new south africa enterprise development pilot project · 2019. 6. 29. · access to technology...

AFRICAN DEVELOPMENT BANK

SOUTH AFRICA

ENTERPRISE DEVELOPMENT PILOT PROJECT

APPRAISAL REPORT

OSHD/SARC DEPARTMENTS

April 2015

TABLE OF CONTENTS

Currency Equivalents – Weights and Measures – Acronyms and Abbreviations – Grant

Information – RB Log-frame

i – iv

1. INTRODUCTION ......................................................................................................................................... 1

1.1 Background........................................................................................................................................... 1 1.2 Project Goal and Objective ................................................................................................................... 2 1.3 Sector Responsible for Preparing the Request ...................................................................................... 3 1.4 Justification........................................................................................................................................... 3

2. SUMMARY DESCRIPTION OF THE PILOT PROJECT ........................................................................... 5 2.1 Project Components .................................................................................................................................. 5 2.2 Expected Outputs .................................................................................................................................. 6

3. COST AND FINANCING OF THE PILOT PROJECT ................................................................................ 6 3.1 Project Cost .......................................................................................................................................... 6 3.2 Financing Plan ...................................................................................................................................... 7 3.3 Cost Estimates by Components ............................................................................................................ 7

4. PROCUREMENT .......................................................................................................................................... 7 4.1 Procurement of Services ....................................................................................................................... 7 4.2 Procurement of Goods .......................................................................................................................... 8 4.3 Procurement of Training ....................................................................................................................... 8

5. IMPLEMENTATION OF THE PILOT PROJECT ....................................................................................... 8 5.1 Implementation Schedule ..................................................................................................................... 8 5.2 Annual Work Programme and Procurement Schedule ......................................................................... 9 5.3 Executing Agency ................................................................................................................................ 9 5.4 Supervision and Monitoring ............................................................................................................... 10

6. FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS ........................................ 10 6.1 Terms of Financing ............................................................................................................................. 10 6.2 Suspension of Disbursement .............................................................................................................. 10 6.3 Legal Instruments and Authority ........................................................................................................ 11

7. CONCLUSIONs AND RECOMMENDATIONS ........................................................................................... 11

ANNEX 1: MIC GRANT REQUEST .................................................................................................................... I ANNEX 2: Detailed Description of Project and ToRs .......................................................................................... V ANNEX 3: Detailed Cost Estimates ................................................................................................................. XIV ANNEX 4: FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS ........................... XV ANNEX 5: PROCUREMENT ARRANGEMENTS AND OUTLINE PROCUREMENT PLAN ................ XXIII ANNEX 6: SOUTH AFRICA DISTRICT MAP ........................................................................................... XXVI

i

CURRENCY EQUIVALENTS

As of July 2014

1 Unit of Account (UA) = 16.3903 South Africa Rand (ZAR)

FISCAL YEAR

1 April – 31 March

WEIGHTS AND MEASURES

1 metric ton = 2204 pounds (lbs)

1 kilogram (kg) = 2.200 lbs

1 meter (m) = 3.28 feet (ft)

1 millimeter (mm) = 0.03937 inch

1 kilometer (km) = 0.62 mile

1 hectare (ha) = 2.471 acres

ii

ACRONYMS AND ABBREVIATIONS

AfDB : African Development Bank

BDS Business Development Services

DPIS : Detailed Pre-Investment Study

DPE : Department of Public Enterprise

FC Foreign Currency

dti Department of Trade and Industry

GoSA : Government of South Africa

ICT : Information and Communication Technologies

LTSP Long Term Strategic Plan

LC Local Currency

LED Local Economic Development

MIC : Middle Income Countries

RFP : Request for Proposal

SADC : Southern African Development Community

SIF Specialized Industrial Facility

SIP Specialized Industrial Platform

SIPS : Strategic Infrastructure Projects

SