelor of Commerce from the University of Western Cape in 1994. Since then, she has completed her Honours degree in economics and is currently working on her Masters degree. Her roles have spanned four of South Africa’s provinces as educator, financial manager, chief executive officer, executive consultant and general manager in the public and private sectors. She joined ECDC after four years with the Buffalo City Municipality as its general manager for economic development, tourism and rural development.
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39
CHRIS BIERMAN Development Investments
“Despite the fact that we were unable to secure further funding to meet the demand for our lending products, ECDC disbursed R226 million* in loans. We also managed to assist 907 SMMEs, which is an increase on the 800 assisted last year. Raised in Johannesburg, Chris is a chartered accountant who has worked with the IDC, as well as lectured in management accounting at the University of the Witwatersrand. As a former business owner, he has extensive experience in large enterprises across various sectors in South Africa and Australia. In his role as corporate finance dealmaker, Chris has been instrumental in facilitating and structuring a large number of black economic empowerment (BEE) deals. He has also authored a book on raising finance for BEE small to medium size businesses.
*Footnote: As per page 69 Note 3
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Overview Executive management
LUYANDA TSIPA Development Properties
“I marvel at being part of a team that is driving economic prosperity and turning the dreams of our people to a reality. Providing an opportunity for long-term ECDC property tenants to purchase and become homeowners, being a valuable resource for industrial/commercial space, and empowering growing entrepreneurs and previously disadvantaged groups are some of the lasting impressions that show us that we are making strides to improving the lives of the people of the Eastern Cape.” With 10 years’ experience in immovable asset management, Luyanda is a B Juris graduate of the University of Transkei, whose experience includes working in the Land Claims Commission and the National Department of Public Works. Her roles at this former employer include deputy director of asset management and leaseholds, director of prestige property management and chief director at the Johannesburg regional office.
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7
CORPORATION’S PERFORMANCE IN 2009/10
43
BUILDING BUSINESS SYSTEMS THAT SHAPE SERVICE DELIVERY
The 2009/10 socio-economic environment provided significant challenges and opportunities for the Eastern Cape Development Corporation (ECDC) as the global economy navigated the deepest recession in decades. This made it even more challenging for ECDC to meet its mandate. Despite this, ECDC used the recessionary period as an opportunity to plan, finance, coordinate, market, promote and implement strategic projects for the development of the Eastern Cape. The recession made it necessary for the Corporation to extend its reach to new and innovative industries. Thus, as an instrument of government, ECDC continued to play a central role in reshaping the economic landscape and the development of the Eastern Cape economy. For ECDC to maintain its relevance in the midst of the recession, it devised tools that made its business systems more efficient. ECDC identified the reality that it is geared for growth, and that it needs efficient systems and processes in place and to understand customers as stakeholders. For example, in the latter part of 2009, ECDC hosted global business solutions provider International Business Machines (IBM) to help the Corporation implement effective and efficient controls. IBM assisted ECDC with process mapping and concentrated on ensuring efficiency across three core business units and supporting functions. As Finance Minister Pravin Gordhan pointed out in his 2009 Budget vote speech, South Africa’s development finance institutions (DFIs) in general played an enhanced role during the economic crisis by financing public investments and drawing private finance into public investment programmes. Most DFIs are in a sound financial position and are well placed to play a greater role in providing loans or liquidity in support of government’s economic objectives. In this regard, ECDC played a significant role in ensuring that small businesses gain access to economic opportunities through the provision of loans. The global economic crisis resulted in tighter credit conditions and credit becoming less abundant and more expensive. This placed additional pressure on DFIs, such as ECDC, to take on more risk as private finance institutions became more risk averse. Although ECDC uses the same funding model as banks, it still provides funding to applicants declined by banks. For a DFI, this requires a high level of skill. ECDC’S LENDING CRITERIA •
Projects and businesses are eligible for finance when these present a viable case for:
- Job creation and/or retention
- Economic empowerment
- Value addition to the economy
- Rural/township development
- Increased export income
- New greenfield development
- Expansion and rehabilitation.
•
Each application is assessed for sustainable economic viability, based on its merits.
Thus, ECDC had to look at innovative tools to protect itself while taking on more risk. For instance, in line with this risk-taking approach, ECDC secured funding in partnership with the Joe Gqabi District Municipality to implement an integrated funding and supply chain system. This system will allow emerging entrepreneurs to supply goods and services to the municipality with ECDC providing the funding and taking the risk of default. This will be linked to an information technology system so that money goes directly to ECDC. This service will be extended to other municipalities if successful. European Union-funded lender Thina Sinako and ECDC each allocated R2.7 million for the design of the system.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Overview Corporation’s performance in 2009/2010
EXTENDING OUR REACH TO STRATEGIC AND INNOVATIVE DEVELOPMENT PROJECTS
The resilience of the Corporation during the challenging financial crisis allowed it to extend its reach to a number of development projects. However, challenges remain in securing commercial partners for community-based projects due to the perceived risks associated with such projects and the low level of expertise among community members and social networks. There is also a limited appetite for investing in innovative projects among development agencies in the province. However, ECDC is involved in and encourages the development of innovative projects that have a high economic impact. This helps ECDC to continue growing, sustaining existing markets and developing new markets.
For example, ECDC is excited by the implementation of the flagship Zwelakhe Cosmetic Creams project. This project provides ECDC with an ideal opportunity to exploit the innovative talent that exists in the province. It also provides the province with an opportunity to valuable intellectual property. The project produces cosmetic creams, including sunscreens, anti-wrinkle creams and moisturisers for sensitive skin for such people as those with albinism, and who struggle to obtain suitable and affordable treatment. Tests have already proven that the Zwelakhe creams are more effective than any similar product in the market. A business plan, feasibility study and trials have been completed in Port Elizabeth and Middledrift, with excellent results. Formulation was achieved through natural plant materials and certification has been received from the Medical University of South Africa. Production is expected to begin in September 2010. DEDEA has provided initial funding of R700,000. A total of 250 jobs will be created on full production; 10 people are already employed. MAP 7.1: ZWELAKHE CREAMS TRIAL LOCATIONS Zwelakhe beauty cosmetics Port Elizabeth
Amathole essential oils Hogsback & Middledrift
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
INITIAL FUNDING
R700,000 FROM DEDEA
TOTAL JOBS
250 WILL BE CREATED ALREADY EMPLOYED
10
44
45
IMPROVING ACCESS TO ENTERPRISE FINANCE
Although the Corporation budgeted for loan disbursements of R390 million, it was unable to obtain this funding, which made it difficult to grow the loan book. The province has endorsed cuts to departmental budgets for the next three years. ECDC’s ability to implement the catalytic initiatives necessary to restructure the provincial economy was severely restricted by this fiscal framework.
CASH COLLECTIONS
R219
million*
ON LOAN PORTFOLIO
The global economic slowdown resulted in ECDC taking a decision not to finance loans of more than R10 million. As a result, long-term loans fell under budget.
Despite these conditions, ECDC managed to disburse loans of R226 million compared with R312 million in the previous financial year. This is a 28% decrease. Although clients struggled to repay loans because of the financial pressure imposed on businesses by the recession, ECDC improved cash collections on the loan portfolio to R219 million from the R169 million of the previous year. Although the Corporation continues to service unbankable clients or those who commercial banks regard as high-risk people, tighter internal controls resulted in low impairment on micro loans. Micro loans range in size from R10,000 to R500,000.
GRAPH 7.1: INCREASED DEBT COLLECTIONS (R’M): 2008/09 - 2009/10*
2009/10 2008/09
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
NOTE *This amount in 2009/10 is based on a change in composition of formula to calculate loans disbursed when compared to the previous financial years. The value of disbursement reported previously included refunds and fees, which have been excluded in the 2009/10 calculation.
Overview Corporation’s performance in 2009/2010
TABLE 7.1 DEVELOPMENT FINANCE PRODUCTS NAME OF LOAN
VALUE
TERM
INTEREST
FEES
CASH MANAGEMENT FEE
Term cap loan
R500,000 to R20,000,000
5–7 years
From prime -2% to prime +3%
1-2% structuring fees
N/A
Nexus trade loan
R10,000 to R500,000
1–6 months
0%
N/A
2.5% to 5% of loan value
Workflow contractor loan
R100,000 to R20,000,000
3-36 months
From prime -2 to prime +3%
Structuring fees of 1% of the loan value
2.5% of loan value
Power plus small loan
R20,000 to R500,000
12-36 months
Linked to the prime interest rate (On full repayment of the loan, you receive 10% of your interest paid back in cash)
Structuring fees do apply
Imbewu mico loan
R1,000 to R20,000
12 months
Linked to the prime interest rate (On full repayment of the loan, you receive 10% of your interest paid back in cash)
Structuring fees do apply
GRAPH 7.2: NUMBER OF SMMEs FINANCED IN 2009/10
N/A
MAP LEGEND Micro finance Contractor finance Trade finance Equity investments Term loans
APR
MAY
JUN
JUL
AUG
SEP
NOV
DEC
JAN
FEB
MAR
GRAPH 7.3: LOANS DISBURSED TO SMMEs FROM 2005 TO 2010
APR
MAP LEGEND Micro finance Contractor finance Trade finance Equity investments Term loans
160 140 120 100 80 60 40 20
2005/06
2006/07
2007/08
*Footnote: As per page 69 Note 3
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
2008/09
2009/10*
46
47
SUPPORTING EXISTING BUSINESSES
Direct financial support was provided to 907 small, medium and micro enterprises (SMMEs) compared with 800 in the previous year. This is a 13.4% increase. The majority of the loans (85%) were made to enterprises with turnovers of less than R500,000 a year. Enterprises in rural areas received the bigger slice of the pie, accounting for 59% of the funding, with the balance disbursed to urban areas. Specific focus was placed on improving funding to rural areas and as a result, ECDC financial products were designed to assist smaller businesses in these areas. This also allowed emerging entrepreneurs to take advantage of business from government, such as the school feeding programme. This was an opportunity for ECDC to play a meaningful role in government’s renewed focus on rural development. The focus on rural development also allowed ECDC to be an active partner in ensuring food security in rural areas through the promotion and financing of SMMEs. As such, the Corporation is partnering with Accelerated and Shared Growth Initiative of South Africa Eastern Cape (AsgiSA EC) in the promotion of rural and agrarian transformation.
For example, ECDC held talks with AsgiSA EC to allow the rural development agency to refurbish the Corporation’s silos to ensure that there is sufficient storage capacity for the maize harvest season. AsgiSA EC submitted a concept proposal to ECDC, which was favourably received. This fits in with ECDC’s strategy to generate value from its assets and large property portfolio. Businesses in the retail and services industries constituted the bulk of the loan disbursements. The manufacturing and tourism industries also received a fair share. Ideally, the services and construction industries are where money should be allocated because that is where opportunities lie for emerging entrepreneurs. The provision of high-quality aftercare and account maintenance became critical during the recessionary period and remains a major challenge. Aftercare helped the Corporation better address its developmental priorities. This necessitates the Corporation being positioned closer to its clients and taking early precautions to help troubled clients and reschedule debt, if necessary. Pursuant to this goal, after a long absence, ECDC opened satellite offices in Aliwal North in the Joe Gqabi District Municipality and Mount Ayliff in the Alfred Nzo District Municipality late last year. ECDC MANAGES THE RISK BY PROVIDING EFFICIENT CLIENT SERVICES FOR THE ENTIRE DURATION OF THE CONTRACT TERM. THIS INCLUDES: • •
Monthly account management Quarterly reportbacks from visits to ascertain the health of the business [In the event that concerns arise about the viability of the financed business and its ability to sustain repayments, the provision of additional business support to assist as far as possible in favourably turning around the operation].
Where ECDC has identified shortcomings in clients, an aftercare, capacity-building and marketingsupport service is provided. For example, marketing support was offered to the Victoria Manor guesthouse in Queenstown in order to prepare it for the 2009 Africa SMME Awards. The guesthouse received marketing material to promote its business, making it more competitive in the awards: the guesthouse was named as overall runner-up.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
SMMEs SUPPORTED IN 2009/10
907 INCREASE FROM 2008/09
13.4% LOAN BIAS
85%
TO ENTERPRISES WITH A TURNOVER OF LESS THAN R500,000 A YEAR
Overview Corporation’s performance in 2009/2010
MAP 7.2 LOAN SPREAD BY DISTRICT MUNICIPALITY IN 2009/10
MAP LEGEND Cooperative grants Cooperative loans Imbewu micro loans Nexus trade loans Powerplus small loans Termcap loans Workflow contractor loans
MAP 7.3: TOTAL LOAN SPREAD DISBURSEMENT ACTIVITY BY DISTRICT MUNICIPALITY IN 2009/10
MAP LEGEND Alfred Nzo District: R11,984,372.64
4%
Amatole District: R102,584,803.13
1%
41%
Chris Hani: R35,032.500.30
11%
33% 1%
Cacadu District: R2,659,785.59
Nelson Mandela Metropolitan: R28,454,416.87 O.R. Tambo District: R127,966,835.28 Ukhahlamba District: R3,379,650.63
9%
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Grand Total R312,062,634.44
48
49
ENSURING SKILLS, INFRASTRUCTURE AND POLICIES SUPPORT BUSINESS DEVELOPMENT
The Corporation continued to provide critical skills transfer and infrastructure development to SMMEs. For example, ECDC continued to provide critical skills transfer to emerging contractors through the highly regarded integrated emerging contractors development model (IECDM). A total of R5.3 million was budgeted for this programme in the year under review. Sixty two contractors are in their final year of the programme. HOW EMERGING CONTRACTORS PARTICIPATE IN THE IECDM PROGRAMME
BUDGETED
R5,3
million
NEW BUSINESS REGISTRATIONS
Contractors have to meet specific criteria to be eligible for the programme. These include: •
Having undergone assessment and acknowledgment of previous learning in order to select a suitable training package
•
Passing a potential test as part of the selection criteria
•
Being committed to the intensive 24-month training and mentorship programme
•
Being positively disposed towards a mentor/protégé relationship
•
Being of benefit to the districts of the Eastern Cape
•
Representing a district of the province
5,700
Five contractors improved their grading level with the Construction Industry Development Board. Grading improves when a contractor gets more jobs or a higher rand value than the current grade. For example, a Grade 3 contractor is one that has been awarded a R500,000 contract. They submit a completion certificate, latest payment, and audited financial statements. Grade 5 contractors are those with awards of R1.6 million and who have followed a similar verification process. ECDC improved the number of business registrations from 5,500 in the previous year to 5,700 in the year under review.
MAP 7.4: INTEGRATED EMERGING CONTRACTORS DEVELOPMENT MODEL
CONTRACTORS
57 Port Elizabeth East London Mthatha Queenstown
25
11
MALE CONTRACTORS
10
11
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
48 FEMALE CONTRACTORS
9
Overview Corporation’s performance in 2009/2010
CREATING OPPORTUNITIES FOR NEW BUSINESS
ECDC support for SMMEs extends beyond the provision of financial support. ECDC provides a series of non-financial measures aimed at improving the competitiveness of small businesses. These non-financial services also assist businesses in preparing these for financial support. For instance, ECDC signed a service-level agreement with the provincial Department of Economic Development and Environmental Affairs (DEDEA) for its Imvaba Cooperative Fund. ECDC is administering the R50 million fund for DEDEA. Further funding is expected in the coming year. The full impact of the funding will be felt in 2010/11. Currently, ECDC is in a process of correctly repackaging the cooperatives with non-financial support in order to prepare the cooperatives for funding.
The cooperative fund is an integrated approach to provide ready access to funding across all sectors. There was increased access to the Department of Trade and Industry (the dti) incentives for cooperatives through the cooperative incentive scheme. Previously, access to this scheme was a challenge as companies struggled to complete forms, and provinces were not accessing this scheme. Companies affected by the recession were assisted in securing funding from the Industrial Development Corporation. The Corporation has broadened its sector focus beyond the construction and creative industries. There is a renewed focus on tourism, information and communication technology (ICT), film and general manufacturing, and ECDC is making interventions in all of these areas. For instance, ECDC is involved in the resuscitation of the Eastern Cape Information Technology Initiative (ECITI). ECITI is an ICT SMME incubator. ECDC intends to develop an SMME ICT capacity in the province through this initiative. NON-FINANCIAL SERVICES PROVIDED FOR START-UP AND ESTABLISHED BUSINESSES •
Mentorship
•
Business incubation
•
Access to market and export development support
•
Business systems
•
Business plan development
•
Feasibility studies
•
Marketing strategy development
•
Business linkages
•
Franchise development
•
Intellectual property support
•
Broad-based black economic empowerment
•
Training
•
Financial management
•
Quality management
•
Business skills (basic and advanced).
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
ADMINISTERED
R50
million
IMVABA COOPERATIVE FUND
50
51
GROWING SUSTAINING EXISTING MARKETS AND DEVELOPING NEW MARKETS
ECDC allocated R7 million for the development of strategic projects. Fifteen projects were implemented in the year under review. This was broken down into three budgetary items: scoping, project implementation and municipal support.
ECDC ALLOCATED
Scoping received R4 million, the lion’s share. This includes money spent on feasibility studies, business plan development, pilots and trials. Scoping is the basis for any investment decision. However, most developers avoid investing in this exercise because it is often money lost. Others prefer to come in at the business plan development and / or implementation stages. Again, ECDC bears the brunt of the risk here.
FOR DEVELOPMENT OF STRATEGIC PROJECTS
Of the R4 million allocated to scoping, R2.5 million was spent on trials for the pineapple dietary fibre extraction project and the Spatial Development Framework for Ndakana in Buffalo City Municipality. The dietary fibre project, the first of its kind in South Africa, is the initial phase of a larger project that will see the pineapple processing industry move from East London to Bathurst. This will save farmers millions of rands in transport costs and create new jobs in Bathurst. A total of 1,000 jobs are expected to be created at full production on farms and in the processing factory. The remaining R1.5 million was committed to projects to which ECDC could not immediately disburse.
R7
million
FUNDING SECURED
R1,8
million
FOR DEVELOPMENT OF STRATEGIC PROJECTS
PINEAPPLE PROJECT
The Corporation injected R2 million into project implementation. This is capital that ECDC injects to leverage funding from other partners, third-party funders or investors. Of this amount, R1.1 million was spent on implementation of projects, including the Kwakhetha Hydroponics and the Mpafane Concrete Blocks manufacturing projects in Matatiele. The hydroponics project will allow for the production of vegetables using cost-effective technology. This project has created 30 jobs. ECDC assisted the Mpafane project to secure a factory for production through Thina Sinako. ECDC will provide the concrete building materials.
R2,5
Funding of R1,8 million was secured from Thina Sinako to co-fund the production of raspberries in the Eastern Cape. The project is located in Molteno with 293 hectares already planted. ECDC has committed R300,000 to this project. Workers have a 25% stake in the project through a workers’ trust. A total of 123 jobs have been created.
JOB CREATION
ECDC also assisted a spinning, weaving and pottery project in the OR Tambo District Municipality in setting up a mini production line to ensure that its participants receive practical training in the production of quality crockery. ECDC has already purchased machines and materials for production. It is intended that, ultimately, the project participants will produce these products in their home villages. Municipal support accounted for R1 million of this budget. These projects, originated by municipalities, are intended for sustainable economic activity. In each case, the applicant for funding is the municipality, although it may not be the benefactor. A partnership exists with Aspire (the Amathole Economic Development Agency) to regenerate the infrastructure of the small towns of Butterworth, Stutterheim, Dutywa, Alice and Hamburg. Aspire has already secured R273 million from National Treasury for this project.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
million
WAS SPENT ON TRIALS FOR THE PINEAPPLE DIETARY EXTRACTION PROJECT
1,000
MORE JOBS ARE EXPECTED TO BE CREATED
Overview Corporation’s performance in 2009/2010
MAP 7.5: HIGHLIGHTS - DEVELOPMENT PROJECTS Zwelakhe beauty cosmetics Port Elizabeth
Raspberry production Molteno
LEGEND
Cassava pilot project Majola, Port St Johns
Agriculture & agro-processing
Pharmaceuticals & aromatic
Arts and crafts
Textiles
Spinning and weaving Mthatha Pottery project Mthatha
Amathole essential oils Hogsback & Middledrift
RASPBERRY PRODUCTION
JOBS CREATED
293
123
HECTARES PLANTED
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Dietary fibre mini production line Summerpride, East London
FUNDING SECURED
WORKERS’ TRUST
R1,8
25%
million
FROM THINA SINAKO
OF THE PROFITS ARE ALLOCATED TO A WORKERS’ TRUST
52
53
One of ECDC’s primary tasks is attracting foreign and local direct investment into the province. ECDC achieves this objective through improving value propositions and promoting incentives developed by the dti. Due to the recession, the value of foreign direct investment inflows into the province declined. However, the number of new investments grew to 19 from 12 during the period under review, largely due to interventions in existing projects and expansions. Although the value of facilitated investments declined from R730 million in the previous year, the risk-averse nature of foreign investors during the downturn led to a number of expansions that could be facilitated.
NEW INVESTMENT
Joule
THE ELIDZ HAS EMERGED AS A FRONT RUNNER TO MANUFACTURE SA’S FIRST ELECTRIC CAR
As a result, the value of investments facilitated stands at R592 million. The year under review was also characterised by improved coordination between ECDC and the province’s two industrial development zones (IDZs), Coega and East London. This led to quicker turnaround times in securing investments.
COEGA CALL CENTRE
The results of the improved coordination can be seen in the number of successes recorded during the year in conjunction with the IDZs. For example, Optimal Energy, South Africa’s first electric car vehicle manufacturer, short listed the province’s two IDZs for the manufacture of the Joule. The East London IDZ has emerged as the front runner.
SEATER IS PLANNED
In collaboration with the East London IDZ, ECDC was able to secure a R33 million investment into the renewable energy sector into the province. Matla Solar, which is located in the East London IDZ, manufactures flat-panel, high-efficiency solar water heaters and ultra-affordable, vacuum tube-based solar water heaters. This investment is important, particularly given government’s intention to use solar power in reconstruction and development programme houses. Buffalo City Municipality is also encouraging households to use solar geysers. ECDC provided R20 million in funding for this initiative. Major strides were made in new sectors for the province, such as business process outsourcing and off-shoring, ICT and film. During the year, ECDC developed a framework for a province-wide, single-number customer care line. Infrastructure has been developed in the Coega and East London IDZs to host a 1,500- and 500-seater call centre, respectively. The East London IDZ has also been touted as a prime spot for finfish farming through collaborative efforts with ECDC. These efforts have led to a number of investments in the IDZ’s aquaculture cluster. The Eastern Cape is now the second-highest aquaculture producer in the country. As a direct result of studies and lobbying undertaken by ECDC, national government announced plans for offshore marine aquaculture zones in Algoa Bay and St Francis Bay. This lays the foundation for large-scale, offshore finfish production. The completion of the tourism sector investment plan assisted in improving ECDC’s targeted and focused approach. Mega projects were facilitated in Kidd’s Beach and Stoekraal, both located in the Buffalo City municipal area. ECDC continued with special projects, such as the extended footprint of Eastern Cape From Above, an aerial photographic exhibition targeting countries in Europe, such as Germany, Portugal, Belgium, France and Sweden. Its purpose is to build the image of the province as an investment and tourism destination. The East London port expansion project has now been listed as a priority in the provincial freight logistics forum.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
1,500 ELIDZ CALL CENTRE
500
SEATER IS PLANNED
Overview Corporation’s performance in 2009/2010
GRAPH 7.4: VALUE OF FACILITATED INVESTMENTS FROM 2005 TO 2010
INVESTMENT VALUE IN 2010
R592
1,600
million
1,400
1,200
1,000
800
600
400
200 2005/06
2006/07
2007/08
2008/09
2009/10
MAP 7.6: HIGHLIGHTS - DEVELOPMENT PROJECTS
INVESTMENT SECURED
R33
million
IN THE RENEWABLE ENERGY SECTOR THROUGH MATLA SOLAR
ECDC PROVIDED
R20
million
IN FUNDING FOR THIS INITIATIVE
Renewable energy sector Matla Solar
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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55
INVESTMENT PLATFORMS THROUGH THE PROPERTY PORTFOLIO
ECDC is committed to providing an integrated approach to economic development. The Corporation’s property portfolio provides investors with an ideal platform to launch their investments. ECDC achieves this through its property portfolio, which includes suitable industrial and commercial premises for investors throughout the province. Moreover, the Corporation has a significant residential property portfolio, vacant land and leisure properties. The property portfolio comprises 40% of the Corporation’s balance sheet valued at R544 million. The Property Management and Development Unit manages more than 2,000 properties in total. As such, the unit was able to provide a platform that assists in revenue generation while establishing solid relationships with stakeholders.
One of the key focus areas for ECDC was rental collections. During this year under review, despite difficult trading conditions for tenants, ECDC collected rent to the value of R37,4 million. Similarly, collection on outstanding rentals declined from R12,9 million to R11,7 million as a result of the economic downturn.
PROPERTY PORTFOLIO
R544
million
LETTABLE UNITS
1,681
properties
MADE UP OF LETTABLE RESIDENTIAL AND COMMERCIAL PROPERTIES RENTAL COLLECTION
R37,4
million
OUTSTANDING RENT COLLECTED
ECDC managed to maintain occupancy rates of 85% at its most economically viable industrial properties in Fort Jackson and Mthatha. However, Dimbaza occupancy rates remain challenging. ECDC is developing a package which will offer affordable factory space and competitively priced loans to lure investors into the area. The aim is to reinvigorate revenue-generating industries in Dimbaza, which will contribute to job creation and local economic development. As such, the Corporation is collaborating with other institutions to determine the demands of municipalities. Ibika properties in Butterworth face the same challenge as Dimbaza. ECDC also identified a market for office space. Subsequently, it leases out office space in its various office parks in the Mthatha central business district. The Corporation also leases out space at ECDC offices to other organisations. ECDC continued with its Asset Conversion Policy (ACP), which includes shedding residential properties under management in order to generate resources for industrial and commercial investment opportunities. As a DFI, ECDC does not see value in owning a residential property portfolio worth about R248 million. During the year, 50 residential properties were offloaded, generating R12,1 million in cash reserves for injection into projects that stimulate sustainable economic activity. This is a decline from the previous year’s R16 million: selling was made difficult by banks’ tighter credit controls, which negatively impacted on the ACP, coupled with arrears and disputes.
R11,7
million
RESIDENTIAL OCCUPANCY RATE
96% COMMERCIAL OCCUPANCY RATE
79% CASH RESERVES
R12,1
million
50 PROPERTIES WERE OFFLOADED DURING THE FINANCIAL YEAR
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Overview Corporation’s performance in 2009/2010
STATS BASED ON
GRAPH 7.5: COMMERCIAL LETTABLE UNITS
Mthatha
83%
Mthatha: 392 properties (328 let and 65 vacant)
Butterworth
77%
Butterworth: 288 properties (222 let and 66 vacant)
King William’s Town
80%
Queenstown
59%
Ave occupancy
79%
King William’s Town: 357 properties (288 let and 69 vacant) Queenstown: 111 properties (66 let and 45 vacant)
STATS BASED ON
GRAPH 7.6: RESIDENTIAL LETTABLE UNITS
Mthatha
96%
Mthatha: 339 properties (327 let and 12 vacant)
Butterworth
96%
Butterworth: 551 properties (530 let and 21 vacant)
King William’s Town
92%
Queenstown
100%
Ave occupancy
96%
GRAPH 7.7: RENT COLLECTION FROM COMMERCIAL AND RESIDENTIAL PROPERTIES FROM 2005 TO 2010
60
50
40
30
20
10 2005/06
2006/07
2007/08
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
2008/09
2009/10
King William’s Town: 13 properties (12 let and 1 vacant) Queenstown: 31 properties (31 let and 0 vacant)
56
57
8 MANAGEMENT
HUMAN RESOURCES
8.1. AIM To render human resources (HR) administration and development, organisational development and labour relations services to the Corporation.
8.2. SERVICE DELIVERY All departments and government institutions and/or entities are required to develop a Service Delivery Improvement (SDI) Plan. The following tables detail the components of this plan as well as progress made by the Corporation in its implementation
8.2.1. MAIN SERVICES PROVIDED AND STANDARDS MAIN SERVICES
ACTUAL CUSTOMERS
POTENTIAL CUSTOMERS
STANDARDS OF SERVICE
ACTUAL ACHIEVEMENTS AGAINST STANDARDS
Provision of HR services
All business units, management, board, staff and union
Job applicants
Providing the right person at the right time. Recruitment of the right skills within acceptable turnaround time
More than 80% of staff complement achieved
Access to HR services
All business units, management, board, staff and union
Job applicants
Provision of professional advice and support
Professional advice and support rendered on a needs basis.
8.2.2. CONSULTATION ARRANGEMENTS WITH CUSTOMERS TYPE OF ARRANGEMENT
ACTUAL CUSTOMERS
POTENTIAL CUSTOMERS
ACTUAL ACHIEVEMENTS
Regular consultation
Management, board and staff
-
Regular engagement and participation in meetings. Reports and submissions made as required.
Ad hoc consultations
Organised labour
-
Consultation on matters of mutual interest undertaken.
8.2.3. SERVICE INFORMATION TOOLS TYPES OF INFORMATION TOOLS
ACTUAL ACHIEVEMENTS
HR Policies and Procedures Manual
The manual has been reviewed and will be submitted to the Board for approval.
Internet, intranet, email and information system policy document
Accessible to all customers and potential customers.
8.2.4. COMPLAINTS MECHANISM COMPLAINTS MECHANISM
ACTUAL ACHIEVEMENTS
Documented grievance procedure
Grievance procedure in place and utilised by staff
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Group Management Report Human Resources Management
8.3. EXPENDITURE Table 8.3.1 Personnel costs by salary bands, 1 April 2009 to 31 March 2010 SALARY BANDS
PERSONNEL EXPENDITURE
% OF TOTAL PERSONNEL COST
AVERAGE PERSONNEL COST PER EMPLOYEE
834,000
1
104,250
Semi-skilled (Grade 7-11)
13,242,930
17
183,930
Skilled (Grade 12-16)
30,208,568
40
431,551
Senior management (Grade 17-23)
31,901,302
42
1 181,530
Total
76,186,800
100
Unskilled(Grade 2-6)
Table 8.3.2 Salaries, overtime, home owners allowances and medical aid by salary bands, 1 April 2009 to 31 March 2010 PROGRAMME
SALARIES
Unskilled (Grade 2-6)
HOME OWNERS ALLOWANCES (HOA)
Amount
Salaries as a % of personnel cost
MEDICAL ASSISTANCE
Amount
HOA as a % of personnel cost
Amount
Medical assistance as a % of personnel cost
563,916
68
112,783
13
83,992
12
Semi-skilled (Grade 7-11)
7,893,663
59
1, 077,995
9
1,052,614
8
Skilled (Grade 12-16)
16,492,114
54
696,831
3
1,654,514
6
Senior management (Grade 17-23)
11,249,755
31
57,986
1
656,426
3
Total
36,199,448
53
1,945,595
3
3,447,546
5
8.4. EMPLOYMENT AND VACANCIES Table 8.4.1 Employment and vacancies by programme, 31 March 2010 PROGRAMME
NUMBER OF POSTS AS AT 31 MARCH 2009
RESTRUCTURING OBSOLETE POSTS
NUMBER OF POSTS AS AT 31 MARCH 2010
NUMBER OF POSTS FILLED
VACANCY RATE %
NUMBER OF EMPLOYEES ADDITIONAL TO ESTABLISHMENT
Investments
31
1
32
Property Management and Development
40
0
40
29
9
-
36
10
-
Development Services Unit
47
4
Support Services
63
0
51
36
29
-
63
56
11
-
Total
181
5
186
157
16
-
Table 8.4.2 Employment and vacancies by salary bands, 1 April 2009 to 31 March 2010 Salary band
NUMBER OF POSTS
NUMBER OF POSTS FILLED
VACANCY RATE %
NUMBER OF EMPLOYEES ADDITIONAL TO THE ESTABLISHMENT
Unskilled (Grade 2-6)
11
8
27
-
Semiskilled (Grade 7-11)
62
56
10
-
Skilled supervision (Grade 12-16)
76
69
9
-
Senior management (Grade 17-25)
37
24
35
-
Total
186
157
16
-
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59
8.5. JOB EVALUATIONS Table 8.5.1 Job Evaluations, 1 April 2009 to 31 March 2010 SALARY BAND
NUMBER OF POSTS
NUMBER OF JOBS EVALUATED
% OF POSTS EVALUATED BY SALARY BANDS
Unskilled Grade 2-6)
11
0
0
Semi- skilled (Grade 7-11)
62
0
0
Skilled supervision (Grade 12-16)
75
7
9
Top and senior management (Grade17-23)
35
21
60
Total
183
28
15
POSTS UPGRADED NUMBER
POSTS DOWNGRADED
% OF POSTS EVALUATED
NUMBER
% OF POSTS EVALUATED
-
-
-
-
0
0
-
-
-
-
0
0
-
-
-
-
0
0
0
0
8.5.1. PROFILE OF EMPLOYEES WHOSE SALARY POSITIONS WERE UPGRADED DUE TO THEIR POSTS BEING UPGRADED, 1 APRIL 2009 TO 31 MARCH 2010 No positions were upgraded during this financial year. 8.5.2. EMPLOYEES WHOSE SALARY LEVELS EXCEED THE GRADE DETERMINED BY JOB EVALUATION, 1 APRIL 2009 TO 31 MARCH 2010 (IN TERMS OF PSR 1.V.C.3) No employee’s salary level exceeded the grade. 8.5.3. PROFILE OF EMPLOYEES WHOSE SALARY LEVEL EXCEED THE GRADE DETERMINED BY JOB EVALUATION, 1 APRIL 2009 TO 31 MARCH 2010 (IN TERMS OF PSR 1.V.C.3) No employee’s salary exceeded the grade
8.6. EMPLOYMENT CHANGES Table 8.6.1 Annual turnover rates by salary band for the period 1 April 2009 to 31 March 2010 SALARY BAND
NUMBER OF POSTS FILLED AS AT 31 MARCH 2009
APPOINTMENTS AND TRANSFERS INTO THE CORPORATION
TERMINATIONS AND TRANSFERS OUT OF THE CORPORATION
NUMBER OF EMPLOYEES PER BAND AS AT 31 MARCH 2010
TURNOVER RATE %
Unskilled (Grade 2-6)
9
1
0
8
11
Semi- skilled (Grade 7-11)
58
3*
4
57
2
Skilled supervision (Grade 12-16)
67
5*
3
69
-3
Top and senior management (Grade17-25)
25
1
3
23
8
159
8*
10
157
1
Total
* One employee was promoted from Grade 6 to Grade 7, and another promoted from Grade 11 to Grade 13; hence the total is not 10.
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60
Table 8.6.2 Reasons why staff are leaving the organisation TERMINATION TYPE
NUMBER
% OF TOTAL
Death
0
0
Resignation
5
50
Expiry of contract
1
10
Dismissal – operational changes
0
0
Dismissal – misconduct
2
20
Dismissal – inefficiency
0
0
Discharged due to ill-health
0
0
Retirement
2
20
Other (transferred to another entity)
0
0
Total
10
100
Total number of employees who left as a % of the total employment (5%)
8.6.1. PROMOTIONS BY CRITICAL OCCUPATION Two employees were promoted: one from a Grade 6 to a Grade 7 position, and another from a Grade 11 to a Grade 13 position. 8.6.2. PROMOTIONS BY SALARY BAND Two employees were promoted: one from a Grade 6 to a Grade 7 position, and another from a Grade 11 to a Grade 13 position.
8.7. EMPLOYMENT EQUITY Table 8.7.1 Total number of employees (including employees with disabilities) in each of the following occupational categories as at 31 March 2010 MALE OCCUPATIONAL CATEGORIES
FEMALE
AFRICAN
COLOURED
INDIAN
WHITE
AFRICAN
COLOURED
INDIAN
WHITE
Unskilled (Grade 2-6)
1
0
0
0
7
0
0
0
8
Semi-skilled (Grade 7-11)
16
0
0
0
39
0
0
0
55
Skilled supervision (Grade 12-16)
28
1
1
6
30
1
0
2
69
Senior management (Grade 17-25)
11
1
2
4
4
0
0
2
24
Total
56
2
3
10
80
1
0
4
156
Employees with disabilities GRAND TOTAL
TOTAL
0
0
0
0
0
1
0
0
1
56
2
3
10
80
2
0
4
157
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Table 8.7.2 Recruitment for the period 1 April 2009 to 31 March 2010 MALE OCCUPATIONAL CATEGORIES
FEMALE
AFRICAN
COLOURED
INDIAN
WHITE
AFRICAN
COLOURED
INDIAN
WHITE
TOTAL
Unskilled (Grade 2-6)
0
0
0
0
0
0
0
0
0
Semi-skilled (Grade 7-11)
0
0
0
0
2
0
0
0
2
Skilled supervision (Grade 12-16)
4
0
0
0
1
0
0
0
5
Senior management (Grade 17-25)
1
0
0
0
0
0
0
0
1
Total
5
0
0
0
3
0
0
0
8
Employees with disabilities
0
0
0
0
0
0
0
0
0
8.7.3 PROMOTIONS FOR THE PERIOD 1 APRIL 2009 TO 31 MARCH 2010 There were two promotions during the period under review. The first employee was moved from a Grade 6 position to a Grade 7 position. The second employee was moved from Grade 11 position to a grade 13 position. Table 8.7.4 Terminations for the period 1 April 2009 to 31 March 2010 MALE OCCUPATIONAL CATEGORIES
FEMALE
AFRICAN
COLOURED
INDIAN
WHITE
AFRICAN
COLOURED
INDIAN
WHITE
TOTAL
Unskilled (Grade 2-6)
0
0
0
0
0
0
0
0
0
Semi-skilled (Grade 7-11)
0
0
0
0
4
0
0
0
4
Skilled (Grade 12-16) supervision
2
0
0
0
0
1
0
0
3
Senior (Grade 17-25) management
2
0
1
0
0
0
0
0
3
Total permanent
4
0
1
0
4
1
0
0
10
Non-permanent
0
0
0
0
0
0
0
0
0
Employees with disabilities
0
0
0
0
0
0
0
0
0
GRAND TOTAL
4
0
1
0
4
1
0
0
10
Table 8.7.5 Disciplinary action for the period 1 April 2009 to 31 March 2010 MALE OCCUPATIONAL CATEGORIES Disciplinary action
FEMALE
AFRICAN
COLOURED
INDIAN
WHITE
AFRICAN
COLOURED
INDIAN
WHITE
TOTAL
1
0
1
0
1
1
0
0
4
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Group Management Report Human Resources Management
8.8 FOREIGN WORKERS Table 8.8.1 Foreign workers, 1 April 2009 to 31 March 2010, by salary band SALARY BAND
1 APRIL 2009
31 MARCH 2010
CHANGE
NUMBER
% OF TOTAL
NUMBER
% OF TOTAL
NUMBER
% CHANGE
Unskilled (Grade 2-6)
-
-
-
-
-
-
Semi-skilled (Grade 7-11)
-
-
-
-
-
-
Skilled (Grade 12-16)
1
100
1
100
1
100
Senior management (Grade 17-23)
-
-
-
-
-
-
Total
1
100
1
100
1
100
Table 8.8.2 Foreign workers, 1 April 2009 to 31 March 2010, by major occupation SALARY BAND
1 APRIL 2009
31 MARCH 2010
CHANGE
NUMBER
% OF TOTAL
NUMBER
% OF TOTAL
NUMBER
% CHANGE
Trade & Industry Advisor and related
1
100
1
100
1
100
Total
1
100
1
100
1
100
8.9. LEAVE UTILISATION FOR THE PERIOD 1 APRIL 2009 TO 31 MARCH 2010 Table 8.9.1 Sick leave SALARY BAND
TOTAL DAYS
NUMBER OF DAYS WITH MEDICAL CERTIFICATION
NUMBER OF EMPLOYEES USING SICK LEAVE
% OF TOTAL EMPLOYEES USING SICK LEAVE
AVERAGE DAYS PER EMPLOYEE
Unskilled (Grade2-6)
45
25
6
75
5
Semi-skilled (Grade 7-11)
396
70
34
61
6
Skilled (Grade 12-16)
319
60
33
48
5
Senior management (Grade 17-23)
189
154
9
38
7
Total
949
309
82
55.5
6
Note: Calculation done on the basis of number employees in the relevant grade as per table 8.4.2 Disability leave (temporary and permanent), 1 April 2009 to 31 March 2010 There was one disability grant during the period under review. Table 8.9.2 Annual leave, 1 April 2009 to 31 March 2010 SALARY BANDS
TOTAL DAYS TAKEN
AVERAGE PER EMPLOYEE
Unskilled (Grade2-6)
310
39
Semi skilled Levels (Grade 7-11)
2156
38
Skilled (Grade 12-16)
2139
31
Senior management (Grade 17-23) Total
703
29
5308
34
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62
63
Capped leave, 1 April 2009 to 31 March 2010 Leave has been capped at 40 days per year per employee. The following table summarises payments made to employees as a result of leave that was not taken. Table 8.9.3 Leave payouts for the period 1 April 2009 to 31 March 2010 REASON
TOTAL AMOUNT
NUMBER OF EMPLOYEES
AVERAGE PAYMENT PER EMPLOYEE (R’S)
-
-
-
Leave payout for 2008/09 due to non-utilisation of leave for the previous cycle Capped leave payouts on termination of service for 2008/09
-
-
-
Current leave payout on termination of service for 2008/09
344,744
6
57,457
Total
344,744
6
57,457
Table 8.9.4 Details of Health Promotion and HIV/AIDS Programmes QUESTION
YES
NO
DETAILS, IF YES
1. Has the Corporation designated a member of the SMS to implement the provisions contained in Part VI E of Chapter 1 of the Public Service Regulations, 2001? If so, provide her/his name and position.
√
Mrs J. Moshoeshoe Coordinator: Training and Development
2. Does the Corporation have a dedicated unit or has it designated specific staff members to promote the health and well-being of your employees? If so, indicate the number of employees who are involved in this task and the annual budget that is available for this purpose.
√
Six employees
3. Has the Corporation introduced an employee assistance or health promotion programme for your employees? If so, indicate the key elements/services of this programme.
√
Mrs J. Moshoeshoe had been appointed for this responsibility. A new Committee was nominated, to evolve into an Integrated Wellness Committee. Referral System to Discovery, World’s AIDS Day commemoration, wellness posters.
4. Has the Corporation established (a) committee(s) as contemplated in Part VI E.5 (e) of Chapter 1 of the Public Service Regulations, 2001? If so, please provide the names of the members of the committee and the stakeholder(s) that they represent.
√
Mr L. Filtane Mr A Meiring Mrs T. Mzayifani Mrs van Wyk Mrs Moshoeshoe Mrs L Sikonje
5. Has the Corporation reviewed its employment policies and practices to ensure that these do not unfairly discriminate against employees on the basis of their HIV status? If so, list the employment policies/practices so reviewed.
√
All HR policies were reviewed. The recruitment policy complies with legislation. Pre-employment testing prohibited. Benefits offered only in terms of conditions of employment which now includes a specific Discovery Wellness benefit catering HIV status as part of the overall Diseases Management/ Wellness Plan.
6. Has the Corporation introduced measures to protect HIV-positive employees or those perceived to be HIV-positive from discrimination? If so, list the key elements of these measures.
√
The policy on HIV was adopted. The policy prohibits any employment practices that discriminate against HIV positive employees.
7. Does the Corporation encourage its employees to undergo voluntary counselling and testing (VCT)? If so, list the results that you have you achieved.
√
Progress has not been measured in this regard as VCT is encouraged as a confidential exercise to avoid stigma and discrimination.
8. Has the Corporation developed measures/indicators to monitor and evaluate the impact of its health promotion programme? If so, list these measures/indicators.
√
Currently identifying social partners with the expertise, to assist us in developing these indicators.
Table 8.9.5 2010 FIFA World Cup The following expenditure was incurred for ECDC staff only during 2010/11 for the FIFA World Cup DESCRIPTION T-Shirts Other (Gifts, venue hire and meals) Total
QUANTITY
COST
200
R114,346
-
R101,511
200
R215,857
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Group Management Report Human Resources Management
8.10. LABOUR RELATIONS Table 8.10.1 Collective agreements, 1 April 2009 to 31 March 2010 Total collective agreements
1 (SACCAWU)- wage agreement
Table 8.10.2 Misconduct and disciplinary hearings finalised, 1 April 2009 to 31 March 2010 OUTCOMES OF DISCIPLINARY HEARINGS
NUMBER
% OF TOTAL
Correctional counselling
-
-
Verbal warning
-
-
Written warning
-
-
Final written warning
2
50
Suspended without pay
-
-
Fine
-
-
Demotion
-
-
Dismissal
2
50
Not guilty
-
-
Case withdrawn
-
-
Total
4
100
NUMBER
% OF TOTAL
Poor work performance
1
25
Assault of colleague
1
25
Unacceptable behaviour
-
-
Misuse of vehicle
-
-
Theft
-
-
Table 8.10.3 Types of misconduct addressed at disciplinary hearings TYPE OF MISCONDUCT
Bribery
-
-
Negligence
2
50
Misappropriation of funds
-
-
Fraud
-
-
Sexual harassment
-
-
Total
4
100
Table 8.10.4 Grievances lodged for the period 1 April 2009 to 31 March 2010 NUMBER
% OF TOTAL
Number of grievances resolved
0
0
Number of grievances not resolved
6
100
Total number of grievances lodged
6
100
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
64
65
Disputes lodged with Councils for the period 1 April 2009 to 31 March 2010 There were five disputes lodged within the period under review. Strike actions for the period 1 April 2009 to 31 March 2010 None Table 8.10.5 Precautionary suspensions for the period 1 April 2009 to 31 March 2010 Number of people suspended
0
Number of people whose suspension exceeded 30 days
0
Average number of days suspended
0
Cost (R’s) of suspensions
0
8.11. SKILLS DEVELOPMENT Table 8.11.1 Training needs identified 1 April 2009 to 31 March 2010 OCCUPATIONAL CATEGORIES
Gender
NUMBER OF EMPLOYEES IDENTIFIED AS AT 1 APRIL 2009
INTERNSHIPS
TRAINING NEEDS IDENTIFIED AT START OF REPORTING PERIOD SKILLS PROGRAMMES; OTHER SHORT COURSES & ABET
OTHER FORMS OF TRAINING: STUDY LOANS
TOTAL PROGRAMMES; SHORT COURSES & FORMS OF TRAINING
Legislators, senior officials and managers
Female
9
0
30
0
30
Male
17
0
0
0
0
Professionals
Female
10
6
0
0
6
Male
11
4
16
0
20
Technicians and associate professionals
Female
12
8
4
0
12
Male
11
0
0
0
0
Clerks
Female
23
15
16
0
31
Male
14
4
0
0
4
Service and sales workers
Female
0
24
0
0
24
Male
0
3
21
0
24
Skilled agriculture and fishery workers
Female
0
-
0
0
0
Male
0
-
6
-
6
Craft and related trades workers
Female
-
-
-
-
0
Male
-
-
-
-
0
Plant and machine operators and assemblers
Female
-
-
-
-
0
Male
0
0
0
0
0
Elementary occupations
Female
0
0
0
0
0
Male
0
-
-
0
0
Sub Total
Female
54
53
50
0
103
Male
53
11
43
0
54
107
64
93
0
157
Total
*NB Skills programmes and other short courses were not identified by gender. The figures indicated under this column include both genders.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Group Management Report Human Resources Management
Table 8.11.2 Training provided 1 April 2009 to 31 March 2010 OCCUPATIONAL CATEGORIES
GENDER
NUMBER OF EMPLOYEES TRAINED AS AT 31 MARCH 2010
LEARNERSHIPS
TRAINING PROVIDED WITHIN THE REPORTING PERIOD SKILLS PROGRAMMES; OTHER SHORT COURSES & ABET
OTHER FORMS OF TRAINING: STUDY LOANS
TOTAL PROGRAMMES; SHORT COURSES & FORMS OF TRAINING
Legislators, senior officials and managers
Female
9
0
18
0
18
Male
17
0
22
0
22
Professionals
Female
10
0
13
1
14
Male
12
0
21
1
22
Technicians and associate professionals
Female
11
0
18
2
20
Male
13
0
16
0
16
Clerks
Female
26
84
32
4
120
Male
14
27
25
0
52
Service and sales workers
Female
9
0
9
-
9
Male
5
0
0
0
-
Skilled agriculture and fishery workers
Female
0
0
-
-
0
Male
0
0
-
-
0
Craft and related trades workers
Female
-
-
-
-
-
Male
-
-
-
-
-
Plant and machine operators and assemblers
Female
-
-
0
-
0
Male
0
-
1
-
1
Elementary occupations
Female
0
-
-
-
-
Male
-
-
-
-
-
Sub total
Female
65
84
90
7
181
Male
61
27
85
1
113
126
111
175
8
294
Total
8.12. INJURY ON DUTY Table 8.12.1 Injury on duty, 1 April 2009 to 31 March 2010 NATURE OF INJURY ON DUTY
NUMBER
% OF TOTAL
Required basic medical attention only
2
100%
Temporary Total Disablement
-
-
Permanent Disablement
-
-
Fatal
-
-
Total
2
100%
8.13. UTILISATION OF CONSULTANTS 8.13.1. REPORT ON CONSULTANT APPOINTMENTS USING APPROPRIATED FUNDS No consultancy firm was appointed. 8.13.2. ANALYSIS OF CONSULTANT APPOINTMENTS USING APPROPRIATED FUNDS, IN TERMS OF HISTORICALLY DISADVANTAGED INDIVIDUALS (HDI'S) No consultants were appointed using appropriated funds. 8.13.3. REPORT ON CONSULTANT APPOINTMENTS USING DONOR FUNDS No consultant was appointed using donor funds. 8.13.4. ANALYSIS OF CONSULTANT APPOINTMENTS USING DONOR FUNDS, IN TERMS OF HDI'S No consultant was appointed using donor funds.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
66
67
9.1 & DEVELOPMENT
PROPERTY MANAGEMENT PROGRAMME PERFORMANCE
9.1.1 AIM The programme aims to anticipate and satisfy customer needs by ensuring availability of suitable industrial and commercial premises for investors throughout the Eastern Cape, and to dispose of residential units, in a manner that maximizes returns for the Corporation .
9.1.2 STRATEGIC GOALS To realise maximum return on investment assets.
9.1.3 OUTPUTS AND SERVICE DELIVERY TRENDS 9.1.3.1. PERFORMANCE FOR 2009/10 Collections and functioning of the Property Management and Development Unit was affected by the moratorium on evictions, the economic downturn and lengthy legal processes with respect to defaulters. Introduction of the Prevention of Illegal Evictions Act also impacted on collections and debt collection. Despite these changes in the operational environment and resources, the unit continued to repair properties while improving its records to ensure better collections. MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
PLANNED PERFORMANCE (ACTUAL)
To maximise rental received
Rental received R’million
45.5 (subject to lifting of the moratorium on evictions)
Increase collection on outstanding rentals
Arrears collected
10% (R17.4m)
To sell property through implementation of the ECDC Asset Conversion Policy (ACP)
Value of property sales R’million
R64
Conversion of ECDC properties according to the ACP
% value on return on investments
Investment in new property development
ACTUAL PERFORMANCE (ACTUAL)
DEVIATION %
REASON FOR DEVIATION
R37.4
-18%
The lengthy legal process to evict and the economic climate resulted in a higher default rate.
6% (R11.7m)
-4 (R5.7m or -32%)
Most tenants are untraceable. Historical inaccuracy of records coupled with the age of the debt book and introduction of new legislation resulted in lower debt collection.
R12.1
-81
0
0
0
The following planned projects are targeted to yield returns in 2011/12 and 2012/13 financial years.: a. Redevelopment Hillcoombe – Finalising town planning matters. b. Hillcrest – At feasibility Stage. c. Southernwood – Delays due to land claims in Mthatha. d. East London Rental Office Block – Awaiting Buffalo City Municipality approval on adjacent land. These projects are dependent on external parties, and experienced delays coupled with timeconsuming processes that precede implementation.
% construction costs
75
0
0
As mentioned projects are still at planning phase. Hence no construction has taken place to date.
Value of opportunities identified and funded R’million
67 (subject to lifting of moratorium on evictions)
0
-100
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Granting of credit due to the economic downturn impacted negatively on the implementation of the Asset Conversion Policy. Coupled with arrears and disputes, this made selling difficult.
Budget limitations and adjustment and configuration of the various development packages hindered the implementation of identified projects.
Programme Performance Property Management and Development
MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
To spend 20% of rental income collected on maintenance
Obtain good value for property R’million
Increase rate of occupancy by 5%
Number of units occupied
Reduction of operational costs by R3.5m
Reduce rates and taxes (R’million)
PLANNED PERFORMANCE (ACTUAL)
ACTUAL PERFORMANCE (ACTUAL)
DEVIATION %
4.5
-38
The condition study is planned for the following financial year.
5% (base of 84%)
1% (85%)
-80
Demand for rental space has increased in certain areas. However, such areas Dimbaza, Butterworth and Ezibeleni remain unattractive to businesses. The occupancy rate is adversely affected by high costs for repair of vandalised structures.
3.5
1.3
-63
There have been delays in transfers of properties to municipalities due to not being able to obtain Council Resolution. Billings have been affected by not having individual metering.
7.2 and 2.5 (condition study)
REASON FOR DEVIATION
9.3.1.2. TRENDS IN PERFORMANCE, 2005/06 TO 2008/09 MEASURABLE OBJECTIVE
PERFORMANCE MEASURE
2005/06
2006/07
2007/08
2008/09
2009/10
COMPOUND ANNUAL GROWTH %
To increase rental collection
Rental received R’million
Increase collection on outstanding rentals
46.9
48.9
34.7
42.3
37.4
-5.5
The lengthy legal process to evict and the rough economic climate resulted in a higher default rate.
Arrears collected R’million
Not measured
Not measured
15.4
12.9
11.7
-12.8
The economic downturn affected the collections of rentals
To convert residential properties to tenants in good standing
Value of property sales R’million
13
23
18
14.7
12.1
-1.8
Sales of residential properties were affected by affordability coupled with the economic downturn and limited granting of credit.
Maintain ECDC properties
Obtain good value for property R’million
3.8
5.8
5.9
14.2
4.5
4.3
The ageing condition and vandalism of premises coupled by low collections and debt recovery affected maintenance
Increase rate of occupancy
No of units occupied (% increase)
Not measured
Not measured
Not measured
0
1
-
9.3.1.3 BUDGET PROGRAMME
BUDGET R ’MILLION
ACTUAL R ’MILLION
DEVIATION %
66.260
60.100
-9
REASON FOR DEVIATION Savings with respect repairs and maintenance and salaries
9.1.4 CHALLENGES IN 2009/2010
• The downturn in the economy affected the volume of sales due to clients not being able to raise funds to buy houses and liquidate their arrear debts. • The vandalised and disrepaired state of most premises are often costly to repair. • Sales are not proceeding at the expected rate due to National Credit Regulations requirements and ongoing price disputes with clients.
9.1.5 ACHIEVEMENTS FOR 2009/2010
• Contributed to the economic regeneration of the province by attracting tenants to our industrial parks in Fort Jackson and Mthatha. • Successfully negotiated with claimants to start our with our Developments in Mthatha. • Relationships with all key Municipalities have been successfully established. • Targets set to ensure increased collections going forward implemented. • There were settlement offers where debts exceeded R700,000 which were finalised. • Re-designing the debt collection process and procedures.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
REASON FOR DEVIATION
New measures are in place to improve occupancy.
68
69
9.2 FINANCE
DEVELOPMENT
PROGRAMME PERFORMANCE
9.2.1 AIM The Development Investments Unit Strategy is underpinned by the: • Promotion of entrepreneurship across the Eastern Cape through funding of technically sound and financially sustainable businesses and projects • Targeting of businesses and projects in high-poverty nodes where multiple socio-economic objectives can be achieved; and • Provision of low-income individuals and / or communities with investment opportunities in private sector partnerships that address their needs such as job creation, affordable housing and start up of responsible, sustainable businesses.
9.2.2 STRATEGIC GOALS The Development Investments Unit’s objectives are: • To achieve socio-economic development objectives which include entrepreneurial development, empowerment of black people (individuals, companies and communities), poverty alleviation, skills development and transfer, and contributing to economic growth. • To preserve invested capital and achieve a return on investment.
9.2.3 OUTPUTS AND SERVICE DELIVERY TRENDS ECDC was unable to secure the required additional funding to meet disbursement targets as reflected in the operational plan. It did however manage to exceed the targets on the short-term products due to the rollover nature of the short-term products. PROGRAMME
BUDGET DISBURSEMENTS R ’MILLION
ACTUAL DISBURSEMENT R ’MILLION
Sub-programme 1: Term Loans
190
78
-59
Limited funding to undertake long-term funding
Sub-programme 2: Equity Investments
10
0
-100
Limited funding to undertake long-term equity funding
Sub-programme 3: Trade Finance
100
83
-17
Change in the formula used to calculate the amount disbursed
Sub-programme 4: Contractor Finance
80
63
-22
Change in the formula used to calculate the amount disbursed
Sub-programme 5: Micro Loans
10
1
-87
Limited funding hence move away from high risk products
3902
2253
-42
TOTAL
DEVIATION %
REASON FOR DEVIATION
Co-operative finance
n/a
1
n/a
New fund created by Goverment
Other loans
n/a
0,3
n/a
n/a
GRAND TOTAL
226
At the time of planning and target setting, the budgeted disbursement was calculated based on the old formula of loans planned to be disbursed in 2009/10. The target was based on additional funding which was not available due to increased pressure on government spending. 3 This amount is based on a change in composition of formula to calculate loans disbursed when compared to the previous financial years. The value of disbursement reported previously included refunds and fees, which have been excluded in the 2009/10 calculation. 2
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Programme Performance Development Finance
9.2.3.1 SUB-PROGRAMME 1: TREND IN PERFORMANCE FROM 2005/06 TO 2009/10 MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
2005/06 ACTUAL APPROVALS R ‘MILLION
2006/07 ACTUAL APPROVALS R ‘MILLION
2007/08 ACTUAL DISBURSED R ‘MILLION
2008/09 ACTUAL DISBURSED R’ MILLION
2009/10 ACTUAL DISBURSED R’ MILLION4
COMPOUND ANNUAL GROWTH %
COMMENT
To provide financial assistance to small, medium and micro enterprises (SMMEs)
Value of Term Loans
43
29
28
77
78
67 (Since 07/08)
Performance measurement has been changed from approvals to disbursements to reflect actual impact and not potential
To provide financial assistance to SMMEs
Value of Equity Investments
20
5
13
10
0
-99 (Since 07/08)
SMMEs prefer not to have equity partner and opt for Term Loan instead
To provide financial assistance to SMMEs
Value of Trade Finance
Not measured
Not measured
Not measured
73
83
14
Strong growth in this product is expected to continue
To provide financial assistance to emerging contractors
Value of contractor finance
59
31
27
141
63
52
Performance measurement has been changed from approvals to disbursements to reflect actual impact and not potential
To provide financial assistance to micro enterprises
Value of Micro Finance
Not measured
0,8
2,6
11
1
-30
Good growth is due to the conscious decision to increase financial assistance to micro businesses unable to obtain finance elsewhere
2009/10
REASON FOR DEVIATION
9.2.3.3 DEBT COLLECTION PERFORMANCE FROM 2005/06 TO 2009/10 MEASURABLE OBJECTIVE
PERFORMANCE INDICATOR
Increase cash collections
Total cash collections Total loan portfolio
2006/7
2007/8
2008/09
Not measured
Not measured
169
219
New measure
Not measured
Not measured
312
2265
New measure
Total disbursements Total loan disbursements
9.2.3.4 JOBS CREATED MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
Jobs created and/or saved
Permanent/ temporary jobs
PLANNED PERFORMANCE
ACTUAL PERFORMANCE
DEVIATION %
5000
2498
-50%
REASON FOR DEVIATION Change in measurement from measuring jobs each time a new contract is awarded to an emerging entrepreneur to measuring the jobs only once when the original contract is awarded. This is in an attempt to reflect more accurately the number of jobs created. This is consistent with the 42% deviation on disbursements as listed in 9.2.3 (pg 69)
This amount is based on a change in composition of the formula to calculate loans disbursed when compared to the previous financial years. The value of the disbursement reported previously included refunds and fees, which have been excluded in the 2009/10 calculation. 5 Change in composition of formula to calculate loans disbursed as compared to the previous years. 4
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
70
71
9.2.3.5 PRESERVATION OF INVESTED CAPITAL MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
Preserve Invested capital
Rand value of movement in impairment provision R’million
PLANNED PERFORMANCE R’MILLION
ACTUAL PERFORMANCE R’MILLION
12.5
63.6
DEVIATION % 409
REASON FOR DEVIATION
Adverse economic climate together with a more conservative approach to impairments compared with the previous financial year, affected performance.
9.2.3.6 BUDGET 2008/09 PROGRAMME Development Finance
BUDGET R ’MILLION
ACTUAL R ’MILLION
DEVIATION %
34.5
92.5
168
REASON FOR DEVIATION The over expenditure is due to the impairment calculation which is based on Basel guidelines. The Corporation’s high risk client base resulted in high impairment figures.
9.2.4 CHALLENGES IN 2009/10 • The provision of aftercare and account maintenance remains a major challenge as this has become critical in the current economic climate. • ECDC continues to provide direct financial assistance to a client base that is unable to obtain the same elsewhere due to their credit risk profile. This activity leads to excessively high impairment of the Corporation’s loans. • Lack of funding for long-term debt and equity funding. • Breach of cession agreements by third parties especially government departments.
9.2.5 ACHIEVEMENTS IN 2009/10 • Improved cash collections on the entire loan portfolio from R169,9 million in 2008/09 to R219,9 in 2009/10. • 37% of all loans disbursed were to women owned businesses. • 38% of all loans disbursed were to businesses owned and operated by youth. • 85% of all disbursements were made to small enterprises with turnovers of less than R500 000 per annum. • Direct financial support has been provided to 907 SMMEs (800 in prior year). This is an increase of 11.8%. • A Cooperative Fund was launched in partnership with the Department of Economic Development and Environmental Affairs (DEDEA) just before the end of the current financial year. The full impact of this fund should be reflected in the next financial year.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Programme Performance Enterprise Promotion
9.3
ENTERPRISE PROMOTION
PROGRAMME PERFORMANCE
9.3.1 AIM The aim of the Investment and Trade Promotion Unit is to facilitate investment and trade in priority sectors in line with the Provincial Growth and Development Programme (PGDP) and the dti’s macroeconomic strategy in order to increase developmental impact in the Eastern Cape. The programme is composed of the following sub-programmes: • Investment Promotion • Trade Promotion
9.3.2 STRATEGIC GOALS: • To attract foreign and local direct investment into the Eastern Cape through improving value propositions and promoting incentives developed by the dti, increased missions and marketing municipal incentives. • To maintain and support existing investments. • To create cross-leverage opportunities for ECDC loans and improve occupancy of ECDC properties. BASED ON THE OBJECTIVES OF THE PGDP, THE UNIT FOCUSES ON THE FOLLOWING SECTORS:
THESE ARE DRIVEN THROUGH THE FOLLOWING APPROACHES:
•
• • • • •
• • • • •
Manufacturing-based potential, which sub-divides into general manufacturing and automotive. Agro-processing, medicinal and aromatic plant production and greenhouse horticulture. Tourism infrastructure investment. promotion/property development. BPO - Business process outsourcing and off-shoring with a focus on call centres and film. Information and communication technology (ICT). Mariculture and aquaculture (fish and abalone).
• •
Image-building activities (pro-active). Investment-generation activities (pro-active). Investor servicing activities also referred to as after-care (re-active). Policy advocacy. Support and collaboration with the East London and Coega Industrial Development Zones (IDZs). Support function to municipalities (demand driven). Outward missions.
9.3.3 PERFORMANCE IN 2009/10 Due to the worldwide economic downturn the unit could not achieve as many new investments as envisaged. However the introduction of new car models in the automotive industry and expansions in this sector led to an overall positive result. MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
PLANNED PERFORMANCE
ACTUAL PERFORMANCE
DEVIATION %
Facilitate investments
Number of new prospects
100
115
15
Performance was in line with the target.
Number of new investments
12
19
58
Interventions were made in existing projects, especially expansions.
Value of investments facilitated. R’million
500
592
18
A number of expansions could be facilitated in the light of risk aversion by foreign investors during the economic downturn.
Number of jobs created or saved
1000
1613
61
Jobs were saved and created due to interventions in existing projects.
Provide effective aftercare through visits
30
37
23
Added emphasis was placed on retaining existing investment, retaining jobs already created, and tracking development of companies and / or expansions so as to facilitate re-investment.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
REASON FOR DEVIATION
72
73
9.3.3.1 TRENDS IN PERFORMANCE 2005/6 TO 2009/10 MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
2005/06 (ACTUAL)
2006/07 (ACTUAL)
2007/08 (ACTUAL)
2008/09 (ACTUAL)
2009/10 (ACTUAL)
COMPOUND ANNUAL GROWTH %
REASON FOR DEVIATION
Facilitate investments
Number of new prospects
New measure
91
101
93
115
8.1
The number of missions was generally consistent, as were the number of new prospects.
Number of new investments
New measure
24
29
20
19
-7.5
The number of new investments (including expansions) was lower over the past two years due to the global economic downturn. However, new investments were maintained through expansions of existing businesses.
Value of Investments facilitated R’million
1,416,5
766
738,3
731,4
592
-19.6
The value of new investments (including expansions) was lower over the past two years due to the global economic downturn. However, expansion of existing businesses resulted in investment.
Number of jobs created or saved
3467
3522
2177
1214
1613
-17.4
The number of jobs (including expansions) was lower over the past two years due to the global economic downturn.
9.3.4 CHALLENGES IN INVESTMENT PROMOTION IN 2009/10 Agriculture and agro-processing • National legislation is still inhibiting growth and promotion of the medicinal and aromatic plants. • Adverse climatic conditions, such as drought, delayed the expansion of Carara Agro Processing (Pty) Ltd, with a factory located in Grahamstown that produces and exports pepperdews, mainly to Europe. • Community conflicts and disagreements inhibited the revitalisation of the Ncora Irrigation Scheme in partnership with a private sector company. Manufacturing, auto and renewable energy • Slow economic recovery and production levels. • Reliance of the components manufacturer on the automotive sector. • Sector has been very tardy to diversify. • National regulatory environment is making slow progress in creating a suitable investment environment. Tourism • The slow economic recovery had a direct impact on the implementation of some projects. • East London beachfront development projects’ slow progress. • Infrastructure development in the former homelands remains a challenge. Aquaculture, fisheries and environmental management and mari-culture • National government’s failure to finalise the National Environment Management Amendment Act on alien and invasive species legislation is delaying investment in freshwater and marine aquaculture projects. Two projects have been impacted at the East London IDZ and GraaffReinet. • The national policy on abalone ranching is also not finalized, preventing the opportunity from being developed into a value proposition in the province. Business Process Offshoring & Outsourcing (BPO&O), ICT and Film • Government funding has not been secured to implement the single number customer care line for the province. • There are perceptions both internationally and locally that telecommunication costs are high thereby inhibiting investment in the sector. • Black economic empowerment operators find it difficult to access national incentives as they do not meet the minimum requirements.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Programme Performance Enterprise Promotion
Special projects • Lack of capacity at the Elundini Local Municipality to spend infrastructure funds. • Slow momentum in the East London Port Expansion Mayoral Steering Committee. • The economic viability of the Magwa Tea Estate is increasingly becoming questionable, thereby demanding more subsidies from government.
9.3.5 ACHIEVEMENTS IN 2009/2010 Agriculture and agro-processing • Assisted a South African company in obtaining a licence for harvesting and cultivating medicinal plants in conjunction with an Alice-based community. Trials are being conducted and commercialisation is expected to start in 2011/12. • Dairy production is being expanded, targeting specific suitable areas in the OR Tambo District Municipality. Manufacturing and renewable energy • ECDC actively part of the government-led Rapid Response Coordination Committee that works to address the economically depressed industry whilst working closely with the industry. • DEDEA and ECDC partnership in the South African Automotive Week 2009 resulted in four Original Equipment Manufacturers (OEMs) committing to increase local content. • Finalisation of the Automotive Industrial Development Programme saw OEMs commit investment over the next five to six years. • Three wind masts erected in the Province to collect wind data (for a possible wind energy investment project). • Huge interest in the renewable energy application to Eskom, which has resulted in major envisaged boom once the regulatory environment is in place. • South Africa’s first electric vehicle manufacturer shortlisted two locations in the Eastern Cape (East London and Coega IDZs) for the manufacture of the Joule. Tourism • Sector plan report and Action Plan for the Tourism sector that was drafted assisted in improving our targeted and focused approach. • Mega projects were facilitated in Kidds Beach and Stonekraal. Aquaculture, fisheries and Environmental Management and, Mari-culture • As a direct result of studies and lobbying undertaken by ECDC, national government announced plans for offshore marine aquaculture zones in Algoa Bay and Saint Francis Bay. This lays the foundation for large-scale offshore finfish production. • The Eastern Cape is now the second highest aquaculture producer province (as per the national benchmarking survey 2009). • With the planned expansion in abalone and marine finfish production, the province is set to become the market leaders that could perform better than other provinces, given its better water resources and climate. Business Process Offshoring & Outsourcing (BPO&O), ICT and Film • Developed a framework for a provincial-wide, single number, customer care line. • Infrastructure has been developed in Port Elizabeth (Coega IDZ) and East London IDZ to establish 1,500-seater and 500-seater call centres respectively. • IBPeSA Eastern Cape, in partnership with ECDC, hosted an international Business Process Outsourcing Week and facilitated seminars with stakeholders and potential investors, showcasing the province’s potential to host investors in the sector. Special projects • Extended the footprint of “Eastern Cape From Above”, which is an aerial photographic exhibition targeting countries in Europe, such as Germany, Portugal, Belgium, France and Sweden. The purpose is to build the image of the Eastern Cape as an investment and tourism destination. • Partnerships with South Africa Airways and German Rail have been built during the year, and these will bear fruit in 2010/11. • The East London port expansion project has now been listed as a priority at the Provincial Freight Logistics Forum.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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9.3.6 TRADE PROMOTION Strategic goals for the sub-programme are: • Increase the value of trade. • Increase the number of exporters. • Focus on and explore new markets. • Maximise the opportunities offered by various trade policies. • Broaden trade within Africa. SECTORS WITH THE HIGHEST PRODUCTION CAPACITY AND MANUFACTURING CAPABILITY
FOCUS TARGET COUNTRIES AND MARKETS
INDIVIDUAL PARTICIPATION AT INTERNATIONAL TRADE PLATFORMS
THESE ARE DRIVEN BY THE FOLLOWING INITIATIVES
• • •
• • • •
• • •
•
Renewable energy Agro-processing General manufacturing
China Brazil Portugal Europe
Agro-processing – Japan Composites–France Agro-Processing - SIAL
• •
International trade missions – the dti ECDC Missions. Workshops with the dti, CBI and Jetro
9.3.6.1 TRADE PERFORMANCE IN 2009/10 A long period of having a relatively weak rand, in combination with Trade Promotion’s electronic trade platform, contributed to a strong export market. Strong contributors to Eastern Cape exports were international orders in various niche sectors; mainly agro-processing, light manufacturing and general manufacturing (non-automotive). MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
PLANNED PERFORMANCE
ACTUAL PERFORMANCE
DEVIATION %
REASON FOR DEVIATION
Increase the value of exports
Value of exports generated R’million
36 (Revised to 100)
430.8
331
Exports are still benefitting from the relatively weak rand and ECDC’s electronic-export platforms (e-platforms)
Increase the number of exporters
Generation of new exporters
22
26
18
Exporters have been responding positively due to training and networking forum provided throughout the past five years.
Number of existing exporters assisted
40
33
-18
Demand was low due to the global economic downturn.
Number of businesses benefiting from the dti incentive
34
40
18
There was participation in CIFIT (China), ITI Brazil, with the dti and the Hanover Mission increased access to the dti incentives.
Increase the value of trade within the province
9.3.6.2 TRENDS IN PERFORMANCE FROM 2005/06 TO 2009/10 Measurable objectives
Performance measure
2005/06 (actual)
Increase the value of exports
Value of exports generated R’million
Increase the number of exporters
Increase the value of trade within the province
2006/07 (actual)
2007/08 (actual)
2008/09 (actual)
2009/10 (actual)
Compound annual growth %
New measure
17,8
46,1
202,2
430.8
204.4
Export are still benefitting from relatively weak rand and ECDC’s electronic-export platforms.
Generation of new exporters
New measure
6
16
21
26
63.0
Exporters have been responding positively due to training and networking forums, provided throughout the past five years.
Number of existing exporters assisted
New measure
21
31
44
33
16.3
The number of exporters assisted in foreign missions declined due to the global economic downturn.
Number of businesses benefiting from the dti incentive
New measure
29
16
47
40
10.4
Trade Promotion has been pro-active in promoting the dti incentives; also collaborating with stakeholders such as chambers, municipalities, the exporters club, IDZ’s and the provincial dti office
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Reason for deviation
Programme Performance Enterprise Promotion
9.3.6.3 CHALLENGES IN 2009/10 • Updating the ECDC export electronic-platform with new products and companies that are still to be loaded to cover the entire province. • Participation in the dti’s Export Marketing and Investment Assistance (EMIA) programme by Eastern Cape companies is still too low. • Stakeholder interaction with organised business and industry. • Lack of new or emerging entrants to exporting has resulted in repetitive assistance being provided to existing exporters.
9.3.6.4 ACHIEVEMENTS IN 2009/10 • ECDC’s export electronic-platform contributed more than 30% to export volume generated through ECDC facilitation. • More than 30 companies listed their products on the e-platform and hence were given exposure to the global market and expanded their global client base. • Five international outward-selling trade missions had been organised to China, Portugal, Ghana, Brazil and Germany. • An export potential study had been initiated (to be completed by end of May 2010) that will focus on the potential of Eastern Cape companies to participate in the Southern Africa Development Community (SADC).
9.3.6.5 BUDGET FOR INVESTMENT AND TRADE PROMOTION UNIT 2009/10 PROGRAMME
BUDGET R ’MILLION
ACTUAL R ’MILLION
DEVIATION %
6.6
-5.7
REASON FOR DEVIATION
Sub-programme 2.1: Investment Promotion Overheads 7.003 Projects • Original budget • Additional budget
The Unit Head post budget for the year has remained vacant. In addition, outward Investment Missions were put on hold due to the global economic recession. Multi-year special projects committed during 2008/09 financial year overlapped to the 2009/10 financial year. Hence the overspending, in projects such as Eastern Cape From Above.
2.489 4.167 6.656
8.049
19.4
1.980
1.437
-26.3
Sub-programme 2.2: Trade Promotion Overheads Projects • Original budget • Additional budget
0.800 6.146 6.946
5.449
-21.7
Total Overhead expenditure
8.983
8.027
-11
Total Project expenditure
13.602
13.498
0.8
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
The Manager of Trade Promotion post included in the budget has not been filled. Some trade missions planned for 2009/10 were cancelled by the dti. In addition, some DEDEA- funded Special Projects like Mohair Summit, and development of the Export Promotion Strategy commissioned during the later part of 2008/09, has overlapped to 2009/10 financial year.
76
77
9.4 PROJECTS
DEVELOPMENT
PROGRAMME PERFORMANCE
9.4.1 AIM To increase investment (in partnership with third party funders) in initiatives that unlock economic potential of low-income areas, thereby leading to the establishment of viable enterprises, expansion of existing enterprises, creation and saving of jobs, and creating sustainable economic growth in the province.
9.4.2 STRATEGIC OBJECTIVES • Stimulate economic growth and development of low-income areas through strategic identification and support of projects with high employment and economic viability potential in line with the PGDP and ECDC’s development objectives • Promote Broad-Based Black Economic Empowerment (BBBEE) in the low income areas of the Eastern Cape province through public private partnerships (PPP) • Influence municipal planning through supporting the development of credible local economic development (LED) strategies. • Support Research and Knowledge Management through packaging of lessons learnt from bestpractice cases. These have been driven by the following approaches: • Identify potential economic projects and fund development of business plans, trials and pilot projects. • Leverage funding from Development Partners (including limited funding from ECDC) for commercialisation of economic projects. • Assist enterprises in distress and resuscitate declining sectors. • Focus on high-value and / or high impact projects with developmental focus. • Assist Municipalities in planning and implementing projects • Develop a project monitoring and evaluation tool.
9.4.3 PERFORMANCE IN 2009/10 Investment in economic development initiatives requires partnerships in the provision of resources and finalisation of resourcing agreements, which have a significant bearing on the commencement and conclusion of such initiatives. Commencement of the majority of projects during 2009/10 was delayed as most funding partners employed a conservative approach to funding due to the global economic downturn. This in turn negatively affected attainment of a number of performance targets, as detailed in this report.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Programme Performance Development Projects
MEASURABLE
PERFORMANCE MEASURE
PLANNED PERFORMANCE
ACTUAL PERFORMANCE
objectives
List of projects identified for support
20
34
70
Increased stakeholder interactions through outreach programmes.
ECDC funding used for scoping R’million
4
2.5
-37.5
Due to late commitment by third parties, the scoping only started in the last quarter of the financial year. The balance has been fully committed (R6,7m).
ECDC funds used for project implementation R’million
2
1.1
-45
Due to the delay in scoping the implementation was delayed. Co-funding approval from third parties such as Thina Sinako only came at the end of the third quarter for example: e. The Raspberry plantation in Molteno f. Hydroponics project in Mount Ayliff. g. Mpafane Concrete block manufacturing in Matatiele h. Sithembene Home Décor and garment manufacturing in Mthatha. The balance has been committed.
Third-party funding obtained for business-related studies, crop trials and project implementation R’million
60
30
-50
Third-party funders employed a conservative approach to funding during the economic downturn period. Third-party funders are currently considering more than R135m in funding for various projects.
Number of projects established/ expanded
20
15
-25
Implementation consisted of mostly small DEDEA funded projects (Amalinda Fish Farm, Zwelakhe Cosmetics) due to funding pressures experienced by third parties.
Number of actual jobs created and/ or saved
600
352
-41
Mainly small government-funded projects were implemented during financial year. If third-party funding had been received, it would have had the potential to create approximately 1,836 jobs.
Facilitate and support IDP processes to enhance the Municipal IDP/LED process
Number of municipalities assisted
6
10
67
Consistent stakeholder engagements resulted in frequent interactions with municipalities.
Value of ECDC funds disbursed towards support of municipal projects R’million
1.8
0.293
-84
A need was identified in the course of the year to add capacity to fast track the pilot project with the Amathole Economic Development Agency (Aspire). The project manager for the ‘Small Town Regeneration Programme’ with Aspire was appointed in March 2010. The project was to be fast-tracked from April 2010 (R633 422 has been committed).
Develop a research and knowledge management centre
Business plan developed and implemented.
Electronic portal with relevant economic intelligence. Report on the outcome of study tours Development of a community economic model
Internal document collation has commenced
0
Archiving of studies conducted by Development Services commenced. Establishment of the knowledge management centre was delayed due to resource constraints.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
DEVIATION %
REASON FOR DEVIATION
78
79
9.4.3.1 TRENDS IN PERFORMANCE FROM 2005/06 TO 2009/10 MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
2005/06 (ACTUAL)
2006/07 (ACTUAL)
2007/08 (ACTUAL)
2008/09 (ACTUAL)
2009/10 (ACTUAL)
COMPOUND ANNUAL GROWTH %
To create jobs and wealth through establishing viable and sustainable projects
Number of projects identified
34
51
69
66
34
0
Deliberate reduction in the number of project identified to ensure that only projects with reasonable potential are listed
ECDC funding used for business related studies, crop trials and implementation R’million
8.3
Approvals including implementation
Approvals including implementation
Disbursements + commitments
Disbursements + commitments
Disbursements + commitments
7
-4.2
There has been a gradual increase in the budget allocated towards scoping and project implementation since 2008/09 financial year due to increased demands for project preparation support.
51,7
89,3
103,8
367,7
30
-12.3
Third-party funders adopted a conservative approach to funding during the global economic downturn
24
11
19
22
15
11.1
The response from thirdparty funders was slow, probably due to global economic downturn.
1,146
728
2,479
824
352
-25.6
The economic downturn resulted in development institutions and government mainly supporting small projects
N/A
N/A
14 workshops 18 projects
10 workshops 12 projects
10 Municipalities supported
-15.5
This key performance indicator has been changed for the 2009/10 financial year to include more initiatives than only workshops and projects.
Third party funding obtained for business related studies, crop trials and project implementation R’million Number of projects established Number of actual jobs created or saved
Facilitate and support the IDP process
Number of municipalities supported
9.1
6.6
6.6
REASON FOR DEVIATION
9.4.3.2 BUDGET 2009/10 PROGRAMME
BUDGET R ’MILLION
ACTUAL R ’MILLION
DEVIATION %
REASON FOR DEVIATION
Development and Rural Projects - Overheads
9,022
4.080
-54
Savings due to the delayed appointments of a Regional Manager for the Queenstown office, Project Coordinator for Mt Ayliff office and filling of a vacant Project Coordinator post in the Mthatha Office
- Projects
7,062
4.743
-43
Turnaround time for securing third-party funding for scoping and project implementation had been long, but there is a good pipeline for 2010/11.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Programme Performance Development Projects
9.4.4 CHALLENGES IN 2009/10 • Securing timely third-party funding has been a challenge as third-parties adopted a conservative approach to funding during the global economic downturn. • Limited capacity amongst municipalities regarding planning information, and a lack of resource commitment. • Limited appetite of investing in innovation among development agencies in the Province. • Difficulties in securing commercial partner for community based projects due to the perceived risks associated with such projects and the low level of expertise amongst community members and social networks.
9.4.5 ACHIEVEMENTS IN 2009/10 • Finalisation of Pineapple Dietary Fibre business plan and implementation of mini production line was implemented in East London. • Finalisation of pottery, spinning and weaving incubation was finalised in Mthatha. • Development of cosmetic creams (formulations) trials, using plant material, for people with sensitive skins using plant material were developed. • Finalisation of trials and a business plan for the essential oils project in Hogsback, Middledrift, Majola and Butterworth. • Finalisation of Amabhele spatial development framework and business plan for a few selected projects. • As part of the Eastern Cape Berry Corridor programme, full funding was obtained for raspberry production in Molteno. • The Dordrecht cheese factory restructuring process was completed.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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81
9.5 SERVICES ENTERPRISE DEVELOPMENT
PROGRAMME PERFORMANCE
9.5.1 AIM The Enterprise Development Services (EDS) unit aims to provide effective, efficient and integrated development and support services to priority SMME sectors. Strategic goals • To provide enterprise development services in targeted priority sectors • To facilitate competitiveness of the SMME sector • To promote the culture of entrepreneurship to increase economic growth and development.
9.5.2 PERFORMANCE IN 2009/10 The unit in the year under review is supported small medium and micro-enterprises thorough established programmes within growing sectors especially construction, crafts and ICT. Despite the fact that some companies resigned from the emerging entrepreneurs programme overall, their turnover and contribution to job creation has increased. Partnerships were key in achieving successes and yielded better results, especially regarding facilitating access to information, whilst on the other hand partnerships created challenges in instances of withdrawal from the programme, this has been the case for the HIV and Aids programme and for quality training. MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
PLANNED PERFORMANCE
ACTUAL PERFORMANCE
DEVIATION %
REASON FOR DEVIATION
To provide business development services in targeted priority sectors
Number of emerging entrepreneurs participating in the programme
110 (62 construction, 40 crafts and 8 ICT)
103 (57 construction 38 crafts and 8 ICT)
-8 for construction -5 for crafts 0 for ICT
The withdrawal of five contractors from the construction incubation was caused by disappointments due to unmet expectations of accessing contract/tenders, as well as some getting contracts outside the province and therefore not being able to continue with programme.
Number of incubates that have increased their turnover
15
32
113
This was due to the number of contracts secured by incubator incubates (ICT and IECDM), as well as good sales from craft companies during their participation in trade and consumer shows.
Number of entrepreneurs graduated from one level to the next
55
14
-75
Failure to submit annual financial statements by contractors for grading assessment led to a limited number of contractors being re-graded.
Number of jobs created through the programme
110
320
190
This was due to some contractors securing contracts outside the Province. Increase in orders of craft products increased due to higher exports resulting from participation in national and international trade and consumer shows. Jobs created: 172 (craft), 95 (construction), 15 (ICT), and 38 temporary jobs in the ICT incubator as contract workers.
Number of networking sessions
6
10
66
Due to partnering with different stakeholders in hosting these sessions.
Number of entrepreneurs provided with business development services
100
167
67
Due to high demand for Business Development Services. Emanated from more knowledge about ECDC products due to outreach programmes which ECDC hosted in partnership with different stakeholders.
Number of businesses started from total supported
5
7
40
Quicker turnaround than anticipated in businesses supported in starting their businesses. In this respect three have been financed by the Corporation.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Programme Performance Enterprise Development Services
MEASURABLE OBJECTIVES
Facilitate competiveness of the SMME sector
Promote entrepreneurship
PERFORMANCE MEASURE
PLANNED PERFORMANCE
ACTUAL PERFORMANCE
DEVIATION %
REASON FOR DEVIATION
Number of businesses (SMMEs) supported with increased turnover
15
9
-44
The inability to solicit adequate information from enterprises due to poor and/or lack of proper financial management systems in businesses.
Number of SMMEs trained in tendering.
60
71
18
High demand in training from all the regions.
Number of trained SMMEs successfully bidding for government and private sector tenders
18
4
-77
As much as training prepared SMMEs to bid, there are other factors that may lead to them being unsuccessful in tendering, such as competition in the market.
Number of trained SMMEs in quality management
60
0
-100
There was inability to attract suitably qualified service provider within budgeted amount on time.
Number of SMMEs trained on HIV and AIDS
80
21
-74
This was due to discontinuation of financial support for the programme by the Eastern Cape AIDS Council.
SMMEs with workplace HIV and AIDS policies
40
10
-75
Due to the discontinuation of funding by Eastern Cape AIDS Council.
Number of awareness programmes
6
26
333
This was due to work done through entering into a partnership agreement with: • COMSEC (Community Self-Employment Centre based in Port Elizabeth), in the Siyahlwayela initiative in Kouga, Camdeboo, Peddie, Blue Crane and Ndlambe municipalities. • Collaborating with SEDA and other provincial and local government stakeholders. • Somerset East
Number of recognition and reward events held
1
1
0
The annual SMME Summit was hosted in partnership with the University of Fort Hare and DEDEA with more than 300 attendees.
9.5.2.1 TRENDS IN PERFORMANCE FROM 2005/06 TO 2009/10 MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
2005/06 (ACTUAL)
2006/07 (ACTUAL)
2007/08 (ACTUAL)
2008/09 (ACTUAL)
2009/10 (ACTUAL)
COMPOUND ANNUAL GROWTH %
REASON FOR DEVIATION
To provide Development Services in a sector- focused approach
Number of businesses supported in priority sectors (number of interventions)
119
169
279
392
266
22.3
The target for the current financial year was reduced in order to ensure that there was quality support to SMMEs and that long term relationships are maintained with each entrepreneur to ensure sustainability. This figure includes 99 entrepreneurs who were part of the incubation programme.
Impact of support per priority sector; CIDB rating for construction
54
54
62 > Grade 5
62
53
-0.5
The decrease in the number of contractors forming part of the programme has been due to drop out, which is as a result of contractors being unable to secure contracts as they initially expected.
Turnover for arts and crafts (R’s)
N/A
441,000
15,565
62,000
238 600
-18.5
The huge increase in turnover for crafters has been due to participation in more market access programmes locally, nationally and internationally. These exhibition shows include the Grahamstown Arts Festival, Xmas in July Festival, Decorex Johannesburg, and Portugal and Milan craft shows.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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83
MEASURABLE OBJECTIVES
PERFORMANCE MEASURE
2005/06 (ACTUAL)
2006/07 (ACTUAL)
2007/08 (ACTUAL)
2008/09 (ACTUAL)
2009/10 (ACTUAL)
COMPOUND ANNUAL GROWTH %
REASON FOR DEVIATION
Integrate/partner with other development agencies with regard to SMME development (number of walkins and business referrals)
N/A
N/A
731
5938
6035
187.3
The increase in the walk-ins and referrals is due to an increase in the number of people contacting ECDC for business registration. The figure quoted includes business development services provided, as well as entrepreneurs currently participating in the incubation programme. This figure excludes the number of people reached through the outreach programmes.
Business registrations (CC registrations only: CK1, CK2 and CK3)
N/A
N/A
1907
5546
5769
73.9
The marginal increase in business registration is due to the slow down in the economy and stabilization of people interested in starting new companies even though the figure still reflects some sustained growth.
4
4
13
59
0
-
No quality management training took place in the year under review due to the inability to attract accredited service providers within the budgeted amount and on time.
SMME training and capacity building sessions/workshops focusing on Quality Management Systems & Occupational Health & Safety
9.5.2.2 BUDGET 2009/10 PROGRAMME
BUDGET R ’MILLION
ACTUAL R ’MILLION
DEVIATION %
REASON FOR DEVIATION
Overheads
6.095
8.399
38
Three former interns were appointed as junior business advisors due to a high demand for services such as business registration. Three business advisors were appointed of which was not previously anticipated as follows: - Port Elizabeth - Mthatha - Mount Ayliff (new satellite office)
Projects
9.661
12.628
30
Over expenditure is a result of deferred funds from the 2008/09 financial year which were not part of the 2009/10 financial year budget.
9.5.3 CHALLENGES IN 2009/10 • Lack of financial commitment to the partnership with the departments of Public Works and Human Settlements in respect of supporting emerging contractors. Initially the agreement was aimed at ring fencing some contracts for contractors participating in the programme from the departments. • Poor financial management skills and systems at SMMEs. This will be addressed in the coming year. • Aftercare is expensive and poorly structured, better structuring is required. Need to improve coordination of interventions and support to SMMEs in order to ensure that there is a well structured aftercare programme. • Partners are not honouring commitments to co-fund programmes.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Programme Performance Enterprise Development Services
9.5.4 ACHIEVEMENTS IN 2009/10 • Resuscitation of the Eastern Cape Information Technology Initiative (ECITI), a technology and film incubator currently based in East London. • Women’s Entrepreneurship Awareness Seminar hosted in Queenstown in August 2009. The session was aimed at facilitating access to information, capacitating women involved in business and creating a platform for networking. The seminar was attended by more than 100 women from throughout the Chris Hani District. Provincial and national funding and capacitybuilding entities shared their programmes with women entrepreneurs. • Successfully supported local entrepreneurs to access funding from the dti and relevant provincial departments. • Established networks and partnerships with business development service providers such as Seda, Comsec and other entities • Implemented a financial management system, Revelation Accounting System for a guest house in Queenstown, resulting in the guest house being able to do its own management accounts and tax returns, leading to cost savings. • Increased awareness of ECDC products and services in all districts has increased through wellestablished networks and outreach. • Increased exposure for crafters through national and international trade and consumer shows, leading to increases in their turnover and jobs created. • Business process re-engineering for DP Fasteners, a closed corporation based in Port Elizabeth, which was struggling. The business re-engineering process concentrated on operational cleanup, building an operating and stock management system, and human resources alignment and management. The business improved its sales, is able to manage its stock and expenses, and has turned its operating loss into a net profit. • Mentorship was provided to a Queenstown-based transport closed corporation, Oxyross, resulting in the graduation of the enterprise from an informal to a formal business
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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85
10 REPORT
AUDITOR-GENERAL’S
REPORT OF THE AUDITOR-GENERAL TO THE EASTERN CAPE PROVINCIAL LEGISLATURE ON THE FINANCIAL STATEMENTS OF EASTERN CAPE DEVELOPMENT CORPORATION FOR THE YEAR ENDED 31 MARCH 2010
REPORT ON THE FINANCIAL STATEMENTS Introduction I have audited the accompanying group financial statements of the Eastern Cape Development Corporation (ECDC), which comprise the consolidated and separate statement of financial position as at 31 March 2010, consolidated and separate statement of financial performance, consolidated and separate statement of changes in equity and consolidated and separate cash flow statement for the year then ended, a summary of significant accounting policies and other explanatory information, and the accounting authority’s report as set out on pages 95 to 98. Accounting authority’s responsibility for the financial statements The accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with the South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and in the manner required by the Public Finance Management Act, 1999 of South Africa (Act No. 1 of 1999)(PFMA), the Eastern Cape Development Corporation Act, 1997 (Act No. 2 of 1997) (ECDCA) and the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor-General’s responsibility As required by section 188 of the Constitution of South Africa and section 4 of the Public Audit Act of South Africa, my responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with International Standards on Auditing and General Notice 1570 of 2009 issued in (Government Gazette 32758 of 27 November 2009). Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Auditor-General’s Report
Opinion In my opinion these financial statements present fairly, in all material respects, the consolidated and separate financial position of the Eastern Cape Development Corporation as at 31 March 2010 and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended, in accordance with the South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and in the manner required by the PFMA and the Companies Act of South Africa. Emphasis of matter I draw attention to the matters below. My opinion is not modified in respect of these matters: Matters important to the users of the financial statements Ownership of investment property Freehold title is held for the majority of investment properties disclosed in note 2 to the financial statements. However, properties with a combined value of R78.7 million (2009: R83.5 million) (2008: R83.3 million) are disclosed as being owned by government, tribal authorities and municipalities. Although the corporation’s right to occupy properties to the value of R78,7 million has not been reduced to writing it derives economic benefits from their use and carries the risks that are incidental to ownership. The valuation method used to value these properties assumes that the corporation has the right to occupy these properties and will receive economic benefits in perpetuity. Impairments As disclosed in note 20 to the financial statements, impairment on loans advanced to the amount of R63.6 million was incurred in the current year, which is R35.9 million more than the previous year. This was as a result of non-adherence to internal policies, poor credit control mechanisms including credit checks and due diligences not being performed on all loans, lack of sufficient monitoring controls and poor collection mechanisms, as well as prevailing market conditions that had a negative impact on the loans book. Additional matters I draw attention to the matter below. My opinion is not modified in respect of this matter: Unaudited supplementary schedules The supplementary information set out on pages 153 to 156 does not form part of the financial statements and is presented as additional information. I have not audited these schedules and accordingly I do not express an opinion thereon.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In terms of the PAA of South Africa and General notice 1570 of 2009, issued in Government Gazette No. 32758 of 27 November 2009 I include below my findings on the report on predetermined objectives, compliance with the PFMA and the Eastern Cape Development Corporation Act, Act no. 2 of 1997 (ECDCA) and financial management (internal control).
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Findings Predetermined objectives Non-compliance with regulatory and reporting requirements Public Finance Management Act Lack of effective, efficient and transparent systems and internal controls regarding performance management (applicable at an overall performance management level) While the corporation has a system in place for collection and reporting of performance information against predetermined objectives, the system did not function effectively and efficiently to ensure that the reported performance information is valid, accurate and complete, as required in terms of section 51(1)(a)(i) of the PFMA. Inadequate quarterly reporting on performance information The four quarterly reports were not adequately reviewed, monitored and evaluated by senior management and the internal audit function. Usefulness of information The following criteria were used to assess the usefulness of the planned and reported performance: • Consistency: Has the entity reported on its performance with regard to its objectives, indicators and targets in its approved annual performance plan, i.e. are the objectives, indicators and targets consistent between planning and reporting documents? • Relevance: Is there a clear and logical link between the objectives, outcomes, outputs, indicators and performance targets? • Measurability: Are objectives made measurable by means of indicators and targets? Are indicators well defined and verifiable, and are targets specific, measurable, and time bound? The following audit finding relates to the above criteria: Reported information not consistent with planned objectives, indicators and targets The corporation's long-term objective contained in the strategic plan is to increase the rate of collections. This objective is, however, not indicated in the annual performance plan and no target was set for the current year. The corporation has reported on the total collections for the year. There is thus an inconsistency between the objective contained in the strategic plan and the annual report. Compliance with laws and regulations Public Finance Management Act Section 51(1)(b)(ii) of the PFMA requires of the accounting authority of a public entity to take effective and appropriate steps to prevent irregular expenditure, fruitless and wasteful expenditure, losses resulting from criminal conduct, and expenditure not complying with the operational policies of the public entity. The corporation did not comply with all its operational policies throughout the year which lead to various irregularities when incurring expenditure. Section 51(1)(a)(iii) of the PFMA requires that the accounting authority of a public entity must ensure that that public entity has and maintains an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective. The corporation did not comply with this requirement as the procurement policy allows for abuse of the supply chain management system, whereby deviations are allowed without a valid or acceptable reason being provided for such deviations in all instances.
Auditor-General’s Report
INTERNAL CONTROL I considered internal control relevant to my audit of the financial statements and the report on predetermined objectives and compliance with the PFMA and the ECDCA, but not for the purposes of expressing an opinion on the effectiveness of internal control. The matters reported below are limited to the deficiencies identified during the audit. Leadership Oversight responsibility over the preparation of the report on predetermined objectives, compliance with the laws and regulations and internal control was not exercised by the accounting authority. Leadership has not ensured that there is a process in place to ensure that reviews take place before the submission of the annual report. This was also evidenced by the numerous instances of non-compliance with operational policies and internal control deficiencies on loans that were noted throughout the audit process. Approved policies and procedures are not in place over the credit risk assessment and impairment of loans. Financial and performance management Financial and management information is prepared by management on a regular basis, however, the quality and reliability of the information presented to the board is doubtful in view of the material adjustments that had to be effected to the report on predetermined objectives presented for audit. Information to be included in the annual report are not adequately reviewed for completeness and accuracy prior to submission for audit purposes and as a result the corporation submitted amended schedules for a number of items in the annual report. Information requested for audit purposes were not readily available as significant delays were experienced throughout the audit process. Governance Risk identification and management processes are not designed to identify changes in processes or risks and verify that the design of underlying controls remain effective. The corporation has not selected and developed adequate internal controls to prevent, detect and correct material misstatements in financial reporting and reporting on predetermined objectives.
OTHER REPORTS Investigations A forensic investigation is being conducted to probe the manner in which a loan was advanced to a company in the amount of R3.3 million in a previous year. Criminal charges were laid and are still being investigated. The corporation has instituted legal action against the company for the recovery of the debt.
East London 30 July 2010
Auditing to build public confidence
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11 GOVERNANCE
CORPORATE
INTRODUCTION The Eastern Cape Development Corporation (ECDC) is a provincial government business enterprise established in terms of Section 2 of the Eastern Cape Development Corporation Act, 1997 (Act No. 2 of 1997). The Corporation has the mandate of, among others, planning, financing, coordinating, marketing, promoting and implementing the development of the province and its people in the fields of industry, commerce, agriculture, transport and finance.
CORPORATE GOVERNANCE APPROACH The ECDC Board endorses the codes of corporate practices and conduct, as contained in the King Report on Corporate Governance, and affirms its commitment to comply in all material respects with the principles incorporated in these reports. The Corporation further subscribes to the corporate governance principles set out in the Public Finance Management Act, 1999 (Act No. 1 of 1999, as amended). The ECDC Board is committed to good corporate citizenship and organisational integrity in the running of its affairs. This commitment provides the shareholder, customers and stakeholders with the comfort that ECDC’s affairs are managed ethically and in line with best practice.
ECDC CORPORATE GOVERNANCE STRUCTURES Board of Directors The accounting authority of the Corporation is the Board of Directors appointed by the Member of the Executive Council (MEC) responsible for Economic Development and Environmental Affairs in the province. The Board is comprised mainly of independent, non-executive directors in line with the guidelines set out in the King Report on Corporate Governance. The Board held 13 meetings during the period under review. During the year under review, the Board continued to render its corporate governance oversight and strategic direction role in the Corporation within the following corporate governance systems: Corporate governance framework The Board continued to implement the corporate governance framework, which consolidates the corporate governance procedures, practices and rules applied by the Corporation. These are in line with best-practice guidelines as contained in the King Report on Corporate Governance and other good governance prescripts and guidelines. Board Charter The ECDC Board Charter sets out the roles, powers and functions of the Board, individual directors and officials of ECDC, as well as for the delegation of powers to the Board committees. The Board continued to implement its comprehensive delegations’ matrix aimed at clarifying the various roles and limits of authority within ECDC. Board development The Board implemented the director development policy in terms of which ECDC directors are entitled to continued professional development at ECDC’s expense.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Corporate Governance
Board and committee evaluation On an annual basis, the Board and its committees evaluate their performances with a view to identifying weaknesses and achieving optimum performance levels. However, no such evaluation was conducted in the year under review in light of changes made in respect of the membership of the Board of Directors and its committees towards the end of the previous financial year. Shareholder’s compact A shareholder’s compact was concluded between ECDC and the Eastern Cape provincial government as the shareholder, represented by the MEC responsible for Economic Development and Environmental Affairs. The shareholder’s compact serves as a framework for effective governance of the relationship between the Corporation and the shareholder. The compact further secures transparency, accountability and sound management of the revenue, expenditure, assets and liabilities of the Corporation.
BOARD COMMITTEES The Board has the following committees in place: Audit Committee The Audit Committee, in accordance with good governance principles, is headed by an independent chairperson. It provides oversight of governance, control and risk management processes. This committee also reviews internal and external audit feedback on the status of risk management, internal control and governance, and provides objective advice to the Board on the status thereof, with suggested corrective actions relating to audit findings. The Audit Committee met four times during the year under review. Remuneration Committee This committee considers matters relating to remuneration of directors and senior management. It also evaluates the performance of the chief executive and chief financial officers in the discharge of their duties. This committee met three times during the period under review. Human Resources Committee The HR Committee considers and makes recommendations on HR policies and principles. It met twice during the financial year under review. Internal controls The Board continued to discharge its duty of maintaining effective, efficient and transparent systems of financial and risk management and internal control. In this regard, the Board ensured that the internal audit function is under the control of an effective Audit Committee and has, among other activities, prepared a rolling, three-year strategic internal audit plan and an operational plan for the first year of the rolling plan. In terms of the ECDC Risk Policy, the Corporation conducted a risk assessment process whereby known and possible risks and opportunities to which it may be exposed were identified and evaluated. Significant risks are controlled and/or transferred. The Corporation has achieved a measure of improvement in its efforts of integrating risk management into all management processes. There is, however, still room for improvement in this regard during the 2010/11 financial year. The Board has established structures and delegations for day-to-day management and operations of the organisation, including its risk management activities.
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DIRECTORATE The MEC responsible for the Department of Economic Development and Environmental Affairs appoints the Board of Directors in terms of Section 7(3) of the Eastern Cape Development Corporation Act, 1997 (Act No. 2 of 1997). The shareholder appointed the directors, as reflected in Table 11.1 Two of the director’s resigned during the year under review, as reflected in Table 11.1. The directors, in terms of Section 7(6) of the ECDC Act, appointed Somadoda Fikeni as Deputy Chairperson of the Board with effect from 20 August 2009. Table 11.1 ECDC board of director’s DIRECTOR
APPOINTED
Fikeni, S
20/03/2009
Buthelezi, S
20/03/2009
Mlonzi, N
20/03/2009
Mhlaba, N
20/03/2009
Silinga, M
20/03/2009
Sibiya, B
25/05/2009
Sharpley, G
12/05/2009
Cerff, J
18/06/2009
Mteto,N
03/11/2009
Tyantsi,Y
03/11/2009
Nqadolo, B
03/11/2009
Mazibuko, M
03/11/2009
Mabandla, O
01/01/2010
RESIGNED
17/08/2009
31/12/2009
Table 11.2 Directors’ fees Fees paid to Directors for Board and Board Committee attendance during the financial year under review were as follows: NAME
BOARD
Mabandla, O
R60000
AUDIT COMMITTEE
REMCO
HR COMMITTEE
TOTAL
Fikeni, S
R150000
R5000
Buthelezi, S
R87500
R15000
R102500
Mlonzi, N
R52500
R5000
R57500
Mhlaba, N
R32500
R60000 R15000
R15000
R192500
R32500
Silinga, M
R87500
Sibiya, B
R135000
R5000
Sharpley, G
R137500
Cerff, J
R82500
Mteto, N
R32500
Tyantsi, Y
R22500
R22500
R22500
R22500
R5000
R22500
R92500 R5000
R167500
R10000
R147500
R10000
R92500 R5000
R37500
*Nqadolo, B Mazibuko, M Other Njeke, J
R40000
Nicholls, R
R30000
R22500
TOTAL
*This director is a government employee and is not allowed to receive remuneration
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R62500 R30000 R1,120,000
Corporate Governance
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Table 11.3 Directors’ attendance NAME OF BOARD MEMBER
REMCO
HR COMMITTEE
AUDIT COMMITTEE
BOARD MEETING
PORTFOLIO COMMITTEE ON FINANCE
CEO RECRUITMENT MEETINGS
MEETINGS WITH MEC
SPECIAL BOARD MEETINGS
AGM
Fikeni, S
03
02
01
09
01
03
04
04
01
Silinga, M
03
01
01
07
02
-
03
03
01
Buthelezi, S
02
-
03
08
-
-
03
03
0
Mhlaba, N
02
-
-
01
-
-
03
03
0
Mlonzi, N
02
-
01
05
-
-
01
01
01
-
-
02
08
02
-
02
02
01
Silinga, M
01
02
0
07
-
02
02
02
01
Sharpley, G
-
02
-
06
02
02
03
03
01
Mabandla, O
-
-
-
03
-
03
02
02
0
Mteto, N
-
01
-
02
-
02
02
02
02
Tyantsi, Y
-
-
-
02
-
-
02
02
02
Nqadolo, B
-
-
-
01
-
-
01
01
01
Cerff, J
Mazibuko, M Njeke, J Nicholls, R
-
-
-
02
-
-
02
02
02
03
-
04
-
-
-
-
-
-
-
-
04
-
-
-
-
-
-
Table 11.4 Executive’s remuneration SALARY
ALLOWANCES
EMPLOYER CONTRIBUTION TO FUNDS
TOTAL GUARANTEED PAY
PERFORMANCE BONUS
TOTAL REMUNERATION
Matshamba M
R636,965
R977,164
R106,547
R1,720,676
R610,043
R2,330,719
Daca M
R687,600
R311,712
R102,773
R1,102,085
R215,389
R1,317,474
Tsipa L
R489,348
R256,859
R106,083
R852,290
R193,597
R1,045,887
Ncokazi N
R453,024
R301,652
R82,368
R837,044
R201,220
R1,038,264
Bierman C
R484,020
R417,577
R62,923
R964,520
R210,313
R1,174,833
R2,750,957
R2,264,964
R460,694
R5,476,615
R1,430,562
R6,907,177
Company Secretary The Company Secretary’s details are as reflected herein below – Name: Mziwoxolo Mavuso Address: ECDC House, Ocean Terrace Park, Moore Street, Quigney
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12
REPORT OF THE AUDIT COMMITTEE
Report of the Audit Committee required by Treasury Regulations 27.1.7 and 27.1.10 (b) and (c) in terms of the Public Finance Management Act 1 of 1999, as amended.
12.1. OVERVIEW We are pleased to present our report for the financial year ended 31 March 2010.
12.1.1 AUDIT COMMITTEE MEMBERS AND ATTENDANCE
The Audit Committee consists of the members listed hereunder. As per its terms of reference, the committee is required to meet at least 5 times a year. During the year under review, four (4) meetings were held. NAME OF MEMBER
PERIOD OF MEMBERSHIP
NUMBER OF MEETINGS ATTENDED
J Njeke (Chairperson)
01 April 09 – 31 Mar 10
4
Prof S Buthelezi
01 April 09 – 31 Mar 10
3
R Nicholls
01 April 09 – 31 Mar 10
4
J Cerff**
30 July 09 – 31 Mar 10
2
N Mlonzi**
30 July 09 – 31 Mar 10
1
** members were appointed to the Audit Committee on 30 July 2009
12.1.2 AUDIT COMMITTEE RESPONSIBILITY
The Audit Committee is a committee of the Board and has discharged its responsibilities accordingly in terms of section 51 (1) a (ii) of the PFMA and 27.1.8 of the Treasury Regulations. The Audit Committee has formal terms of reference; has regulated its affairs in compliance with these terms of reference; and has discharged its responsibilities contained therein. 12.1.2.1 Effectiveness of Internal Control During the year various reports of the Internal Auditors as well as the Audit Report on the Annual Financial Statements and Management Letter of the Auditor-General indicated that the system of internal control has shortcomings. The Audit Committee has noted these and based on the outcome of such reviews and the information provided by Management, the Audit Committee is of the opinion that the internal controls of the Corporation operated effectively throughout the year under review. 12.1.2.2 Risk Management and Governance A process of enterprise wide risk management was implemented by the Corporation wherein risk assessments are conducted and updated on an annual basis by the Internal Audit function at both senior management and Board level. During the year the Corporation adopted and approved various policies and procedures to strengthen the control environment. 12.1.2.3 Monthly and Quarterly Performance Information The Audit Committee is satisfied with the content and quality of monthly and quarterly reports prepared and issued by the Corporation during the year under review.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Report of the Audit Committee
12.1.2.4 Internal Audit The Audit Committee reviewed the activities of the internal audit function and has concluded the following: • the function is effective and that there were no unjustified restrictions or limitations • the internal audit reports were reviewed at quarterly meetings, including its annual work programme, co ordination with the external auditors, the reports of significant investigations and the responses of management to issues raised therein; 12.1.2.5 External auditors The Auditor-General acted as the external auditors throughout the year. The Audit Committee reviewed the external auditors’ scope and work plan to ensure that key risk areas of the business were being addressed during the audit process.
12.2. EVALUATION OF ANNUAL FINANCIAL STATEMENTS The Audit Committee has: • reviewed and discussed with the Auditor-General and the Accounting Authority the audited annual financial statements to be included in the annual report; • reviewed the Auditor-General’s audit report, the management letter and management responses thereto; and • reviewed the significant adjustments resulting from the audit. The Audit Committee concurs and accepts the conclusions of the Auditor-General on the annual financial statements and is of the opinion that the audited financial statements be accepted and read together with the report of the Auditor-General and the Directors’ Report. The Audit Committee agrees that the adoption of the going concern premise is appropriate in preparing the annual financial statements.
J Njeke Chairperson of the Audit Committee
30 July 2010
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13 REPORT
DIRECTORS’
INTRODUCTION The directors, as the accounting authority of the ECDC, are pleased in presenting their report and the audited financial statements for the year ended 31 March 2010. The Corporation is established by the Eastern Cape Development Corporation Act, 1997 (Act No. 2 of 1997) (ECDC Act). It is listed in Schedule 3 D of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (the PFMA) as a Provincial Government Business Enterprise. Nature of business The Corporation has the mandate of, among others, planning, financing, co-ordinating, marketing, promoting and implementing the development of the Province and its people in the fields of industry, commerce, agriculture, transport and finance. The following Corporate Objectives and Priorities were implemented during the period under review: Corporate Objectives • To provide short and long term development finance to entrepreneurs. • To realise maximum return on investment assets • To serve as a catalyst for economic development through the provision of financial and nonfinancial support services and trade and investment promotion • To optimise our financial management and performance through applying sound business principles in all operations Priorities To facilitate and support development in the Eastern Cape through: • Supporting existing business • Creating opportunities for new business • Growing and sustaining existing markets and developing new markets • Improving access to enterprise finance • Ensuring that skills, infrastructure and policies support socio- economic development. For the purpose of achieving its development mandate, the Corporation focuses on the provision of finance and support expertise to all businesses types, including small, medium and micro enterprises (SMME); stimulation of domestic and foreign direct investment, and will continue facilitating high economic development impact projects. The Corporation has a clearly defined role of improving access to finance for business with an economic development impact and in improving entrepreneurial capacity for long term economic development and sustainability. The Corporation also renders economic development services in the areas of investment promotion, export promotion and support to municipalities and local authorities in the Eastern Cape Province.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Directors Report
OVERVIEW OF CURRENT PERFORMANCE Development loans advanced The total disbursement of development loans for the current year amounted to more than R226 million. The bulk of these development loans have been disbursed to SMMEs and geographically spread throughout the province of the Eastern Cape. Striking a healthy balance between obtaining a commercial return and at the same time effect sustainable socioeconomic development impact remains a challenge due to perceptions in the market that Development Finance Institutions are “soft” lenders. This perception and expectation in the market provides its own challenges in the area of debt collection. Investment properties The Corporation continued to provide the infrastructure as a valuable resource in the regeneration of the economy in the Eastern Cape. The Corporation is engaged in redevelopment of its residential complexes with the first one scheduled for completion by end of the 2010/11 financial year. The Corporation is continually introducing a culture of encouraging tenants to service their lessee obligations as against an adopted practice of defaulting. This process has helped in improving internal efficiencies. Post balance sheet events review The directors are not aware of any material matter or circumstance arising since the end of the financial year under review. Authorised and issued share capital The authorised share capital of the Corporation remained unchanged at R 1billion rand worth of Ordinary Shares. Of this the Corporation issued R347,397,850 worth of ordinary shares to the Provincial Government of the Eastern Cape (Department of Economic Development and Environmental Affairs). The issued share capital is made up of 173,698,925 million “A” shares of R1 each and 173,698,925 million “B” shares of R1 each. Financial Results The results of the Corporation and the group are disclosed in the annual financial statements. Policy Directives During the year under review, the Corporation received no new policy directives from the Member of the Executive Council responsible for the Department of Economic Development and Environmental Affairs. Dividends No dividends were declared or paid to shareholders during the year. Interest bearing borrowings There were no new borrowings incurred during the year. The Corporation continued to reduce its existing borrowings with the Development Bank of Southern Africa Limited. Subsidiaries The Corporation has interests in various subsidiaries and associates. Financial information in respect of interests of the Corporation in such subsidiaries and associates is set out in Supplementary Information from page 153 to 156. Corporate Governance matters A detailed account on the Corporate Governance Matters of the ECDC is reflected in the Corporate Governance section of this Annual Report.
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DIRECTOR’S RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 In terms of the PFMA and the ECDC Act the Board has the responsibility to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. The directors are further responsible to ensure that the annual financial statements fairly represent the state of affairs of the Corporation as at the end of the financial year, and the results of its operations and cash flows for the period then ended, in conformity with South African Statements of Generally Accepted Accounting Practice. The external auditors are engaged to express an independent opinion on the annual financial statements. The annual financial statements of the Corporation are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates. The directors place considerable importance on maintaining a strong control environment. To this end the directors set standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. These standards include proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. During the year under review such controls were monitored as far as reasonably possible throughout the Corporation and all employees are required to maintain high ethical standards in ensuring the Corporation’s business is conducted in a manner that is above reproach in all reasonable circumstances. The risk management focus in the Corporation is on identifying, assessing, managing and monitoring all known forms of risk across the Corporation. While it is acknowledged that operating risk cannot be fully eliminated, the Corporation however endeavours to minimise it by ensuring that appropriate infrastructures, controls, systems and ethical behaviour are applied within predetermined procedures and constraints. The Directors are of the opinion that the system of internal control provides reasonable assurance that the financial records may be relied upon for the preparation of annual financial statements. Any system of internal control can, however, provide only reasonable, and not absolute, assurance against material misstatement or loss.
GOING CONCERN STATEMENT Having reviewed the Corporation’s cash flow forecast for the year to 31 March 2011 and, in the light of this review and current financial position, the Directors are satisfied that the Corporation has or has access to, adequate resources to continue its operational existence for the future.
DIRECTORS AND SECRETARY The details of the Corporation’s directors and Secretary are reflected in the Corporate Governance section of the Annual Report.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Directors Report
The details of the Corporation’s directors and Secretary are reflected in the Corporate Governance section of this Annual Report. The directors and audit committee fees were paid as follows: FEES BOARD MEETING
FEES AUDIT COMMITTEE
Adv. O. Mabandla
R60,000
-
R60,000
Mr S. Sibiya
R167,500
-
R167,500
Prof. S. Buthelezi
R87,500
R15,000
R102,500
Dr. S. Fikeni
R192,500
-
R192,500
Mr G. Sharpley
R147,500
-
R147,500
Mr P. Silinga
R92,500
-
R92,500
Mr J. Cerff
R82,500
R10,000
R92,500
Ms N. Mlonzi
R57,500
-
R57,500
Ms Y. Tyantsi
R22,500
-
R22,500
Mr R. Nicholls
-
R30,000
R30,000
Mr J. Njeke
-
R62,500
R62,500
Ms N. Mteto
R37,500
-
R37,500
Prof. M. Mazibuko
R22,500
-
R22,500
Ms N. Mhlaba
R32,500
-
R32,500
R1,002,500
R117,500
R1,120,000
........................................................... Advocate Oyama Mabandla Chairperson 31 July 2010
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GRAND TOTAL
....................................................... Sitembele Mase Chief Executive Officer 31 July 2010
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BOARD OF DIRECTORS
Advocate O Mabandla - Chairman of the Board of Directors
With a Juris doctorate from the Columbia University School of Law, Mabandla is a seasoned scholar and corporate figure who brings invaluable experience to the corporation in areas such as corporate law, securities and capital markets, mergers and acquisitions, and international trade and investment. He is a member of the advisory board for financial services company JP Morgan and chairs the Langa Group, a holding company with investments in petroleum and pharmaceuticals. Mabandla is the former group chairman of the Vodacom Group and Consol Glass, Africa’s biggest glass consol company.
Sitembele Mase - Incoming Chief Executive Officer
A graduate of Unisa’s Master of Business Leadership (MBL), Sitembele Mase is experienced in investments, change management and services marketing. Mase, was the former CEO of the micro finance institution South African Micro Finance Apex Fund (SAMAF). He spent the earlier part of his career working in the province where he gained valuable experience and knowledge of the province’s opportunities and challenges. His knowledge is intimate having worked for ECDC’s predecessor, the Transkei Development Corporation (TDC), initially as a business analyst and later as senior manager responsible for Queenstown, Cradock and Aliwal North
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Directors Report Board of Directors
Bulelwa Nqadolo
Bulelwa is the chief financial officer for the Provincial Treasury where she has worked since 2001. She received her Bcompt degree in 1994 from UNISA and is studying towards her Masters in Public Financial Management through the University of London
John Cerff
Currently the chief financial officer at Aspire (Amathole Economic Development Agency), John is a qualified chartered accountant who has served as a non-executive director on more than 14 boards including ECDC and the East London Industrial Development Zone. John was previously a partner at Fisher Hoffman Sithole CA (SA) and also served ECDC as its corporate finance executive manager and Skyros Property Investment as its finance director.
Gaster Sharpley
Having penned numerous books on small business development, Gaster is an expert in the areas of local economic development, social facilitation and development, business law, local government legislation and cooperative governance. He serves on the Mthatha City Council as executive chairman.
Mninawe Pepi Silinga
He serves in the capacity of NonExecutive Chairperson of Agreement SA, Chairperson of the Council of University of Fort Hare and the AsgiSA Eastern Cape Board. He has worked in the NGO sector, private civil engineering consulting fraternity and the public sector. Silinga is currently the Chief Executive Officer of Coega Development Corporation.
Noxolo Mteto
Noxolo is a graduate of the Universities of Transkei and South Africa who was admitted as an attorney in 2000. Two years later she was admitted as a conveyancer followed by admission as a notary public. Currently she is the director of Ngeno and Mteto Incorporated, a firm she founded in 2002.
Yolisa ‘Nosisi’ Tyantsi
Yolisa is a public speaker and charted public relations practitioner with 11 years radio journalism experience. She has extensive practice in private and public sector corporate communication, brand and reputation management, business strategy development, training and change management. She is currently the executive director for Sinsa Consulting and Lathithaa Consulting Services and has served as non-executive director for the Johannesburg Civic Theatre.
Dr Somadoda Fikeni
Dr Fikeni was the founder of the former University of the Transkei’s*, Reconstruction and Development Programme unit which is now known as the Rural Research and Development Institute. He serves as Chairperson of the Walter Sisulu University council. * The University of the Transkei is now known as the Walter Sisulu University.
Prof Mkhalelwa Mazibuko
Prof Mazibuko is the chief executive officer of Ruliv, a non-governmental organisation that promotes sustainable urban and rural livelihoods. Apart from being a political activist, academic, civil servant and a social community development practitioner, he currently serves as the chairperson of the boards of Novafrika, a centre for innovation and development, and the Eastern Cape Appeal Development Tribunal.
Absent at time of photoshoot
Prof Sipho Buthelezi
His strong background in research, coupled with his expertise in the areas of public enterprise, globalisation, land and agrarian activities in Africa have landed him on the board of the History Advisory Panel of Freedom Park in Gauteng. Prof Buthelezi is currently the director of the School of Public Management and Development at the University of Fort Hare.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Nothemba Mlonzi
Nothemba has served on the boards of South Africa Civil Aviation Authority, the South African National Energy Research Institute and as the chairperson of Amatola Water Board. She is currently Managing Director of Econ Oil and Energy.
100
13
FINANCIAL REPORTS &
STATEMENTS
ANNUAL FINANCIAL
FOR THE YEAR ENDED 31 MARCH 2010
103
STATEMENT OF
FINANCIAL POSTION GROUP FIGURES IN RAND THOUSAND
COMPANY
NOTE(S)
2010
2009
2008
2010
2009
2008
2 3 38 4 5 6 7 8 9
949,231 613,589 36 49,474 107,849 65 137,605
927,336 540,219 36 45,780 151,847 1,120 111,084
712,839 566,728 6,094 33,765 144,173 1,125 56,190
543,581 22,837 26,120 38,779 23,656 106,659 135,673
511,960 19,054 26,119 36,985 26,412 151,153 111,069
481,389 19,272 26,071 3,000 55,297 143,450 56,177
1,857,849
1,777,422
1,520,914
897,305
882,752
784,656
1,887 43,686 50,955 625,708
1,913 62,989 103,649 452,084
246 34,898 52,079 435,364
26,984 50,955 281,508
32,141 103,649 254,500
14,323 52,079 304,110
Assets Non-Current Assets Investment property Property, plant and equipment Intangible assets Investments in subsidiaries Investments in associates Loans to group companies Investments Deferred tax Loans advanced
Current Assets Current tax receivable Trade and other receivables Loans advanced Cash and cash equivalents
10 9 11
Total Assets
722,236
620,635
522,587
359,447
390,290
370,512
2,580,085
2,398,057
2,043,501
1,256,752
1,273,042
1,155,168
347,398 550,562 (79,005)
298,683 740,500 (15,553)
270,870 700,039 (36,799)
347,398 716,023 (114,994)
298,683 722,415 (52,723)
270,870 680,450 (81,354)
818,955 4,202
1,023,630 3,454
934,110 6,392
948,427 -
968,375 -
869,966
823,157
1,027,084
940,502
948,427
968,375
869,966
14,490 20,452 559,899 -
16,139 16,004 526,931 -
17,601 10,756 675,689 1,925
30,898 14,429 20,452 -
27,771 16,080 16,004 -
56,623 17,601 10,756 -
594,841
559,074
705,971
65,779
59,855
84,980
1,483 108 111,004 858,745 190,747
1,495 100,699 520,385 189,320
1,483 4,260 58,855 188,643 143,787
1,483 26,365 30,128 184,570
1,483 29,678 30,508 183,143
1,483 23,634 37,495 137,610 200,222
Equity and Liabilities Equity Equity Attributable to Equity Holders of Parent Share capital Reserves Accumulated loss
12 13
Non-controlling interest
Liabilities Non-Current Liabilities Loans from group companies Interest bearing borrowings Retirement benefit obligation Deferred income Deferred tax
6 14 15 16 8
Current Liabilities Interest bearing borrowings Current tax payable Trade and other payables Deferred income Project grants
14 17 16 18
1,162,087
811,899
397,028
242,546
244,812
Total Liabilities
1,756,928
1,370,973
1,102,999
308,325
304,667
285,202
Total Equity and Liabilities
2,580,085
2,398,057
2,043,501
1,256,752
1,273,042
1,155,168
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Consolidated Annual Financial Statements for the year ended 31 March 2010
STATEMENT OF FINANCIAL PERFORMANCE GROUP FIGURES IN RAND THOUSAND
COMPANY
NOTE(S)
2010
2009
2008
2010
2009
2008
Revenue Other income Government grants Operating expenses
19
118,453 14,654 166,772 (385,867)
94,572 20,329 147,127 (301,480)
92,973 13,781 110,270 (250,312)
81,238 15,746 78,399 (259,516)
70,432 18,698 68,552 (201,447)
72,211 11,225 54,094 (179,208)
Operating loss
20
(85,988)
(39,452)
(33,288)
(84,133)
(43,765)
(41,678)
Investment revenue Fair value adjustments Income from equity accounted investments Gain on non-current assets held for sale or disposal groups Finance costs
22 23
22,987 496 1,898 (1,628)
46,490 5,360 2,701 1,203 (1,579)
32,272 13,874 1,469 (2,672)
23,470 (1,608)
74,407 (2,011)
32,573 2,501 (2,850)
(62,235)
14,723
11,655
(62,271)
28,631
(9,454)
(1,163) (63,398)
3,633 18,356
(1,649) 10,006
(62,271)
28,631
(9,454)
(63,452) 54
17,168 1,188
9,982 24
(62,271) -
28,631 -
(9,454) -
(63,398)
18,356
10,006
(62,271)
28,631
(9,454)
24
(Loss) profit before taxation Taxation (Loss) profit for the year
25
(Loss) profit attributable to : Owners of the parent Non-controlling interest
STATEMENT OF COMPREHENSIVE INCOME GROUP FIGURES IN RAND THOUSAND
NOTE(S)
(Loss) profit for the year
COMPANY
2010
2009
2008
2010
2009
2008
(63,398)
18,356
10,006
(62,271)
28,631
(9,454)
(50,000) (139,938)
40,461
74,173 47,369
(50,000) 43,608
41,965
74,180 47,369
(189,938)
40,461
121,542
(6,392)
41,965
121,549
(253,336)
58,817
131,548
(68,663)
70,596
112,095
(253,390) 54
57,629 1,188
131,524 24
(68,663) -
70,596 -
112,095 -
(253,336)
58,817
131,548
(68,663)
70,596
112,095
Other comprehensive income: Available-for-sale financial assets adjustments Gains and losses on property revaluation Other comprehensive income for the year net of taxation
37
Total comprehensive (loss) income Total comprehensive (loss) income attributable to: Owners of the parent Non-controlling interest
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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105
STATEMENT OF CHANGES IN EQUITY SHARE CAPITAL
REVALUATION RESERVE
FAIR VALUE ADJUSTMENT ASSETS-AVAILABLE-FOR-SALE RESERVE
OTHER NDR
Balance at 01 April 2008
270,870
222,005
74,173
403,861
Fair value gains transferred Issue of shares Prior period correction Change in degree of control Minority dividends
27,813 -
40,461 -
-
-
Group
Total changes
27,813
40,461
-
-
Balance at 01 April 2009
298,683
262,466
74,173
403,861
48,715 -
(139,938) -
(50,000) -
-
Total changes
48,715
(139,938)
(50,000)
-
Balance at 31 March 2010
347,398
122,528
24,173
403,861
12
13&37
37
SHARE CAPITAL
REVALUATION RESERVE
FAIR VALUE ADJUSTMENT ASSETS-AVAILABLE-FOR-SALE RESERVE
OTHER NDR
270,870
222,005
74,180
384,265
Fair value gains transferred Issue of shares Total changes
– 27,813 27,813
41,965 41,965
-
-
Balance at 01 April 2009
298,683
263,970
74,180
384,265
Fair value gains transferred Issue of shares Total changes
48,715 48,715
43,608 43,608
(50,000) (50,000)
-
Balance at 31 March 2010
347,398
307,578
24,180
384,265
12
13&37
37
Changes in equity Fair value gains Issue of shares Change in ownership interest
Note(s)
Company Balance at 01 April 2008 Changes in equity
Changes in equity
Note(s)
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Consolidated Annual Financial Statements for the year ended 31 March 2010
TOTAL RESERVES
ACCUMMULATED LOSS
TOTAL ATTRIBUTABLE TO EQUITY HOLDERS OF THE GROUP/ COMPANY
NON-CONTROLLING INTEREST
TOTAL EQUITY
700,039
(36,799)
934,110
6,392
940,502
40,461 -
17,168 3,295 783
57,629 27,813 3,295 783
1,188 (3,295) (48) (783)
58,817 27,813 (48) -
40,461
21,246
89,520
(2,938)
86,582
740,500
(15,553)
1,023,630
3,454
1,027,084
(189,938) -
(63,452) -
(253,390) -
54 694
(253,336) 694
(189,938)
(63,452)
(204,675)
748
(203,927)
550,562
(79,005)
818,955
4,202
823,157
37
TOTAL RESERVES
ACCUMMULATED LOSS
TOTAL ATTRIBUTABLE TO EQUITY HOLDERS OF THE GROUP/ COMPANY
MINORITY INTEREST
TOTAL EQUITY
680,450
(81,354)
869,966
-
869,966
41,965 41,965
28,631 28,631
70,596 27,813 98,409
-
70,596 27,813 98,409
722,415
(52,723)
968,375
-
968,375
(6,392) (6,392)
(62,271) (62,271)
(68,663) 48,715 (19,948)
-
(68,663) 48,715 (19,948)
716,023
(114,994)
948,427
-
948,427
37
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
106
107
STATEMENT OF
CASH FLOWS GROUP FIGURES IN RAND THOUSAND
COMPANY
NOTE(S)
2010
2009
2008
2010
2009
2008
26
378,502 17,410 125 (1,628) 26
187,038 39,015 137 (1,579) (1,697)
211,183 25,879 100 (2,672) (299)
(34,582) 17,918 100 (1,608) -
(41,257) 38,383 (2,011) -
(32,349) 28,919 44 (2,850) -
394,435
222,914
234,191
(18,172)
(4,885)
(6,236)
(185,499) 5 (77,049) 14,422 (6) (5,295) 1 (235,510) 219,639
(166,486) 1,389 12,282 (10,080) 630 (285,609) 169,864
(160,553) 7 17,137 (5,723) (4,490) 600 (143,461) 135,836
(1,354) 10,421 5,434 (4,951) 1 (232,501) 219,639
(1,527) 12,032 (1,785) (10,127) 600 (285,607) 169,864
(1,742) 16,790 3,928 (4,493) 600 (143,460) 135,837
Cash flows from operating activities Cash used/ generated in operations Interest income Dividends received Finance costs Tax received (paid)
27
Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Sale of property, plant and equipment Purchase of investment property Sale of investment property Purchase of other intangible assets Loans to group companies repaid Loans advanced to group companies Purchase of financial assets Sale of financial assets Loans disbursed Loans collected
3 3 2 2 38
Net cash from investing activities
(269,292)
(278,010)
(160,646)
(3,311)
(116,550)
7,460
Cash flows from financing activities Proceeds on share issue Repayment of interest bearing borrowings Movement in project grants
12
48,715 (1,661) 1,427
27,813 (1,530) 45,533
31,497 (1,421) (15,310)
48,715 (1,651) 1,427
Net cash from financing activities
48,481
71,816
14,766
Total cash movement for the year
173,624
16,720
88,311
Cash at the beginning of the year
452,084
435,364
Total cash at end of the year
625,708
452,084
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
27,813 (1,521) 45,533
31,497 (1,421) (15,310)
48,491
71,825
14,766
27,008
(49,610)
15,990
347,053
254,500
304,110
288,120
435,364
281,508
254,500
304,110
Accounting Policies
ACCOUNTING
POLICIES
1. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS The consolidated annual financial statements of the Eastern Cape Development Corporation have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Public Finance Management Act (Act No. 1 of 1999, as amended) and the Eastern Cape Development Corporation Act. The consolidated annual financial statements have been prepared on the historical cost basis as modified by the revaluations of certain land and buildings, investment properties, available for sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of annual financial statements in conformity with South African Statements of Generally Accepted Accounting Practice requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 1.15. The annual financial statements have been prepared in the Corporation's functional currency, the South African Rand. These accounting policies are consistent with the previous financial year. Underlying assumptions The financial statements are prepared on the going concern basis, which assumes that the Corporation will continue in operation for the foreseeable future. The financial statements are prepared using accrual accounting whereby the effects of transactions and other events are recognised when they occur rather than when the cash is received or paid. Assets and liabilities and income and expenses are not offset unless specifically permitted by an accounting standard. Financial assets and financial liabilities are offset and the net amount reported only when a current legally enforceable right to set off the amounts exists and the intention is either to settle on a net basis or to realise the asset and settle the liability simultaneously. Changes in accounting policies are accounted for in accordance with the transitional provisions in the applicable standard. If no such guidance is given, they are applied retrospectively unless it is impracticable to do so, in which case the change is applied prospectively. Changes in accounting estimates are recognised in profit or loss in the period they occur. Prior period errors are retrospectively restated unless it is impracticable to do so, in which case they are applied prospectively. Recognition of Assets and Liabilities An asset, being a resource controlled by the entity as a result of a past event from which future economic benefits are expected to flow, is recognised when it is probable that the future economic benefits associated with it will flow to the Group and its cost or fair value can be measured reliably. A liability, being a present obligation of the Group arising from a past event the settlement of which is expected to result in an outflow of resources embodying economic resources from the Group, is recognised when it is probable that future economic benefits associated with it will flow from the Group and its cost or fair value can be measured reliably. Derecognition of assets and liabilities Financial assets or parts thereof are derecognised, i.e. removed from the balance sheet, when the contractual rights to receive the cash flows have been transferred or have expired or if substantially
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all the risks and rewards of ownership have passed. Where substantially all the risks and rewards of ownership have not been transferred or retained, the financial assets are derecognised if they are no longer controlled by the Group. However, if control is retained, financial assets are recognised only to the extent of the Group's continuing involvement in those assets. All other assets are derecognised on disposal or when no future economic benefits are expected to flow to the Group from their use or disposal. Financial liabilities are derecognised when the relevant obligation has either been discharged or cancelled or has expired. Post-balance sheet events Recognised amounts in the financial statements are adjusted to reflect events arising after the balance sheet date that provide evidence of conditions that existed at the balance sheet date. Events after the balance sheet date that are indicative of conditions that arose after the balance sheet date are dealt with by way of a note.
1.1 INVESTMENT PROPERTY Investment property is held for long-term rental yields or for capital appreciation or both and comprises properties not occupied by the Group. Hotel buildings held by the Group are classified as investment property as the group is not involved in the hotel operations. Investment properties are initially measured at cost, including transaction costs, and are subsequently stated at fair value determined by an independent sworn appraiser, every third year. Management reviews these valuations for reseanability and adjustments are made where it is deemed to be necessary. Fair value Subsequent to initial measurement investment property is measured at fair value. A gain or loss arising from a change in fair value is included in net profit or loss for the period in which it arises. Fair value gains and losses are transferred from accumulated surplus to reserves.
1.2 PROPERTY, PLANT AND EQUIPMENT The cost of an item of property, plant and equipment is recognised as an asset when: • it is probable that future economic benefits associated with the item will flow to the company; and • the cost of the item can be measured reliably. Property, plant and equipment is initially measured at cost. Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised. Property, plant and equipment is carried at revalued amount, being the fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount. The revaluation surplus in equity related to a specific item of property, plant and equipment is transferred directly to retained earnings when the asset is derecognised. Property, plant and equipment are depreciated over their expected useful lives to their estimated residual value. The useful lives of items of property, plant and equipment have been assessed as follows: Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Accounting Policies
ITEM
AVERAGE USEFUL LIFE
Land
Indefinite
Buildings and infrastructure
25 - 50 years
Plant and machinery
4 years
Furniture and fixtures
6 - 10 years
Motor vehicles
4 - 5 years
Office equipment
4 - 5 years
IT equipment
3 years
Computer software
3 years
Other property, plant and equipment
5 years
The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting period. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate. The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset. The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.
1.3 INVESTMENTS IN SUBSIDIARIES Subsidiaries are entities, including unincorporated partnerships and companies without a share capital, that are controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Consolidated annual financial statements The consolidated annual financial statements incorporate the assets, liabilities, income, expenses and cash flows of the corporation and its subsidiaries. The results of the subsidiaries acquired or disposed during the year are included from the date of acquisition or up to the date of disposal. Inter-company transactions and balances are eliminated on consolidation. Corporation annual financial statements In the Corporation’s separate annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment. The cost of an investment in a subsidiary is the aggregate of: • the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Corporation; plus • any costs directly attributable to the purchase of the subsidiary. An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably.
1.4 INVESTMENTS IN ASSOCIATES Associates are entities, including unincorporated partnerships and companies without a share capital, over which the Group exercises significant influence. Consolidated annual financial statements An investment in an associate is accounted for using the equity method, except when the asset is classified as held-for-sale in accordance with IFRS 5: Non-current assets held for sale and discontinued operations. Under the equity method, the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the group’s share of the profits or
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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losses of the investee after acquisition date. The use of the equity method is discontinued from the date the group ceases to have significant influence over an associate. Any impairment losses are deducted from the carrying amount of the investment in associate. Distributions received from the associate reduce the carrying amount of the investment. Profits and losses resulting from transactions with associates are recognised only to the extent of unrelated investors’ interests in the associate. The excess of cost of acquisition over the group’s interest in the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill, and is included in the carrying amount of the associate. The excess of the group’s share of the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities over the cost is excluded from the carrying amount of the investment and is instead included as income in the period in which the investment is acquired. Corporation annual financial statements Associate companies are those companies in which the Corporation holds a long-term equity interest and over which it exercises a significant influence over its financial and operating policies, other than investments in companies acquired to protect advances or as a conduit for advances. The investments in associate companies are initially recorded at cost. Subsequent to initial recognition, the investment in the associate is carried at fair value as an available for sale financial asset in accordance with the accounting policy on financial assets. If fair value cannot be measured reliably, the investment is carried at cost. An appropriate provision is made where there is considered to be a permanent diminution in the value of the investment.
1.5 IMPAIRMENT OF ASSETS An impairment loss on an asset or cash-generating unit is the amount by which the carrying amount, i.e. the amount recognised on the balance sheet after deducting any accumulated depreciation and accumulated impairment losses, exceeds its recoverable amount. The recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. Value in use is the present value of future cash flows expected to be derived from an asset or cash-generating unit. At each reporting date the carrying amount of the tangible and intangible assets are assessed to determine whether there is any indication that those assets may have suffered an impairment loss. If any such indication exists, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. Value in use is estimated taking into account future cash flows, forecast market conditions and the expected useful lives of the assets. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in profit or loss. The loss is first allocated to reduce the carrying amount of goodwill and then to the other assets of the cash-generating unit. Subsequent to the recognition of an impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life. If an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, limited to the carrying amount that would have been recognised had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. Impairments to goodwill are not reversed in subsequent accounting periods.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Accounting Policies
1.6 FINANCIAL INSTRUMENTS Classification The group classifies financial assets and financial liabilities into the following categories: • Financial assets at fair value through profit or loss - designated • Held-to-maturity investment • Loans and receivables • Available for sale financial assets Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial recognition. For financial instruments which are not at fair value through profit or loss, classification is re-assessed on an annual basis. Initial recognition and measurement Financial instruments are recognised initially when the group becomes a party to the contractual provisions of the instruments. The group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available for sale financial assets. For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument. Transaction costs on financial instruments at fair value through profit or loss are recognised in profit or loss. Subsequent measurement Financial instruments at fair value through profit or loss are subsequently measured at fair value, with gains and losses arising from changes in fair value being included in profit or loss for the period. Net gains or losses on the financial instruments at fair value through profit or loss dividends and interest. Dividend income is recognised in profit or loss as part of other income when the group's right to receive payment is established. Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Held-to-maturity investments are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Available for sale financial assets are subsequently measured at fair value. This excludes equity investments for which a fair value is not determinable, which are measured at cost less accumulated impairment losses. Gains and losses arising from changes in fair value are recognised directly in equity until the asset is disposed of or determined to be impaired. Interest on available for sale financial assets calculated using the effective interest method is recognised in profit or loss as part of other income. Dividends received on available for sale equity instruments are recognised in profit or loss as part of other income when the group's right to receive payment is established. Impairment of financial assets At each statement of financial position date the group assesses all financial assets, other than those at fair value through profit or loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired.
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113
For amounts due to the group, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default of payments are all considered indicators of impairment. Impairment losses are recognised in profit or loss, except for available-for-sale equity investments . Impairment losses are reversed when an increase in the financial asset's recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been recognised. Reversals of impairment losses are recognised in profit or loss except for equity investments classified as available for sale. Impairment losses are also not subsequently reversed for available-for-sale equity investments which are held at cost because fair value was not determinable.
1.7 SHARE CAPITAL AND EQUITY Ordinary share capital, preference share capital or any financial instrument issued by the group is classified as equity when: • Payment of cash, in the form of a dividend or redemption, is at the discretion of the group; • The instrument does not provide for the exchange of financial instruments under conditions that are potentially unfavourable to the group; • Settlement in the group’s own equity instruments is for a fixed number of equity instruments at a fixed price; and • The instrument represents a residual interest in the assets of the group after deducting all of its liabilities. The group’s ordinary share capital is classified as equity. Consideration paid or received for equity instruments is recognized directly in equity. Equity instruments are initially measured at the proceeds received less incremental directly attributable issue costs. No gain is recognised in profit or loss on the purchase, sale, issue or cancellation of the group’s equity instruments. When the group issues a compound instrument, i.e. an instrument that contains both a liability and equity component, the equity component is initially measured at the residual amount after deducting from the fair value of the compound instrument the amount separately determined for the liability component. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. Distributions to holders of equity instruments are recognised as dividends within equity in the period in which they are payable. Dividends for the year that are declared after the balance sheet date are disclosed in the notes.
1.8 GOVERNMENT GRANTS AND DEFERRED INCOME Government includes government agencies and similar bodies whether local, national or international. Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. A government grant is assistance by government in the form of transfers of resources. When the conditions attaching to government grants have been met and the grants have been received, they are recognised in profit or loss on a systematic basis over the periods necessary to match them with the related costs. When they are for expenses or losses already incurred, they are recognised in profit or loss immediately. The unrecognised portion of project spend at the balance
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Accounting Policies
sheet date is presented as deferred income. No value is recognised for other government asistance. Government grants are recognised when there is reasonable assurance that: • the Group will comply with the conditions attaching to them; and • the grants will be received. Government grants are recorded as deferred income when they become receivable and are then recognised as income on a systematic basis over the periods necessary to match the grants with the related costs, which they are intended to compensate. Government grants related to assets, including non-monetary grants at fair value, are presented in the balance sheet as deferred income.
1.9 PROJECT GRANTS The grants received and associated expenditure are not included in the income statement of the Group but transferred directly to individual project fund accounts, which are reflected as a current liability. Interest received on the funds is accounted for in the fund account unless the Group is entitled thereto according to the agreement. The funds are applied to either specific expenditure as directed by the funder or in terms of the agreement with the funder.
1.10 PROVISIONS Provisions are recognised when: • the Group has a present obligation as a result of a past event; • it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and • a reliable estimate can be made of the obligation. The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recognised when, and only when, it is virtually certain that reimbursement will be received if the Group settles the obligation. The reimbursement is treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision. Provisions are not recognised for future operating losses. When the Group has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision.
1.11 REVENUE Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods, services and operating lease income provided in the normal course of business, net of value added tax. Interest is recognised, in profit or loss, using the effective interest rate method. Operating lease income is recognised as income on a straight-line basis over the lease term or another systematic basis, if more representative of the time pattern of the user’s benefit. Dividends are recognised, in profit or loss, when the Group's right to receive payment has been established.
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115
1.12 EMPLOYEE BENEFITS Short-term employee benefits Employee benefits cost include all forms of consideration given in exchange for services rendered by employees. The cost of providing employee benefits is recognised in profit or loss in the period they are earned by employees. The cost of short-term employee benefits is recognised in the period in which the service is rendered and is not discounted. The expected cost of short-term accumulating compensated absences is recognised as an expense as the employees render service that increases their entitlement or, in the case of nonaccumulating absences, when the absences occur. The expected cost of performance bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance. Post-employment benefit obligations The cost of providing defined benefits is determined using the projected unit credit method. Valuations are conducted annually. The amount recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses.
1.13 LEASES A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Operating leases – lessee Rentals payable under operating leases are recognised in profit or loss on a straight-line basis over the term of the relevant lease, or another basis if more representative of the time pattern of the Group’s benefit. Any contingent rents are expensed in the period they are incurred.
1.14 TAX Current tax The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Deferred tax A deferred tax asset is the amount of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits. A deferred tax asset is only recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised, unless specifically exempt. It is measured at the tax rates that have been enacted or substantially enacted at the balance sheet date and is not discounted. A deferred tax liability is recognised for taxable temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at the balance sheet date and is not discounted. A deferred tax liability is the amount of income taxes payable in future periods in respect of taxable temporary differences. Temporary differences are differences between the carrying amount of an asset or liability and its tax base. Deferred tax arising on investments in subsidiaries, associates and joint ventures is recognised except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Accounting Policies
A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.
1.15 KEY ASSUMPTIONS CONCERNING THE FUTURE AND KEY SOURCES OF ESTIMATION The financial statements are prepared in accordance with and comply with SA GAAP and its interpretations adopted by the Accounting Practices Board. In the preparation of the financial statements the corporation has assumed certain key sources of estimation in recording various assets and liabilities, as set out below. Credit impairment of loans and advances The Group adopted an incurred-loss approach to impairment in accordance with accounting policy 1.6. Impairment losses are incurred only if there is objective evidence of impairment as a result of one or more past events that has occurred since initial recognition. This necessitates the establishment of ‘impairment triggers’ on the occurrence of which an impairment loss may be recognised. Credit impairment is based on discounted estimated future cashflows on an asset or group of assets, where such objective evidence of impairment exists. The discount rates used to calculate the recoverable amount exclude consideration of any anticipated future credit losses. The group has created a portfolio provision for incurred but not reported (IBNR) losses. The purpose of the IBNR provision is to allow for latent losses on a portfolio of loans and advances that have not yet been individually evidenced. Generally, a period of time will elapse between the occurrence of an impairment event and objective evidence of the impairment becoming evident, which is known as the ‘emergence period’. The IBNR provision is based on the probability that loans that are ostensibly performing at the calculation date are impaired, and objective evidence of that impairment becomes evident during the emergence period. The implementation of these principles is at a corporation level and will be specific to the nature of their individual loan portfolios and the loan loss data available to the lending division. Provisions, contingent liabilities and contingent assets The group, in the ordinary course of business, enters into transactions that expose the group to tax, legal and business risks. Refer to notes 29 and 28 for further information on provisions, contingent liabilities and contingent assets. Fair value of Investment Properties For valuation methodologies utilised to fair value investment properties, refer to note 2. Unlisted investment valuations The valuation of unlisted investments is based on the discounted free cash flows of the investments taking into account the projected future activities of the entity. These values are established either by independent valuers or management and are reviewed by the Development Investment Committee.
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117
1.16 BORROWING COSTS Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows: • Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less any temporary investment of those borrowings. • Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred. The capitalisation of borrowing costs commences when: • expenditures for the asset have occurred; • borrowing costs have been incurred, and • activities that are necessary to prepare the asset for its intended use or sale are in progress Capitalisation is suspended during extended periods in which active development is interrupted. Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. All other borrowing costs are recognised as an expense in the period in which they are incurred.
1.17 INTANGIBLE ASSETS Computer software Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bring to use the specific software. The cost of minor software and licences are recognised in the Statement of Financial Performance as an expense when incurred. Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in the Statement of Financial Performance as an expense when incurred. Amortisation Amortisation is charged to the Statement of Financial Performance on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for sale. The estimated useful lives are as follows: • Computer software
18 months
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Notes to the Consolidated Annual Financial Statements
NOTES TO THE CONSOLIDATED
ANNUAL FINANCIAL STATEMENTS
2. INVESTMENT PROPERTY Group
Investment property
2010
2009
COST/VALUATION
ACCUMULATED DEPRECIATION
CARRYING VALUE
COST/VALUATION
ACCUMULATED DEPRECIATION
CARRYING VALUE
949,231
-
949,231
927,336
-
927,336
COST/VALUATION
ACCUMULATED DEPRECIATION
CARRYING VALUE
712,839
-
712,839
Group
2008
Investment property
Company
Investment property
2010
2009
COST/VALUATION
ACCUMULATED DEPRECIATION
CARRYING VALUE
COST/VALUATION
ACCUMULATED DEPRECIATION
CARRYING VALUE
543,581
-
543,581
511,960
-
511,960
COST/VALUATION
ACCUMULATED DEPRECIATION
CARRYING VALUE
481,389
-
481,389
Company
2008
Investment property
Reconciliation of investment property - Group - 2010
Investment property
OPENING BALANCE
ADDITIONS
DISPOSALS
TRANSFERS AND OTHER MOVEMENETS
FAIR VALUE ADJUSTMENTS
TOTAL
927,336
77,049
(16,082)
104,874
(143,946)
949,231
Reconciliation of investment property - Group - 2009
Investment property
OPENING BALANCE
ADDITIONS RESULTING FROM CAPITALISED SUBSEQUENT EXPENDITURE
DISPOSALS
TRANSFERS
OTHER CHANGES AND MOVEMENTS
FAIR VALUE ADJUSTMENTS
TOTAL
712,839
593
(13,137)
178,877
4,394
43,870
927,336
Reconciliation of investment property - Group - 2008
Investment property
OPENING BALANCE
DISPOSALS‑
OTHER CHANGES AND MOVEMENTS
FAIR VALUE ADJUSTMENTS
TOTAL
671,689
(16,297)
16
57,431
712,839
OPENING BALANCE
DISPOSALS
OTHER CHANGES AND MOVEMENTS
FAIR VALUE ADJUSTMENTS
TOTAL
511,960
(12,081)
4,102
39,600
543,581
Reconciliation of investment property - Company 2010
Investment property
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
118
119
GROUP FIGURES IN RAND THOUSAND
2010
COMPANY
2009
2008
2010
2009
2008
2. INVESTMENT PROPERTY (CONTINUED) Reconciliation of investment property - Company - 2009
Investment property
OPENING BALANCE
ADDITIONS RESULTING FROM CAPITALISED SUBSEQUENT EXPENDITURE
DISPOSALS
OTHER CHANGES AND MOVEMENTS
FAIR VALUE ADJUSTMENTS
TOTAL
481,389
593
(12,897)
910
41,965
511,960
OPENING BALANCE
DISPOSALS
OTHER CHANGES AND MOVEMENTS
FAIR VALUE ADJUSTMENTS
TOTAL
449,962
(15,957)
16
47,368
481,389
Reconciliation of investment property - Company - 2008
Investment property
Reconciliation of fair value gain to income statement Fair value gain per balance sheet
(143,946)
43,870
57,431
39,600
41,965
47,368
-
2,901
3,812
-
-
-
(143,946)
46,771
61,243
39,600
41,965
47,368
Investment property
927,336
712,839
671,689
511,960
481,389
449,962
Disposals
(16,082)
(13,137)
(16,297)
(12,081)
(12,897)
(15,957)
Additions & transfers
181,923
179,370
-
-
-
-
Fair value gains/(losses)
(143,946)
43,870
57,431
39,600
41,965
47,368
-
4,394
16
4,102
1,503
16
949,231
927,336
712,839
543,581
511,960
481,389
Compensation received for fair value loss on investment property Fair value gain recognised in profit or loss (note 23)
Reconciliation of movement
Other movements
These properties are situated throughout the Eastern Cape, with the majority of properties concentrated in the areas in and surrounding Mthatha, Butterworth, King William’s Town, East London and Queenstown. The portfolio mainly consists of industrial, residential and commercial properties. Corporation - 2010
PERCENTAGE
VALUE
NUMBER
Residential
44
240,920
520
Commercial
21
116,012
252
Type of properties
Vacant land
6
30,905
601
Industrial
25
134,561
193
Other
4
21,183
115
100
543,581
1,681
PERCENTAGE
VALUE
NUMBER
Corporation - 2009 Type of properties Residential
48
244,002
558
Commercial
19
96,456
250
Vacant land
5
26,985
777
Industrial
25
126,115
193
Other
3
18,402
115
100
511,960
1,893
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Notes to the Consolidated Annual Financial Statements
2. INVESTMENT PROPERTY (CONTINUED) Corporation - 2008
PERCENTAGE
VALUE
NUMBER
Type of properties Residential
48
226,396
593
Commercial
21
103,469
257
Vacant land
6
29,104
813
Industrial
25
122,026
197
-
394
73
100
481,389
1,933
PERCENTAGE
VALUE
NUMBER
82
442,562
1,494
Government
9
49,246
123
Tribal land
5
29,978
24
Municipality
4
21,795
40
100
543,581
1,681
Other
Investment properties were valued in terms of the accounting policy, which requires a value determined by a sworn appraiser every three years. Valuations are normally based on comparable sales in the area or on the income earning potential of the building. Investment properties are subject to operating leases with tenants. No rental was charged on certain properties, mainly because the properties are vacant or undeveloped land or unoccupied buildings. Freehold title is held by the Corporation for the majority of properties, but not for all. Properties for which freehold title is not held are included in investment property when they are managed by the Corporation and result in the receipt of economic benefits and rewards and when the Corporation incurs the risks incidental to ownership. Freehold title is held as follows: Corporation - 2010 Corporation
Corporation - 2009
PERCENTAGE
VALUE
NUMBER
Corporation
81
417,044
1,689
Government
9
44,204
131
Tribal land
6
29,978
24
Municipality
4
20,734
49
100
511,960
1,893
PERCENTAGE
VALUE
NUMBER
80
384,947
1,729
Government
9
44,101
131
Tribal land
7
31,695
24
Corporation - 2008 Corporation
Municipality
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
4
20,646
49
100
481,389
1,933
120
121
2. INVESTMENT PROPERTY (CONTINUED) Corporation Freehold title is registered to the Corporation or one of the former corporations consolidated under the Corporation in terms of the Eastern Cape Development Corporation Act, No 2 of 1997, read with Proclamation 1 of 2001. Government The title over land is registered to government. The Corporation is in the process of analysing the properties within this group, which comprise mainly entitlement in terms of Proclamation 1 of 2001 by the Premier of the Eastern Cape. Tribal land This group comprises mainly properties where the Corporation has assumed “Permission to Occupy”. The majority of these properties are situated on forestry estates and hotels on the Wild Coast. Municipality The title is registered to different municipalities within the Eastern Cape, but improvements have been made by the Corporation. The Corporation’s right to occupy properties to the value of R78.7 million (2009: R83.5 million) (2008: R 83.3 million) included in the above, has not been reduced to writing. However, the Corporation has occupied these properties for a number of years and derives economic benefits from their use and carries the risks that are incidental to ownership. The valuation method used to value these properties assumes that the Corporation has the right to occupy these properties and will receive economic benefits in perpetuity. In the event that the right of occupation is disputed or expires, the valuation of these properties may be overstated. In terms of the accounting policy these rights are assessed on an annual basis and adjustments may be effected to the valuation of these properties if necessary.
3. PROPERTY, PLANT AND EQUIPMENT Group
2010 COST/VALUATION
Land Buildings Leasehold property
25,514 621,698
ACCUMULATED DEPRECIATION (40,972)
80
(32)
Plant and machinery
2,031
Furniture and fixtures
2,676
Motor vehicles
1,361
Office equipment
2009 CARRYING VALUE
COST/VALUATION
25,514
21,914
580,726
539,764
ACCUMULATED DEPRECIATION (29,425)
CARRYING VALUE 21,914 510,339
48
80
(16)
64
(1,807)
224
1,986
(1,733)
253
(1,646)
1,030
2,584
(1,368)
1,216
(594)
767
1,330
(371)
959
817
(578)
239
814
(595)
219
14,663
(10,362)
4,301
11,945
(7,560)
4,385
Computer software
3,474
(3,391)
83
3,458
(3,298)
160
Other property, plant and equipment
2,756
(2,099)
657
2,805
(2,095)
710
675,070
(61,481)
586,680
(46,461)
IT equipment
TOTAL
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
613,589
540,219
Notes to the Consolidated Annual Financial Statements
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Group
2009 COST/VALUATION
Land
17,186
Buildings
560,160
Leasehold property
-
ACCUMULATED DEPRECIATION (19,043) -
CARRYING VALUE 17,186 541,117 -
Plant and machinery
1,986
(1,654)
332
Furniture and fixtures
2,502
(1,058)
1,444
557
(268)
289
Motor vehicles Office equipment
862
(652)
210
10,246
(4,834)
5,412
Computer software
3,430
(3,046)
384
Other property, plant and equipment
2,419
(2,065)
354
599,348
(32,620)
IT equipment
TOTAL Company
2010 COST/VALUATION
Land Buildings Furniture and fixtures Motor vehicles Office equipment
3,265
ACCUMULATED DEPRECIATION -
566,728
2009 CARRYING VALUE
COST/VALUATION
3,265
3,265
ACCUMULATED DEPRECIATION -
CARRYING VALUE 3,265
19,535
(2,550)
16,985
15,527
(2,159)
13,368
1,694
(1,194)
500
1,653
(1,019)
634
97
(97)
97
(87)
10
-
476
(326)
150
487
(380)
107
IT equipment
5,677
(4,376)
1,301
4,685
(3,768)
917
Computer software
3,474
(3,391)
83
3,458
(3,298)
160
Other property, plant and equipment
1,776
(1,223)
553
1,635
(1,042)
593
35,994
(13,157)
30,807
(11,753)
COST/VALUATION
ACCUMULATED DEPRECIATION
TOTAL
22,837
Company
Land Buildings Furniture and fixtures Motor vehicles
19,054
2008
3,265
-
CARRYING VALUE 3,265
15,452
(1,849)
13,603
1,598
(817)
781 34
97
(63)
569
(485)
84
IT equipment
4,016
(3,101)
915
Computer software
3,430
(3,046)
384
Other property, plant and equipment
1,247
(1,041)
206
29,674
(10,402)
Office equipment
TOTAL
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
19,272
122
123
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Reconciliation of property, plant and equipment - Group - 2010 OPENING BALANCE Land Buildings
21,914 510,339
ADDITIONS 182,298
TRANSFERS AND DISPOSALS 3,600 (104,368)
REVALUATIONS
DEPRECIATION AND IMPAIRMENTS
-
-
4,008
(11,551)
CARRYING VALUE 25,514 580,726
Leasehold property
64
-
-
-
(16)
48
Plant and machinery
253
45
-
-
(74)
224
Furniture and fixtures
1,216
104
(3)
-
(287)
1,030
Motor vehicles
959
31
-
17
(240)
767
Office equipment
219
102
(6)
1
(77)
239
IT equipment
4,385
2,727
61
-
(2,872)
Computer software
160
16
-
-
(93)
83
Other property, plant and equipment
710
176
(74)
-
(155)
657
540,219
185,499
4,301
(100,790)
4,026
(15,365)
613,589
OPENING BALANCE
ADDITIONS
TRANSFERS AND DISPOSALS
DEPRECIATION AND IMPAIRMENTS
CARRYING VALUE
Land
17,186
4,820
Buildings
541,117
158,381
Reconciliation of property, plant and equipment - Group - 2009
(92) (178,777)
(10,382)
21,914 510,339
Leasehold property
-
-
80
(16)
64
Plant and machinery
332
-
-
(79)
253
Furniture and fixtures
1,444
129
(16)
(341)
1,216
289
774
-
(104)
959
Motor vehicles Office equipment IT equipment Computer software Other property, plant and equipment
210
116
(6)
(101)
219
5,412
1,750
(41)
(2,736)
4,385
384
28
-
(252)
160
354 566,728
488
(5)
(127)
710
166,486
(178,857)
(14,138)
540,219
ADDITIONS
TRANSFERS AND DISPOSALS
DEPRECIATION AND IMPAIRMENTS
CARRYING VALUE
265
-
17,186
Reconciliation of property, plant and equipment - Group - 2008 OPENING BALANCE Land Buildings
16,921 395,725
154,827
935
(10,370)
541,117
Plant and machinery
42
312
-
(22)
332
Furniture and fixtures
983
778
-
(317)
1,444
Motor vehicles
370
40
-
(121)
289
Office equipment
321
54
-
(165)
210
3,594
4,483
-
(2,665)
5,412
IT equipment Computer software
384
-
-
Other property, plant and equipment
608
59
(5)
418,948
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
160,553
1,195
(308) (13,968)
384 354 566,728
Notes to the Consolidated Annual Financial Statements
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Reconciliation of property, plant and equipment - Company 2010 OPENING BALANCE
ADDITIONS
DISPOSALS
Land
3,265
-
-
-
-
3,265
Buildings
13,368
-
-
4,008
(391)
16,985
634
41
-
-
(175)
500
Furniture and fixtures
REVALUATIONS
DEPRECIATION
CARRYING VALUE
Motor vehicles
10
-
-
-
(10)
-
Office equipment
107
82
-
-
(39)
150
IT equipment
917
1,054
(10)
-
(660)
1,301
Computer software
160
16
-
-
(93)
83
Other property, plant and equipment
593
161
(1)
-
(200)
553
19,054
1,354
(11)
4,008
(1,568)
22,837
ADDITIONS
DISPOSALS
DEPRECIATION
CARRYING VALUE
-
-
Reconciliation of property, plant and equipment - Company - 2009 OPENING BALANCE Land
3,265
-
3,265
Buildings
13,603
75
-
(310)
13,368
Furniture and fixtures
781
102
(16)
(233)
634
Motor vehicles
34
-
-
(24)
10
Office equipment
84
81
(6)
(52)
107
IT equipment
915
759
(41)
(716)
917
Computer software
384
28
-
(252)
160
Other property, plant and equipment
206
482
(3)
(92)
593
19,272
1,527
(66)
(1,679)
19,054
ADDITIONS
DISPOSALS
DEPRECIATION
CARRYING VALUE
Reconciliation of property, plant and equipment - Company - 2008 OPENING BALANCE Land
3,000
-
265
-
3,265
Buildings
12,186
781
935
(299)
13,603
Furniture and fixtures
466
545
-
(230)
781
Motor vehicles
59
-
-
(25)
34
Office equipment
150
45
-
(111)
84
IT equipment
1,443
363
(1)
(890)
915
Computer software
1,214
-
-
(830)
384
397
8
-
(199)
206
18,915
1,742
1,199
(2,584)
19,272
Other property, plant and equipment
A register containing the information required by paragraph 22(3) of Schedule 4 of the Companies Act is available for inspection at the registered office of the Corporation.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
124
125
GROUP FIGURES IN RAND THOUSAND
2010
COMPANY
2009
2008
2010
2009
2008
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Land, buildings and infrastructure Included in the carrying amount of the group’s buildings and infrastructure is East London Industrial Development Zone (Proprietary) Limited infrastructure of R551 million (2009:R 484 million) (2008: R 514 million) Land, buildings and infrastructure are valued by a sworn appraiser every three years. Valuations are normally based on comparable sales in the area or in the income earning potential of the building.
4. INVESTMENTS IN SUBSIDIARIES CARRYING AMOUNT 2010
CARRYING AMOUNT 2009
CARRYING AMOUNT 2008
Investments at cost
27,454
24,453
27,405
Impairment of investment in subsidiaries
(1,334)
(1,334)
(1,334)
26,120
26,119
26,071
Details of the Corporations subsidiaries are disclosed in Annexure 1.
5. INVESTMENTS IN ASSOCIATES Reconciliation of carrying amount Investments at cost
58,803
55,109
9,094
48,108
46,314
3,000
Impairments
(9,329)
(9,329)
(3,000)
(9,329)
(9,329)
-
49,474
45,780
6,094
38,779
36,985
3,000
Bushman Sands Developments (Pty) Ltd Assets
42,411
40,360
22,958
Liabilities
168
101
69,836
Revenue
240
360
16,998
Profit/loss for the period
173
259
(12,344)
23,041
18,203
The above information is based on reconstructed management accounts of Bushman Sands Developments (Pty) Ltd for the year ended 31March 2010. Bushman Sands Development (Pty) Ltd disposed of its shareholding in Bushman Sands Hospitality (Pty) Ltd. The group now holds a 50% (2009: 50%) (2008:20%) interest in the associate. Holiday Inn Transkei (Pty) Ltd Assets
26,713
Liabilities
6,223
6,168
6,477
Revenue
31,037
33,233
26,138
3,615
5,148
3,006
Profit/loss for the period
The above information is based on the audited financial statements of Transkei Holiday Inn (Pty) Ltd for the year ended 31 March 2010. The group holds a 49.95% (2009: 49.95%) (2008:49.95%) interest in the associate of which 9.95% (2009: 9.95%) is held by the corporation.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Notes to the Consolidated Annual Financial Statements
GROUP FIGURES IN RAND THOUSAND
2010
COMPANY
2009
2008
2010
2009
2008
6. LOANS TO (FROM) GROUP COMPANIES Subsidiaries Eastern Cape Marketing Authority (Pty) LTD (ECMA)
-
-
-
26
18
1
Centre for Investment and Marketing in the Eastern Cape (CIMEC)
-
-
-
13,052
11,787
10,564
Cimvest (PtyP LTD
-
-
-
(5,057)
(4,507)
(4,893)
Transido (Pty) LTD
-
-
-
78,030
82,078
82,051
Umtata Small Industries Complex (Pty) LTD (USICO)
-
-
-
Transkei Share Investment Company Limited (INTRASHARE)
-
-
-
(15,752)
(15,779)
(47,961)
TDC Property Investments (Pty) LTD
-
-
-
3,450
3,433
3,704
Transdev Properties (Pty) LTD
-
-
-
(10,089)
(7,485)
(3,769)
Windsor Hotel (Pty) LTD
-
-
-
1,014
1,012
462
Automotive Industrial Development Centre (AIDC) Magwa Enterprise Tea (Pty) LTD
Impairment of loans to subsidiaries
390
390
384
-
-
-
2,000
2,000
2,001
4,205
3,756
3,345
4,205
3,756
3,345
4,205
3,756
3,345
71,269
76,703
45,889
(4,205)
(3,756)
(18)
(78,511)
(78,062)
(77,653)
-
-
3,327
(7,242)
(1,359)
(31,764)
35,946
Associates Bushman Sands Developmets (Pty) LTD
-
-
35,946
-
-
4,333
4,333
4,333
4,333
4,333
4,333
4,333
4,333
40,279
4,333
4,333
40,279
(4,333)
(4,333)
(9,841)
(4,333)
(4,333)
(9,841)
-
-
30,438
--
-
30,438
Non-current assets
-
-
33,765
23,656
26,412
55,297
Non-current liabilities
-
-
-
(30,898)
(27,771)
(56,623)
-
-
33,765
(7,242)
(1,359)
(1,326)
8,089
9,859
449
(1,770)
730
8,538
8,089
9,859
Worthytrade 93 (Pty) LTD
Impairment of loans to subsidiaries
Reconciliation of provision for impairment of loans to group companies Opening balance Provision for impairment
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
9,129
82,395 449 82,844
87,494
84,506
(5,099)
2,988
82,395
87,494
126
127
GROUP FIGURES IN RAND THOUSAND
COMPANY
2010
2009
2008
2010
2009
2008
1,190
694
723
-
-
-
25,000
75,000
75,000
25,000
75,000
75,000
Fixed Term Investments
60,409
55,140
48,789
60,409
55,140
48,789
Other Investments
13,062
12,878
11,891
13,062
12,878
11,891
Other financial assets
18,068
14,914
12,804
18,068
14,914
12,804
7. INVESTMENTS At fair value through profit or loss - designated Listed shares Available for sale Unlisted shares Held to maturity
91,539
82,932
73,484
91,539
82,932
73,484
Held to maturity (impairments)
(9,880)
(6,779)
(5,034)
(9,880)
(6,779)
(5,034)
81,659
76,153
68,450
81,659
76,153
68,450
Total other financial assets
107,849
151,847
144,173
106,659
151,153
143,450
Non-current assets At fair value through profit or loss - designated
1,190
694
723
-
-
-
Available-for-sale
25,000
75,000
75,000
25,000
75,000
75,000
Held to maturity
81,659
76,153
68,450
81,659
76,153
68,450
107,849
151,847
144,173
106,659
151,153
143,450
Fair value hierarchy of financial assets at fair value through profit or loss For financial assets recognised at fair value, disclosure is required of a fair value hierarchy which reflects the significance of the inputs used to make the measurements. Level 1 Listed shares
1,190
Short-term investments
73,470
Cash and cash equivalents
694
723
68,018
60,680
-
-
73,470
68,018
60,680
625,708
452,084
435,290
281,508
254,500
304,110
700,368
520,796
496,693
354,978
322,518
364,790
Level 3 Investment securities
8,189
8,135
7,770
8,189
8,135
7,770
Loans and receivables
232,247
277,722
143,167
213,613
246,859
122,579
240,436
285,857
150,937
221,802
254,994
130,349
940,804
806,653
647,630
576,780
577,512
495,139
Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2010 OPENING BALANCE
GAINS OR LOSSES IN PROFIT OR LOSS
PURCHASES
3,155
Investment securities
8,135
(3,101)
Loans and receivables
277,722
(57,737)
285,857
(60,838)
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
3,155
ADVANCES, RENTALS AND COLLECTIONS -
CLOSING BALANCE 8,189
12,262
232,247
12,262
240,436
Notes to the Consolidated Annual Financial Statements
GROUP FIGURES IN RAND THOUSAND
2010
COMPANY
2009
2008
2010
2009
2008
7. INVESTMENTS (CONTINUED) Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2009 OPENING BALANCE
GAINS OR LOSSES IN PROFIT OR LOSS
PURCHASES
2,110
Investment securities
7,770
(1,745)
Loans and receivables
143,167
(35,567)
150,937
(37,312)
ADVANCES, RENTALS AND COLLECTIONS
CLOSING BALANCE
-
2,110
8,135
170,122
277,722
170,122
285,857
ADVANCES, RENTALS AND COLLECTIONS
CLOSING BALANCE
Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2008 OPENING BALANCE
GAINS OR LOSSES IN PROFIT OR LOSS
Investment securities
3,880
Loans and receivables
131,078
(42,415)
-
134,958
(42,415)
PURCHASES
SALES
4,490
(600)
-
-
-
4,490
(600)
7,770
54,504
143,167
54,504
150,937
ADVANCES, RENTALS AND COLLECTIONS
CLOSING BALANCE
Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2010
Investment securities Loans and receivables
OPENING BALANCE
GAINS OR LOSSES IN PROFIT OR LOSS
PURCHASES
8,135
(3,101)
3,155
246,859
(75,530)
254,994
(78,631)
-
3,155
8,189
42,284
213,613
42,284
221,802
ADVANCES, RENTALS AND COLLECTIONS
CLOSING BALANCE
Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2009
Investment securities Loans and receivables
OPENING BALANCE
GAINS OR LOSSES IN PROFIT OR LOSS
PURCHASES
SALES
7,770
(1,745)
2,710
(600)
122,579
(39,713)
130,349
(41,458)
-
-
-
2,710
(600)
8,135
163,993
246,859
163,993
254,994
ADVANCES, RENTALS AND COLLECTIONS
CLOSING BALANCE
Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2008 OPENING BALANCE
GAINS OR LOSSES IN PROFIT OR LOSS
Investment securities
3,880
Loans and receivables
114,920
(42,799)
-
118,800
(42,799)
PURCHASES
SALES
4,490
(600)
-
-
-
4,490
(600)
7,770
50,458
122,579
50,458
130,349
Fair value hierarchy of available-for-sale financial assets For financial assets recognised at fair value, disclosure is required of a fair value hierarchy which reflects the significance of the inputs used to make the measurements. Level 2 Investment securities
-
75,000
75,000
-
75,000
75,000
Level 3 Investment securities
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
25,000
-
-
25,000
-
-
25,000
75,000
75,000
25,000
75,000
75,000
128
129
GROUP FIGURES IN RAND THOUSAND
COMPANY
2010
2009
2008
2010
2009
2008
(75,000)
-
-
(75,000)
-
-
75,000
-
-
7. INVESTMENTS (CONTINUED) Transfers out of level 2 Investment securities
The transfer out of R75 million is as a result of changes to the observable market inputs which in prior years was a primarily independant source to proprietary source Transfers into level 3 Investment securities
75,000
-
-
The transfer in of R25 million is as a result of changes to the observable market inputs which in prior years was a primarily independant source to proprietary source. Reconciliation of available-for-sale financial assets measured at level 3 - Group - 2010 OPENING BALANCE
GAINS OR LOSSES IN OTHER COMPREHENSIVE INCOME
TRANSFERS INTO LEVEL 3
CLOSING BALANCE
-
(50,000)
75,000
25,000
Investment securities
8. DEFERRED TAX Deferred tax asset Accelerated capital allowances for tax purposes
65
63
35
-
-
-
-
1,057
1,090
-
-
-
65
1,120
1,125
-
-
-
At beginning of the year
1,120
1,120
Originating temporary difference on tangible fixed assets
(1,055)
Other deferred tax
Reconciliation of deferred tax asset (liability) -
-
65
1,120
-
-
-
(800)
-
-
-
(800)
-
-
-
9. LOANS ADVANCED Loans advanced Impairment allowance
381,867
344,416
210,173
379,935
344,401
210,160
(193,307)
(129,683)
(101,904)
(193,307)
(129,683)
(101,904)
188,560
214,733
108,269
186,628
214,718
108,256
137,605
111,084
56,190
135,673
111,069
56,177
Loans advanced Non-current assets Current assets
50,955
103,649
52,079
50,955
103,649
52,079
188,560
214,733
108,269
186,628
214,718
108,256
Reclassification of Assets
Trade and other receivables Intangible asset
AS PREVIOUSLY REPORTED (GROUP 2009)
RECLASSIFICATION
RESTATED
AS PREVIOUSLY REPORTED (GROUP 2009)
RECLASSIFICATION
RECLASSIFICATION
63,025
(36)
62,989
-
-
-
36
36
-
-
-
-
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Notes to the Consolidated Annual Financial Statements
GROUP FIGURES IN RAND THOUSAND
130
COMPANY
2010
2009
2008
2010
2009
2008
25,321
27,483
17,098
18,518
16,788
6,398
10. TRADE AND OTHER RECEIVABLES Trade receivables Employee costs in advance Prepayments VAT Other receivables
6
3
185
-
-
-
125
109
69
(9)
-
7
10,141
4,524
-
121
18,227
25,253
13,022
8,475
15,232
7,925
43,686
62,989
34,898
26,984
32,141
14,323
-
11. CASH AND CASH EQUIVALENTS Cash and cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Cash and cash equivalents include cash on hand, bank deposits, investments in money market instruments and comprise: Bank balances
347,089
213,516
137,190
2,889
15,932
5,936
Short-term deposits
278,619
238,568
298,174
278,619
238,568
298,174
625,708
452,084
435,364
281,508
254,500
304,110
500,000
500,000
500,000
500,000
500,000
500,000
12. SHARE CAPITAL Authorised 50 billion "A" shares of 1 cent each 50 billion “B” shares of 1 cent each
500,000
500,000
500,000
500,000
500,000
500,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
"A" shares of 1 cent each
173,699
149,342
135,435
173,699
149,342
135,435
"B" shares of 1 cent each
173,699
149,341
135,435
173,699
149,341
135,435
347,398
298,683
270,870
347,398
298,683
270,870
298,683
270,870
239,373
298,683
270,870
239,373
48,715
27,813
31,497
48,715
27,813
31,497
347,398
298,683
270,870
347,398
298,683
270,870
Issued
Reconciliation of number of shares issued: Reported as at 01 April 2009 Share capital received
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
131
GROUP FIGURES IN RAND THOUSAND
2010
COMPANY
2009
2008
2010
2009
2008
13. RESERVES Pre-incorporation reserves Pre-incorporation reserves represent the net book value of asset and liabilities transferred from previous corporations, adjusted for any changes in the value of these assets due to information which has been established during the current and prior years that refer to the value of assets taken over. Property revaluation reserve The property revaluation reserve represents the total revaluation of land and buildings and fair value adjustments on investment properties. Fair value adjustment available-for-sale-assets reserve Fair value reserves comprise all fair value adjustments that are recognised directly in equity and / or transfers from retained earnings. When an asset or liability is derecognised, the portion of the fair value reserve relating to that asset or liability is transferred to profit or loss. Pre-incorporation reserve
377,324
377,324
377,324
384,265
384,265
384,265
Property revaluation reserve
149,065
289,003
248,542
307,578
263,970
222,005
24,173
74,173
74,173
24,180
74,180
74,180
550,562
740,500
700,039
716,023
722,415
680,450
Fair value adjustment on available-for-sale reserve
14. INTEREST BEARING BORROWINGS At fair value through profit or loss Finance lease Development Bank of Southern Africa
61
59
-
-
-
-
15,912
17,575
19,084
15,912
17,563
19,084
15,973
17,634
19,084
15,912
17,563
19,084
14,490
16,139
17,601
14,429
16,080
17,601
1,483
1,495
1,483
1,483
1,483
1,483
Non-current liabilities At fair value Current liabilities Fair value through profit or loss
15. RETIREMENT BENEFIT OBLIGATION Defined contribution plan The Corporation provides retirement benefits to employees by contributing to the Eastern Cape Development Corporation pension fund. An actuarial valuation of the fund was conducted and the actuary found the fund to be in a sound financial position. The pension fund is governed by the Pension Funds Act, 1956. Retirement benefit costs are expensed in the income statement as and when incurred. Defined Benefit Plan The Corporation is responsible for 50% of the contributions to medical aid funds of retired employees. Present value of the defined benefit obligation Net actuarial gains or losses not recognised
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
(20,389)
(18,073)
(10,756)
(20,389)
(18,073)
(10,756)
(63)
2,069
-
(63)
2,069
-
(20,452)
(16,004)
(10,756)
(20,452)
(16,004)
(10,756)
Notes to the Consolidated Annual Financial Statements
GROUP FIGURES IN RAND THOUSAND
2010
COMPANY
2009
2008
2010
2009
2008
9,656
16,004
10,756
9,656
15. RETIREMENT BENEFIT OBLIGATION (CONTINUED) Changes in present value Opening balance
16,004
10,756
Contributions by members
(214)
(195)
(180)
(214)
(195)
(180)
Net expense recognised in profit or loss
4,662
5,443
1,280
4,662
5,443
1,280
20,452
16,004
10,756
20,452
16,004
10,756
Net expense recognised in the income statement Current service cost
1,110
847
538
1,110
847
538
Interest cost
1,483
1,260
742
1,483
1,260
742
Actuarial (gains) losses
2,069
3,336
-
2,069
3,336
-
4,662
5,443
1,280
4,662
5,443
1,280
Health care cost inflation
7.75 %
8.25 %
8.00 %
7.75 %
8.25 %
8.00 %
Discount rate used
9.25 %
7.25 %
9.00 %
9.25 %
7.25 %
9.00 %
17,525
15,018
11,295
17,525
15,018
11,295
Past (accrued) and future service liability
Present value of accrued liability Active members CAWMs liability
2,864
3,055
2,797
2,864
3,055
2,797
20,389
18,073
14,092
20,389
18,073
14,092
12,741
11,278
8,672
12,741
11,278
8,672
4,764
4,268
3,520
4,495
4,025
3,339
Future service liability Active members Contributions to post employment retirement benefit fund Employer Employee
3,083
2,733
1,831
2,909
2,577
1,714
7,847
7,001
5,351
7,404
6,602
5,053
532
476
279
532
476
279
1% increase - effect on accumulated benefit obligation
3,845
3,281
2,140
3,845
3,281
2,140
1% decrease - effect on current service cost & interest cost
(423)
(371)
(219)
(423)
(371)
(219)
(3,088)
(2,593)
(1,699)
(3,088)
(2,593)
(1,699)
Effect of 1% change in assumed medical cost trend rates 1% increase - effect on current service cost & interest cost
1% decrease - effect on accumulated benefit obligation
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
132
133
GROUP FIGURES IN RAND THOUSAND
COMPANY
2010
2009
2008
2010
2009
2008
Non-current liabilities
559,899
526,931
675,689
Current liabilities
858,745
520,385
188,643
30,128
30,508
37,495
1,418,644
1,047,316
864,332
30,128
30,508
37,495
30,128
30,508
37,495
30,128
30,508
37,495
1,388,363
1,016,808
826,837
-
-
-
153
-
-
-
-
-
1,418,644
1,047,316
864,332
30,128
30,508
37,495
1,470
771
16. DEFERRED INCOME -
-
-
Analysis per group company Eastern Cape Development Corporation East London Industrial Development Zone (Pty) Ltd Automotive Industrial Development Centre
Government grants are deferred to the extent that they are un-spent.
17. TRADE AND OTHER PAYABLES Trade payables
60,612
58,536
25,852
VAT
13,069
6,289
5,201
Accrued leave pay
6,991
5,831
5,448
4,800
4,039
4,033
Accrued bonus
1,660
1,433
1,552
1,266
1,078
1,072
Accrued expenses
1,103
1,040
713
101
51
440
Deposits received
1,236
1,115
1,316
-
-
26,333
26,455
18,773
18,719
23,739
17,013
111,004
100,699
58,855
26,365
29,678
23,634
190,747
189,320
143,787
184,570
183,143
137,610
Other payables
9
-
608 468
-
18. TRADE AND OTHER PAYABLES Project grants
Details of the project grants are presented in Annexure 3.
19. REVENUE Rendering of services
6,667
3,629
4,433
Rental Income
85,012
72,432
67,219
Interest received on loans
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
54,464
51,921
50,890
26,774
18,511
21,321
26,774
18,511
21,321
118,453
94,572
92,973
81,238
70,432
72,211
Notes to the Consolidated Annual Financial Statements
GROUP FIGURES IN RAND THOUSAND
2010
134
COMPANY
2009
2008
2010
2009
2008
2,266
3,024
1,823
1,690
1,931
20. OPERATING LOSS Operating loss for the year is stated after accounting for the following: Operating lease charges Premises • Contractual amounts
2,471
Equipment • Contractual amounts
Profit (loss) on sale of property, plant and equipment (Loss) profit on sale of investment property Gain on de-recognition of liabilities
751
629
882
740
617
775
3,222
2,895
3,906
2,563
2,307
2,706
5
(66)
1
(11)
(66)
-
(1,595)
(855)
843
(1,660)
(865)
833
-
1,622
-
-
-
-
Impairment on property, plant and equipment
13
10
-
-
-
-
Reversal of impairment on property, plant and equipment
75
-
-
-
-
-
3,101
8,074
-
3,101
11,074
412
-
740
449
-
(5,526)
-
-
(5,099)
-
63,624
27,779
21,473
63,624
27,779
21,473
-
11,788
19,458
11,906
11,934
19,840
(5,887)
-
-
-
-
-
Impairment on investments Impairment on loans to group companies Reversal of impairment on loans to group companies Impairment of loans advanced Impairment on trade and other receivables Reversal of impairment on trade and other receivables Amortisation on intangible assets
2,988
-
-
-
-
-
Depreciation on property, plant and equipment
15,409
14,171
13,970
1,568
1,679
2,584
Employee costs
123,096
102,295
77,371
84,013
70,017
53,922
63,823
56,042
40,088
54,757
48,081
38,498
1,642
1,664
1,950
1,220
1,381
1,708
Dividend income
100
67
44
100
28,686
44
Subsidiaries - Local
25
70
57
-
Associates - Local
125
137
101
100
28,686
44
17,638
39,015
25,879
18,146
38,383
26,237
5,224
7,338
6,292
5,224
7,338
6,292
22,862
46,353
32,171
23,370
45,721
32,529
22,987
46,490
32,272
23,470
74,407
32,573
-
-
2,501
-
-
-
-
Direct property operating expenditure
6
-
21. AUDITORS’ REMUNERATION Fees
22. INVESTMENT INCOME -
-
Interest income Bank Investment income
23. FAIR VALUE ADJUSTMENTS THROUGH PROFIT OR LOSS Investment property Other financial assets
66 430 496
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
5,360 5,360
13,867 7 13,874
2,501
135
GROUP FIGURES IN RAND THOUSAND
2010
2009
COMPANY 2008
2010
2009
2008
24. FINANCE COSTS Finance leases
-
18
-
-
-
-
Late payment of tax
-
(450)
44
-
-
-
1,648
1,579
2,672
1,608
2,011
2,850
1,648
1,147
2,716
1,608
2,011
2,850
42
(3,208)
912
-
-
-
Interest expense
25. TAXATION Major components of the tax expense (income) Current Local income tax - current period Local income tax - recognised in current tax for prior periods
66
1,495
-
-
-
-
108
(1,713)
912
-
-
-
(2)
(1,953)
685
-
-
-
Deferred Originating and reversing temporary differences Arising from prior period adjustments
1,057
33
52
-
-
-
1,055
(1,920)
737
-
-
-
1,163
(3,633)
1,649
-
-
-
(62,235)
14,723
11,655
(62,271)
28,631
(9,454)
-
4,122
3,263
-
8,016
-
Reconciliation of the tax expense Reconciliation between accounting profit and tax expense. Accounting profit (loss) Tax at the applicable tax rate of 28% (2009: 28%) Tax effect of adjustments on taxable income Change in rate of tax
-
-
(8)
-
-
-
Other temporary differences
-
(12)
27
-
-
-
Fair value gains not subject to capital gains tax
-
-
(627)
-
-
-
Exempt income
-
(1,746)
(1,123)
-
(8,106)
-
Reversal of tax provision
-
(6,101)
-
-
-
-
Tax losses carried forward Prior year's under-provision
-
12
-
-
-
-
108
92
-
-
-
-
108
(3,633)
1,532
-
-
-
The Corporation has been granted exemption from South African normal taxation in terms of Section 10(1)(cA)(i) of the Income Tax Act.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Notes to the Consolidated Annual Financial Statements
GROUP FIGURES IN RAND THOUSAND
2010
2009
COMPANY 2008
2010
2009
2008
26. CASH GENERATED FROM (USED IN) OPERATIONS (Loss) profit before taxation
(62,235)
14,723
11,656
(62,271)
28,631
(9,454)
Depreciation and amortisation
15,365
12,635
13,968
1,568
1,086
2,584
Loss (profit) on sale of assets
1,666
921
(843)
1,671
931
(833)
-
-
-
Adjustments for:
Profit on sale of non-current assets and disposal groups Income from equity accounted investments Dividends received Interest received
-
(1,203)
-
(1,898)
(2,701)
(1,469)
(125)
(137)
(100)
(100)
(28,619)
-
-
(44)
(48,544)
(64,851)
(52,387)
(50,144)
(64,219)
Finance costs
1,628
1,579
2,672
1,608
2,011
Fair value adjustments
(496)
(5,360)
(13,874)
61,250
42,115
41,671
79,080
45,688
44,301
4,448
5,248
1,280
4,448
5,248
1,280
-
-
(2,949)
-
-
-
694
-
-
-
-
-
-
-
43
-
-
-
Trade and other receivables
25,115
(40,758)
(22,025)
(6,750)
(31,071)
(21,018)
Trade and other payables
10,306
41,843
(4,687)
(3,312)
6,044
(5,895)
Impairments Movements in retirement benefit assets and liabilities Release from debt on liquidation Reversal of minority interest
-
-
(55,426) 2,850 (2,501)
Loss on recognition of financial assets Inventories
Deferred income
371,328
182,984
238,227
(380)
(6,987)
11,807
378,502
187,038
211,183
(34,582)
(41,257)
(32,349)
Balance at beginning of the year
1,913
(4,014)
(3,401)
-
-
-
Current tax for the year recognised in profit or loss
(108)
1,713
(912)
-
-
-
-
2,517
-
-
-
-
(1,779)
(1,913)
4,014
-
-
-
26
(1,697)
(299)
-
-
-
27. TAX REFUNDED (PAID)
Reversal of tax provision (exemption granted) Prior year under-provision
28. CONTINGENCIES The Corporation has exposure to litigation of R 1.250 million (2009: R 1.3 million) (2008: R1,3) against it. The legal claims are expected to be settled in the course of the next twelve months.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
136
137
GROUP FIGURES IN RAND THOUSAND
2010
2009
COMPANY 2008
2010
2009
2008
29. COMMITMENTS Authorised capital expenditure Already contracted for but not provided for • Purchase of shares
1,243
1,243
1,291
1,243
1,243
1,291
• Loans approved not yet disbursed
29,691
93,386
28,608
29,691
93,386
28,608
- within one year
3,691
3,355
3,050
1,667
2,252
2,599
- in second to fifth year inclusive
9,683
8,803
8,003
7,727
7,185
7,590
13,374
12,158
11,053
9,394
9,437
10,189
Operating leases – as lessee (expense) Minimum lease payments due
Operating lease payments represent rentals payable by the group for certain of its office properties, office equipment and cellular phones. Leases are negotiated for an average term of seven years and rentals are fixed for an average of three years. No contingent rent is payable.
30. RELATED PARTIES Relationships Subsidiaries Shareholder Directors Key management and other senior managers
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Refer to Supplementary Information on pages 153 to 156 Department of Economic Development and Environmental Affairs (DEDEA) Refer to the Director's report Eastern Cape Development Corporation M. Matshamba (former Chief Executive Officer) M. Daca (Executive Manager: Finance) C. Biermann (Executive Manager: Development Investments) L. Tsipa (Executive Manager: Property Management and Development) N. Ncokazi (Executive Manager: Development Services) East London Industrial Development Zone (Proprietary) Limited S. Kondlo (Chief Executive Officer) N. Madyibi (Chief Financial Officer) J. Burger (Executive Manager: Technical Services) T. Gwintsa (Executive Manager: Investor Services) T. Zweni (Executive Manager: Business Development) AIDC Development Centre Eastern Cape (Proprietary) Limited J. Manilal (Chief Executive Officer)
Notes to the Consolidated Annual Financial Statements
GROUP FIGURES IN RAND THOUSAND
2010
COMPANY
2009
2008
2010
2009
2008
30. RELATED PARTIES (CONTINUED) Related party balances Subsidiaries and associates Related party balances with subsidiaries and associates are disclosed in Note 6: Loans to / (from) subsidiaries and associates. Other related parties The Corporation acquires equity investments in certain entities to which it has advanced loan funds as security for these loans or as part of its investment strategy. Outstanding balances with these entities were as follows: PREFERENCE/ ORDINARY SHARES
LOAN BALANCE
ACCUMULATED IMPAIRMENT
Border Copiers
-
7,372
(422)
Road safety apparel
-
433
(433)
Magwa Tea Enterprise (Pty) Ltd.
-
4,168
(4,168)
S&P Kareedouw
-
3,099
(2,914)
EC Biomass
3,200
4,267
(1,132)
Global pack trading
1,500
3,489
(3,235)
Maritime Academy
245
2,588
(2,588)
Bushman Sands Development (Pty) Ltd. Ikhala Aloes
46,314 -
Singisi Forest Products
3,061
Amatola berries
2,255
Ndlambe Natural Industrial Products (Pty) Ltd.
56,575
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
1,181 10,818 37,415
(1,181) (3,061) (19,134)
138
139
GROUP FIGURES IN RAND THOUSAND
COMPANY
2010
2009
2008
2010
2009
2008
Interest from subsidiaries
-
-
-
1,254
1,196
-
Interest from associates
-
-
-
-
-
2,413
Impairment expense - loans to associates
-
-
-
-
-
(772)
Rent paid to subsidiaries
-
-
-
1.429
1,492
1,399
Management fees
-
-
-
768
772
-
Border Copiers (Pty) Ltd
-
-
-
784
1,010
614
Ndlambe Natural Industrial Products (Pty) Ltd.
-
-
-
1,197
481
-
-
-
-
1,136
171
-
Eastern Cape Provincial Legislature
-
-
-
-
-
40
Department of Sport, Arts, Recreation and Culture
-
-
-
163
29
104
Department of Transport
-
-
-
-
113
39
Department of Public Works
-
-
-
95
95
76
Department of Health
-
-
-
258
237
161
Singisi Forest Products
-
-
-
-
-
42
Transkei Share Investments
-
-
-
-
28,619
-
30. RELATED PARTIES (CONTINUED) Related party transactions Subsidiaries and associates
Interest received from related parties
Operational expenditure paid on behalf of Eastern Cape Information Technology Initiative Rent received from related parties
Dividends received
31. DIRECTORS’ EMOLUMENTS Further details in respect of directors’ fees are disclosed in the Directors’ Report Non-executive 2010
FEES
OTHER EXPENSES
TOTAL
For services as directors
1,120
378
1,498
2009
FEES
OTHER EXPENSES
TOTAL
669
216
885
FEES
OTHER EXPENSES
TOTAL
245
180
425
For services as directors 2008 For services as directors
Plan to dispose of the ECDC subsidiaries Windsor Hotel (Pty) Ltd In late 2007, the board of directors announced a plan to dispose of the Windsor Hotel. The disposal is consistent with the Group’s long-term policy to focus its activities on its core operations and rationalize those operations where it is financially viable to do so. An active process was entered into and adverts calling for the redevelopment of the hotel went to press during March 2008. A suitable buyer was identified and the Board approved the sale during July of 2008 subject to other precendent conditions for negotiation with the buyer. The primary conditions of which related to the existing labour at the hotel, inter alia. These negotiations are still continuing and are expected to be finalised by the 30 September 2010.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Notes to the Consolidated Annual Financial Statements
GROUP FIGURES IN RAND THOUSAND
2010
COMPANY
2009
2008
2010
2009
2008
The Group has not recognised any impairment losses in respect of the Windsor hotel and has not reclassified the same as held for sale during or at the end of the reporting period as it does not, as yet, meet the measurement critieria per IFRS 5. Transido, USICO, TDC Properties, Transkei Share Investments In July 2006 the Board approved a strategy to focus its activities on its core operations and rationalize those subsidiary operations where it is financially viable to do so. The rationalization process will not involve a sale to a 3rd party but rather the net assets will vest in the ECDC and as such no active process was entered into to identify a buyer. During October 2008 a Board resolution was passed that confirmed the financial viability of the rationalisation of the following subsidiary entities: • Transido (Pty) Ltd, • USICO (Pty) Ltd, • TDC Properties (Pty) Ltd, and • Transkei Share Investments Ltd. The process of winding up was made contingent on certain internal administrative requirements being met which would assist in limiting the costs of the rationalization thereof. These matters are still in process and as such, the Group has not recognised any impairment losses in respect of the Windsor hotel and has not reclassified the same as held for sale during or at the end of the reporting period as it does not, as yet, meet the measurement critieria per IFRS 5. Financial information relating to these entities is tabulated below. Total assets
12,960
9,573
Total liabilities
3,485
78,770
Profit/(loss) for the year
2,583
98
-
31,486
5,000
390
989
1,014
(741)
1,975
(1)
32. RISK MANAGEMENT Overview A comprehensive Investment Policy is used to ensure that all the market risks to which the group is exposed are understood and managed. Governance structures are in place to achieve effective independent monitoring and management of market risks through • The Board and Audit Committee, which is responsible for the overall risk management oversight of the Group. • The Executive Management Committee through setting up subcommittees to deal with specific financial risks. • The Development Investment Committee, which is responsible for ensuring that the impact of risks in the loan and equity investments is being effectively managed and reported and that all policy, risk limits and relevant market risk issues are reported to the Group’s Board and Audit committee. • The Investment Committee which is responsible for managing risk associated with the investment of cash and cash equivalents.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
140
141
32. RISK MANAGEMENT (CONTINUED) Objectives The group market risks are managed by the Board and Audit Committee through a number of executive management committees. These risks include fair value interest rate risk, currency risk, credit risk, liquidity risk and cash flow interest rate risk. • Proposed money market investment strategies do not result in the breach of asset/liability mismatch gap limit. • Ensuring that the net interest income volatility is within approved benchmark • Adequate overnight liquidity limit is complied with by having sufficient call balances • Credit risk is controlled by entering into money market transactions with high quality counterparty financial institutions. • Instrument limits are set to avoid excess concentration in any given financial investment instrument. Overall the Group’s main financial risk management objective is to ensure enhanced return within very conservative risk profiles or parameters approved by the board. Capital Management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of capital levels. The Group’s overall strategy remains unchanged from 2009. Liquidity risk The Group is exposed to liquidity risk through its operational and banking activities. Liquidity risk is measured in terms of a Board approved Investment Policy with appropriate dashboard liquidity risk measures on the basis of which the risk is managed by the Finance function. Interest rate risk The Group’s exposure to interest rate risk arises from primarily the following: • Investment in development loans. • Investment of surplus operational cash. The interest rate risk is managed in terms of the Board approved investment and development investment policies. The Group monitors and ensures that the interest rate risk profiles are in line with limits and benchmarks stipulated in the policy. The cash resources of the group are invested mainly with large money market funds and South African banks. Development investments are also made in line with Board policy and would be less profitable as interest rates drop. At year end, financial instruments exposed to interest rate risk were interest-bearing borrowings, held to maturity investments and loans advanced. A 1% decrease in the interest rate applicable to these financial instruments would result in a R1,841 million decrease in net interest income with an equivalent decrease in retained earnings. Credit risk Credit risk consists mainly of cash deposits, cash equivalents and trade debtors. The corporation only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party. Trade receivables comprise a widespread customer base. Management evaluates credit risk relating to customers on an ongoing basis. Foreign exchange risk The Group has no material exposure to foreign exchange risk.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Notes to the Consolidated Annual Financial Statements
32. RISK MANAGEMENT (CONTINUED) Equity price risk The Group is exposed to equity risk through its investment in a number of entities as disclosed in note 7. Concentration risk The Group’s exposure to concentration risk arises primarily from over exposure to any one given investment instrument. Concentration risk is managed in terms of the Board approved Development Investment Policy, which in turn specifies a percentage exposure in any approved investment instrument or economic sector. The aim of the policy is to protect the Group from any over exposure in any investment instrument where the Group could be exposed to liquidity risk in the event of an over exposure in non tradable instruments like held to maturity assets. The Group could also be exposed to interest rate risk due to over exposure in any investment cluster Post-tax profit for the year would increase/decrease as a result of gains/losses on equity securities classified as at fair value through profit or loss. Other components of equity would increase/ decrease as a result of gains/losses on equity securities classified as an available for sale investment.
33. FINANCIAL ASSETS BY CATEGORY The accounting policies for financial instruments have been applied to the line items below: Group - 2010
Investments Loans advanced
LOANS AND RECEIVABLES
FAIR VALUE THROUGH PROFIT OR LOSS DESIGNATED
HELD TO MATURITY INVESTMENTS
AVAILABLE FOR SALE
CARRYING AMOUNT
-
74,660
8,189
25,000
107,849
188,560
-
-
-
188,560
-
-
-
43,687
-
-
625,708
Trade and other receivables
43,687
Cash and cash equivalents
-
625,708
232,247
700,368
8,189
25,000
965,804
LOANS AND RECEIVABLES
FAIR VALUE THROUGH PROFIT OR LOSS DESIGNATED
HELD TO MATURITY INVESTMENTS
AVAILABLE FOR SALE
CARRYING AMOUNT
-
68,712
8,135
75,000
151,847
214,733
-
-
-
214,733
-
-
-
62,989
-
-
452,084
8,135
75,000
881,653
Group - 2009
Investments Loans advanced Trade and other receivables
62,989
Cash and cash equivalents
277,722
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
452,084 520,796
142
143
33. FINANCIAL ASSETS BY CATEGORY (CONTINUED) Group - 2008
Investments Loans advanced Trade and other receivables Cash and cash equivalents
LOANS AND RECEIVABLES
FAIR VALUE THROUGH PROFIT OR LOSS DESIGNATED
HELD TO MATURITY INVESTMENTS
AVAILABLE FOR SALE
CARRYING AMOUNT
-
61,403
7,770
75,000
144,173
105,588
-
-
-
105,588
37,579
-
-
-
37,579
-
-
435,364
143,167
-
496,767
435,364
7,770
75,000
722,704
LOANS AND RECEIVABLES
FAIR VALUE THROUGH PROFIT OR LOSS DESIGNATED
HELD TO MATURITY INVESTMENTS
AVAILABLE FOR SALE
CARRYING AMOUNT
Company - 2010
Investments Loans advanced Trade and other receivables Cash and cash equivalents
-
73,470
8,189
25,000
106,659
186,628
-
-
-
186,628
26,985
-
-
-
26,985
-
-
281,508
213,613
-
354,978
281,508
8,189
25,000
601,780
LOANS AND RECEIVABLES
FAIR VALUE THROUGH PROFIT OR LOSS DESIGNATED
HELD TO MATURITY INVESTMENTS
AVAILABLE FOR SALE
CARRYING AMOUNT
Company - 2009
Investments Loans advanced Trade and other receivables Cash and cash equivalents
8,135
75,000
151,153
214,718
-
-
-
-
214,718
32,141
-
-
-
32,141
-
68,018
-
-
254,500
246,859
322,518
254,500
8,135
75,000
652,512
LOANS AND RECEIVABLES
FAIR VALUE THROUGH PROFIT OR LOSS DESIGNATED
HELD TO MATURITY INVESTMENTS
AVAILABLE FOR SALE
CARRYING AMOUNT
Company - 2008
Investments Loans advanced Trade and other receivables Cash and cash equivalents
-
60,680
7,770
75,000
143,450
108,256
-
-
-
108,256
14,323
-
-
-
14,323
122,579
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
304,110 364,790
-
-
304,110
7,770
75,000
570,139
Notes to the Consolidated Annual Financial Statements
34. FINANCIAL LIABILITIES BY CATEGORY Group - 2010 FINANCIAL LIABILITIES AT AMORTISED COST
CARRYING AMOUNT
Interest bearing borrowings
15,973
15,973
Trade and other payables
111,005
111,005
126,978
126,978
FINANCIAL LIABILITIES AT AMORTISED COST
CARRYING AMOUNT
Group - 2009
Interest bearing borrowings
17,634
17,634
Trade and other payables
100,699
100,699
118,333
118,333
FINANCIAL LIABILITIES AT AMORTISED COST
CARRYING AMOUNT
Interest bearing borrowings
19,084
19,084
Trade and other payables
58,855
58,855
77,939
77,939
FINANCIAL LIABILITIES AT AMORTISED COST
CARRYING AMOUNT
Interest bearing borrowings
15,912
15,912
Trade and other payables
26,366
26,366
42,278
42,278
FINANCIAL LIABILITIES AT AMORTISED COST
CARRYING AMOUNT
17,563
17,563
Group - 2008
Company - 2010
Company - 2009
Interest bearing borrowings Trade and other payables
29,678
29,678
47,241
47,241
FINANCIAL LIABILITIES AT AMORTISED COST
CARRYING AMOUNT
19,084
19,084
Company - 2008
Interest bearing borrowings Trade and other payables
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
23,634
23,634
42,718
42,718
144
145
35. NEW STANDARDS AND INTERPRETATIONS Revised standards The following revisions to International Accounting Standards have not been adopted by the group: (i) IFRS 3 Business Combinations Comprehensive revision on applying the acquisition method and consequential amendments to IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interest in Joint Ventures The revised IFRS 3 retains the basic requirements of IFRS 3 (2004) to apply acquisition accounting for all business combinations within the scope of IFRS 3, to identify the acquirer and to determine the acquisition date for every business combination. The most significant change is a move from a purchase price allocation approach to a fairvalue measurement principle. The revision applies to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. The amended IAS 27 requires accounting for changes in ownership interests in a subsidiary that occur without loss of control to be recognised as an equity transaction. When the group loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value, with the gain or loss recognised in profit and loss. This amendment is effective for the group for the financial reporting period commencing on 1 April 2010. The revision and amendment is applicable prospectively and will not affect past transactions. (ii) IFRS 9 Financial Instruments This IFRS attempts to eventually replace IAS39 Financial Instrument: Recognition & Measurement, in its entirety, which has been difficult to interpret and understand, and is being conducted in a three phase approach. The most significant change relates to how an entity should classify and measure financial assets, including some hybrid contracts. They require all financial assets to be classified on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset and that the asset be initially measured at fair value plus, in the case of a financial asset not at fair value through profit or loss, particular transaction costs and then subsequently measured at amortised cost or fair value. In addition only one impairment method will be applicable. This amendment was issued in January 2010 and is effective for the group for the financial reporting period commencing on 1 January 2013. This IFRS will be retrospectively applied in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Error, unless early adopted, where transational provisions allow for certain prospective adoptions. (iii) Annual improvements projects As part of its first annual improvements projects, the IASB has issued its edition of annual improvements. The annual improvement projects aim to clarify and improve the accounting standards. The improvements include those involving terminology or editorial changes with minimal effect on recognition and measurement. There are no significant changes in the current year’s improvement that will affect the group and the Improvements are effective for the group with effect from 1 April 2010. Interpretations The following interpretations of existing standards have not been adopted by the group: (i) IFRIC 13 Customer Loyalty Programmes The interpretation clarifies the application of IAS 18 to customer loyalty programmes. The interpretation requires an entity that grants loyalty award credits to allocate some of the initial proceeds from the initial revenue-generating transaction to the award credit as a liability (entity’s obligation to provide award). The award is accounted for as a separate revenue-generating transaction. The interpretation is effective for annual periods commencing on or after 1 July 2008. The application of IFRIC 13 will result in the group deferring a portion of income as a liability. The group will adopt the interpretation for its annual period commencing 1 April 2010.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Notes to the Consolidated Annual Financial Statements
35. NEW STANDARDS AND INTERPRETATIONS (CONTINUED) (ii) IFRIC 16 Hedges of a Net Investment of a Foreign Operation The interpretation clarifies which risks can be hedged under a hedge of the net investment in a foreign operation and by which entities within the group the hedging instruments can be held in order to qualify as a hedge of a net investment in a foreign operation. The group does not currently have any foreign operations and therefore the adoption of this standard will have no effect on the financial performance or position of the group. This Interpretation is effective for annual periods beginning on or after 1 October 2008. (iii) IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 17 clarifies that: • a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity; • an entity should measure the dividend payable at the fair value of the net assets to be distributed; • an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss; and • an entity should provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation. IFRIC 17 is effective for annual periods beginning on or after 1 July 2009 and is not anticipated to have an effect on the group’s accounts as the group has no history of dividend distribution. Flowing from this interpretation is the amendment to IFRS 5 which specifies criteria involved in assessing loss of control of a portion of subsidiary resulting from a sale and its disclosure, these criteria can only be adopted upon adoption of IFRIC 17. (iv) IFRIC 18 Transfer of assets from customers This Interpretation applies to the accounting for transfers of items of property, plant and equipment by entities that receive such transfers from their customers. The interpretation is effective for annual periods commencing on or after 1 July 2009. The Group does not currently have transactions of the nature envisaged by this Interpretation and as such the adoption of this standard will have no effect on the financial performance or position of the group. (v) IFRIC 19 Extinguishing financial liabilities with equity instruments This Interpretation provides guidance on how to account for ‘debt for equity swaps’ which occur when a Company issues shares to its creditor for the extinguishing of its debt. The interpretation is effective for annual periods commencing on or after 1 July 2010. The Group’s Constitutions does not allow for transactions of the nature envisaged by this Interpretation and as such the adoption of this standard will have no effect on the financial performance or position of the group. Standards and interpretations adopted in the current year Revised standards The following revisions to International Financial Reporting Standards have been adopted by the group: (i) IAS 1 Presentation of the Financial Statements The revisions resulted in several changes, including terminology changes. As such, the balance sheet will now be referred to as the statement of financial position and the cash flow statement as the statement of cash flows to reflect their functions more clearly. Also, the changes made to IAS 1 require information in financial statements to be aggregated on the basis of shared characteristics and introduce a statement of comprehensive income. Accordingly, all non owner changes in equity are now presented in a single statement of comprehensive income.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
146
147
35. NEW STANDARDS AND INTERPRETATIONS (CONTINUED) The amendment also requires two sets of comparative numbers to be provided for the financial position and related notes in any year where there has been a restatement or reclassification of balances. Dividend information will now only be disclosed either on the face of the statement of changes in equity or in the notes. The Standard does not provide for any transitional provisions for stated revisions. The changes are required to be applied retrospectively. (ii) IAS 23 Borrowing Costs The group early-adopted the revision that removed the option of immediately recognising as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. There was no effect on the group financial position and performance of adopting this amendment, as there were no qualifying borrowing costs incurred. (iii) IAS 39 Financial Instruments: Recognition and Measurements Amendments allowing reclassification of Instruments This amendment allowed an entity to change the classification of certain ‘held for trading’ financial assets into financial assets carried at amortised cost, subject to certain criteria being met. There was no effect on the group of adopting this amendment, as the group did not reclassify any financial assets. (iv) IFRS 8 Operating Segments IFRS 8 requires an entity to adopt a management approach to reporting the financial performance of its operating segments. Generally, the information to be reported would be what management is currently using internally for evaluating segment performance and deciding how to allocate resources to operating segments. IFRS 8 is not compulsory for unlisted entities. (v) Amendments to IAS 32, Financial Instruments: Presentation, and IAS 1, Presentation of Financial Statements — Puttable Financial Instruments Arising on Liquidation and Obligations The amendment requires additional information to be presented on puttable instruments that are presented as equity. The amendment will not affect the group as the group does not have puttable instruments that are presented within equity. (vi) IAS 39 Financial Instruments: Recognition and Measurement: Amendment Eligible Hedged Items: the amendment clarifies that inflation may only be hedged in instances where changes in inflation are contractually specified portions of cashflows of recognised financial instruments. It also clarifies that an entity is permitted to designate purchased or net purchased options as a hedging instrument in a hedge of a financial or non-financial item, and to improve effectiveness an entity is allowed to exclude the time value of money from the hedging instrument. This amendment does not have any impact on the group as the group doesn’t apply hedge accounting. (vii) IFRS 2 Share-based Payment: Amendment This amendment relates to vesting conditions and cancellation Under IFRS 2 failure to meet a condition, other than a vesting condition, is treated as a cancellation. IFRS 2 specifies the accounting treatment of cancellations by the entity, but does not give guidance on the treatment of cancellations by parties other than the entity. The amendment requires cancellations by parties other than the entity to be accounted for in the same way as cancellations by the entity. This amendment does not have an impact on the group as the group is currently not party to share based payments. (viii) IAS 40 Investment Property The amendment to IAS 40 brings into its scope property that is being constructed or developed for future use as investment property. Such property previously fell within the scope of IAS 16 Property, Plant and Equipment. The amendment is expected to have a significant impact on the results of the group.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Notes to the Consolidated Annual Financial Statements
35. NEW STANDARDS AND INTERPRETATIONS (CONTINUED) Interpretations The following interpretations of existing standards have been adopted by the group: (i) IFRIC 11, IFRS 2 Group and Treasury Share Transactions This interpretation clarifies that, where a parent grants rights to its equity instruments to the employees of a subsidiary, the subsidiary will measure the services received from its employees in accordance with the requirements applicable to equity- settled share-based payment transactions, with a corresponding increase in equity. ECDC Group doesn’t have any share based payments and the standard will not affect the group financial statements. (ii) IFRIC 12 Service Concession Arrangements The interpretation clarifies the application of existing IFRSs by concession operators for obligations under concession arrangements and rights received in service concession arrangements. The group is not party to concession arrangements, and the adoption of the interpretation therefore did not have any impact on the group. (iii) IFRIC 14, IAS 19 The Limit on a Defined-benefit Asset, Minimum Funding Requirements and their Interpretation The interpretation addresses the implication of minimum funding requirements on the recognition of a defined-benefit obligation. The adoption of this interpretation did not have any effect on the group’s financial position or performance. (iv) IFRIC 15 Real Estate Sales The interpretation clarifies when real estate sales should be accounted for in terms of IAS 11 Construction Contracts or IAS 18 Revenue. The adoption of this interpretation did not have any effect on the group’s financial position or performance.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
148
149
36. FINANCIAL INSTRUMENTS AT FAIR VALUE Group 2010
2009
2008
CARRYING AMOUNT
FAIR VALUE
CARRYING AMOUNT
FAIR VALUE
CARRYING AMOUNT
FAIR VALUE
Fixed term Investments
60,409
60,409
55,140
55,140
48,789
48,789
Other investments
12,471
12,471
12,878
12,878
11,891
11,891
Listed shares at fair value
1,190
1,190
694
694
723
723
Unlisted shares at fair value
12,941
12,941
75,000
75,000
75,000
75,000
87,011
87,011
143,712
143,712
136,403
136,403
17,634
19,084
19,084
Interest bearing borrowings
15,956
15,956
17,634
Trade and other payables
104,531
104,531
100,697
120,487
120,487
118,331
17,634
58,856
58,856
77,940
77,940
Group 2010
Fixed term Investments
2009
CARRYING AMOUNT
FAIR VALUE
60,409
CARRYING AMOUNT
2008
FAIR VALUE
CARRYING AMOUNT
FAIR VALUE
48,789
48,789
60,409
55,140
55,140
Other investments
12,471
12,471
12,878
12,878
11,891
11,891
Listed shares at fair value
25,000
25,000
75,000
75,000
75,000
75,000
1,190
1,190
Unlisted shares at fair value
Interest bearing borrowings Trade and other payables
-
-
-
99,070
99,070
143,018
143,018
135,680
135,680
15,912
15,912
17,563
17,563
19,084
19,084
22,142
22,142
29,678
29,678
23,633
23,633
38,054
38,054
47,241
47,241
42,717
42,717
Determination of fair value Financial instruments with short-term maturities At year end the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximated their fair values due to the short-term maturities of these assets and liabilities. Unlisted shares carried at fair value During the year, the Corporation’s investment in Singisi Forest Products was revalued to its fair value of R 25 million. The minority shareholding in Singisi Forest Products (Pty) Ltd has been valued using the projected dividends receivable from free cash flows (excess cash). The downturn in the world economy coupled with continuing low foreign exchange rates and closer to home, the local building industry (residential market) also having experienced a downswing, has resulting in an oversupply of lumber in the national market. This affected the company revenue’s negatively experiencing both a volume and price reduction which has resulted in the marked movement in the valuation from 2009. Unlisted shares carried at cost In accordance with the accounting policy on available-for-sale financial assets, certain unlisted shares are carried at cost as their fair values could not be reliably determined, due to a lack of an active market for these instruments.
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
-
Notes to the Consolidated Annual Financial Statements
36. FINANCIAL INSTRUMENTS AT FAIR VALUE (CONTINUED) Held to maturity investments, loans advanced and interest bearing borrowings The fair values of these financial instruments are determined based on discounted cash flow techniques, taking account of market related discount rates appropriate to the instrument and economic conditions current at the balance sheet date. At this date, the fair value of the financial instruments approximated their carrying values.
37. OTHER COMPREHENSIVE INCOME Components of other comprehensive income - Group - 2010 GROSS
TAX
NET
Closing balance
24,173
-
24,173
Opening balance
(74,173)
-
(74,173)
(50,000)
-
(50,000)
Closing balance
122,528
-
122,528
Opening balance
(262,466)
-
(262,466)
(139,938)
-
(139,938)
(189,938)
-
(189,938)
GROSS
TAX
NET
Closing balance
74,173
-
74,173
Opening balance
(74,173)
-
(74,173)
-
-
-
Closing balance
262,466
-
262,466
Opening balance
(222,005)
-
(222,005)
40,461
-
40,461
GROSS
TAX
NET
74,173
-
74,173
Closing balance
222,005
-
222,005
Opening balance
(174,636)
-
(174,636)
47,369
-
47,369
121,542
-
121,542
Available-for-sale financial assets adjustments
Movements on revaluation
Total
Components of other comprehensive income - Group - 2009 Available-for-sale financial assets adjustments
Movements on revaluation
Components of other comprehensive income - Group - 2008 Available-for-sale financial assets adjustments Gains and losses arising during the year
Movements on revaluation
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
150
151
37. OTHER COMPREHENSIVE INCOME (CONTINUED) Components of other comprehensive income - Company - 2010 GROSS
TAX
NET
Closing balance
24,180
-
24,180
Opening balance
(74,180)
-
(74,180)
(50,000)
-
(50,000)
Movements on property revaluation (refer to note 2)
307,578
-
307,578
Closing balance
(263,970)
-
(263,970)
Available-for-sale financial assets adjustments (refer to note 36)
43,608
-
43,608
(6,392)
-
(6,392)
GROSS
TAX
NET
Closing balance
74,180
-
74,180
Opening balance
(74,180)
-
(74,180)
-
-
-
Closing balance
263,970
-
263,970
Opening balance
(222,005)
-
(222,005)
41,965
-
41,965
GROSS
TAX
NET
74,180
-
74,180
Closing balance
222,005
-
222,005
Opening balance
(174,636)
-
(174,636)
47,369
-
47,369
121,549
-
121,549
Opening balance
Components of other comprehensive income - Company - 2009 Available-for-sale financial assets adjustments
Movements on property revaluation (refer to note 2)
Components of other comprehensive income - Company - 2008 Available-for-sale financial assets adjustments Gains and losses arising during the year
Movements on property revaluation (refer to note 2)
Total
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Notes to the Consolidated Annual Financial Statements
38. INTANGIBLE ASSETS 2010
Group
Computer software, internally generated
2009
COST/ VALUATION
ACCUMULATED AMORTISATION
CARRYING VALUE
COST/ VALUATION
ACCUMULATED AMORTISATION
CARRYING VALUE
36
-
36
36
-
36
COST/ VALUATION
ACCUMULATED AMORTISATION
CARRYING VALUE
-
-
-
2008
Group
Computer software, internally generated
Reconciliation of intangible assets - Group - 2010
Computer software, internally generated
OPENING BALANCE
ADDITIONS
AMORTISATION
TOTAL
36
6
(6)
36
Reconciliation of intangible assets - Group - 2009
Computer software, internally generated
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
OPENING BALANCE
TOTAL
36
36
152
153
SUPPLEMENTARY
INFORMATION 1. Subsidiaries NAME OF SUBSIDIARY (CONSOLIDATED)
ISSUED SHARE CAPITAL
PERCENTAGE SHAREHOLDING
SHARES AT COST LESS PROVISION
INDEBTEDNESS LESS PROVISION
TDC property investments (Pty) Ltd
4,000
100
-
3,450
Transdev properties (Pty) Ltd
2,000
100
2,000
(10,089) 13,052
2010
Centre for investment and marketing in the Eastern Cape Cimvest (Pty) Ltd Transkei Share Investments Company Limited AIDC Eastern Cape Transido (Pty) Ltd Umthatha Small Industries Complex (Pty) Ltd
-
100
-
120
100
-
(5,057)
232,757
98
26,117,248
(15,752)
100
100
100
2,000
1,330,200
100
-
3,724
400
100
-
390
East London Industrial Development Zone (Pty) Ltd
1,000
74
740
Windsor Hotel (Pty) Ltd
100
100
100
2
100
2
Eastern Cape Marketing Authority (Pty) Ltd
1,014 26
26,120,190
(7,242)
2009 TDC property investments (Pty) Ltd
4,000
100
-
3,433
Transdev properties (Pty) Ltd
2,000
100
2,000
(7,485)
-
100
-
11,787
Centre for investment and marketing in the Eastern Cape Cimvest (Pty) Ltd Transkei Share Investments Company Limited AIDC Eastern Cape Transido (Pty) Ltd
120
100
-
(4,506)
232,757
98
26,116,789
(15,779)
100
75
75
2,000
1,330,200
100
-
8,162
Umthatha Small Industries Complex (Pty) Ltd
400
100
-
-
East London Industrial Development Zone (Pty) Ltd
1,000
74
740
-
Windsor Hotel (Pty) Ltd
100
100
100
1,012
2
100
2
17
26,119,706
(1,359)
Eastern Cape Marketing Authority (Pty) Ltd
2008 TDC property investments (Pty) Ltd
4,000
100
Transdev properties (Pty) Ltd
2,000
100
2,000
(3,769)
-
100
-
10,564
120
100
-
(4,893)
232,757
98
26,069,016
(47,961)
100
75
75
2,001
1,330,200
100
-
7,048 -
Centre for investment and marketing in the Eastern Cape Cimvest (Pty) Ltd Transkei Share Investments Company Limited AIDC Eastern Cape Transido (Pty) Ltd Umthatha Small Industries Complex (Pty) Ltd East London Industrial Development Zone (Pty) Ltd Windsor Hotel (Pty) Ltd Eastern Cape Marketing Authority (Pty) Ltd
3,454
400
100
-
1,000
74
740
-
100
100
100
462
2
100
The supplementary information presented does not form part of the consolidated annual financial statements and is unaudited EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
-
2
1
26,071,933
(33,093)
Notes to the Consolidated Supplementary information
Non-consolidation of equity interests exceeding 50% Certain of the Group’s equity investments have not been included in the consolidated annual financial statements as the Group does not exercise any control over their operations. The entities affected are Magwa Enterpise Tea (Proprietary) Limited and TIDC (Association incorporated under section 21) Ikhala Aloe has not been consolidated as the shareholding was only acquired as security and the company’s financial information is not material to the Group. Entities which were not equity-accounted Certain equity investments in which the Group holds 20% or more of the equity have not been equity accounted as the investments were only acquired to protect loan advances. The entities affected are Border Copiers and S&P Kareedow. Availability of information A subsidiary, Windsor Hotel (Proprietary) Limited, and an associate, Bushman Sands Developments (Proprietary) Limited, have been consolidated on the basis of limited information due to financial statements for the year ended 31 March 2009 not being available. 2. Interest bearing borrowings GROUP
INSTALMENT
DATE OF FINAL PAYMENT
INTEREST RATE (%)
R,000
2010
2009
2008
R,000
R,000
R,000
Development Bank of South Africa Office Block Loan
700
2012
3 MONTHS JIBAR + 0.75
2,148
2,886
3,606
Loan 13942/201
323
2011
3 MONTHS JIBAR + 0.75
538
831
1,163
Loan 13942/301
460
2016
3 MONTHS JIBAR + 0.75
3,061
3,559
4,032
Loan 13942/401
Lump som in final date
2011
3 MONTHS JIBAR + 0.75
10,208
10,287
10,283
12
2013
3 MONTHS JIBAR + 0.75
61
71
16,016
17,634
19,084
2010
2009
2008
Finance lease
1,495 CORPORATION
INSTALMENT
DATE OF FINAL PAYMENT
INTEREST RATE (%)
R,000
R,000
R,000
Development Bank of South Africa Office Block Loan
R,000 700
2012
3 MONTHS JIBAR + 0.75
2,148
2,886
3,606
Loan 13942/201
323
2011
3 MONTHS JIBAR + 0.75
538
831
1,163
Loan 13942/301
460
2016
3 MONTHS JIBAR + 0.75
3,061
3,559
4,032
Loan 13942/401
Lump som in final date
2011
3 MONTHS JIBAR + 0.75
10,208
10,287
10,283
15,955
17,563
19,084
1,483
The supplementary information presented does not form part of the consolidated annual financial statements and is unaudited EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
154
155
3. Project grants GROUP AB350
OPENING BALANCE 1,981
TRANSFERS IN
INTEREST
WRITTEN OFF/ TRANSFERS
PAYMENTS
CLOSING BALANCE
641
-
28
(2,640)
10
AIDC
-
7,000
-
-
(7,000)
-
ASGISSA
-
150,000
-
-
(150,000)
CO-OPERATIVES FUND
-
50,000
-
-
(2,346)
47,654
10,312
-
-
(27,516)
54,828
DEDEA
72,032
DRISA
5,131
-
-
-
-
17,000
-
-
210
-
5
-
(250)
(35)
79,236
-
-
-
(5,374)
73,862
131,850
-
-
(131,850)
MAGWA PREMIER'S FUND TREASURY (STEINHOF) EL IDZ
-
(93)
-
(16,300)
5,038 700
-
UVIMBA FINANCE
18,327
-
349
-
(18,676)
MTHATHA TAXI RANK
12,40
37,000
1,626
-
(12,339)
8,690
-
Total 2010
189,320
373,162
2,008
641
(374,384)
190,747
Total 2009
143,787
304,753
2,165
-
(261,385)
189,320
CORPORATION AB350
28
641
(2,640)
10
AIDC
-
7,000
-
-
(7,000)
-
ASGISA
-
150,000
-
-
(150,000)
-
-
50,000
-
-
(2,346)
47,654
10,312
-
-
(27,516)
48,651
-
-
CO-OPERATIVES FUND
1,981
DEDEA
65,855
DRISA
5,131
ELIDZ PREMIER'S FUND MAGWA
210 -
-
131,850 17,000
(93) (131,850)
5,038
-
-
5
-
(250)
(35)
-
-
-
(16,300)
700 73,862
TREASURY/STEINHOF
79,236
-
-
-
(5,374)
UVIMBA FINANCE
18,327
-
349
-
(18,676)
UMTHATHA TAXI RANK
12,403
7,000
1,626
-
(12,339)
8,690
Total 2010
183,143
373,162
2,008
641
(374,384)
184,570
Total 2009
137,610
304,753
2,165
-
(261,385)
183,143
AB350 The Corporation has been appointed as an implementing agent to revive bus transportation in the rural areas around Transkei. The funds were advanced by the Department of Roads and Transport for this purpose. Department of Economic Development and Environmental Affairs (DEDEA) The fund represents grants from DEDEA and Provincial Treasury, to be administered on their behalf. It is utilised to assist local business service centres, manufacturing technology centres and local economic development units in the Eastern Cape. Transfers to beneficiaries are only made on specific instructions from the respective Departments. Digitisation and Remanufacturing Institute of South Africa (DRISA) DRISA is a section 21 company whose main purpose is Information Communication Technologies for Development, Education and Upliftment. The fund represents amounts that were transferred by DEDEA for this purpose. East London Industrial Development Zone (Proprietary) Limited (ELIDZ) Funds transferred to the Corporation by the Department of Economic Development and The supplementary information presented does not form part of the consolidated annual financial statements and is unaudited EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
-
Notes to the Consolidated Supplementary information
Environmental Affairs to forward to ELIDZ. These payments are merely channeled through the Corporation to ELIDZ. Premier’s Fund The fund was created by the Office of the Premier. Transfers to beneficiary institutions are only made on specific instructions from the Office of the Premier. Treasury (Steinhof) The funds are for infrastructure upgrade in Ugie for the Steinhof milling plant. The Corporation is an implementing agent for these funds. Mthatha Taxi Rank The Mthatha Taxi Rank fund is held to be used to fund the development of a taxi rank in Mthatha by the Eastern Cape Department of Roads and Transport. Magwa Enterprise Tea The Department of Agriculture transferred funds for Magwa Enterprise Tea to fund operational and capital expenditure. Automotive Industry Development Centre (AIDC) The Department of Economic Development and Environmental Affairs (DEDEA) allocated funds for AIDC ‘s operational expenditure.
The supplementary information presented does not form part of the consolidated annual financial statements and is unaudited EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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15 ACP AsgiSA EC BCM BPO & O CBD CDC CIDB DEAT DFI dti ECDC ECITI ECSECC EPWP EU FDI FIFA GDP HR IBM ICT IDC IDP IDZ IECDM IT LED MEC MEDUNSA OEM PGDP RDP SDF Seda SMME Stats SA VCT
LIST OF ACRONYMS
Asset Conversion Policy Accelerated Shared Growth Initiative of South Africa Eastern Cape Buffalo City Municipality Business Process Outsourcing and Off-shoring Central Business District Coega Development Corporation Construction Industry Development Board Department of Economic Affairs, Environment and Tourism (previously known as DEDEA) Development Finance Institution Department of Trade and Industry Eastern Cape Development Corporation Eastern Cape Information Technology Initiative Eastern Cape Socio-Economic Consultative Council Expanded Public Works Programme European Union Foreign Direct Investment Fédération Internationale de Football Association Gross Domestic Product Human Resources International Business Machines Information and communication technology Industrial Development Corporation Integrated Development Plan Industrial Development Zone Integrated Emerging Contractors Development Model Information Technology Local economic development Member of the Executive Council Medical University of South Africa Original equipment manufacturer Provincial Growth and Development Plan Reconstruction and Development Programme Spatial Development Framework Small Enterprise Development Agency Small, medium and micro enterprise Statistics South Africa Voluntary counseling and testing
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
Maps, table and graphs
16 & GRAPHS
MAPS, TABLES
MAPS 7.1: Zwelakhe creams trial locations
page 44
7.2: Loan spread by district municipality in 2009/10
page 48
7.3: Total loan spread disbursement activity by municipality in 2009/10
page 48
7.4: Integrated emerging contractors development model
page 49
7.5: Highlights – Development projects
page 52
TABLES 7.1: ECDC development finance projects
page 46
GRAPHS 7.1: Increased debt collections (R’M): 2008/09 – 2009/10
page 45
7.2: Number of SMMEs financed in 2009/10
page 46
7.3: Loans disbursed to SMMEs from 2005 to 2010
page 46
7.4: Value of facilitated investments from 2005 to 2010
page 54
7.5: Commercial property portfolio
page 56
7.6: Commercial property portfolio
page 56
7.7: Rent collection from commercial and residential property from 2005 to 2010 page 56
Photography: Clint Muller and Mary-Anne Mack Mike Holmes Michael Pinyana
EXPLORING THE PROVINCE’S POTENTIAL ECDC Annual Report 2009/10
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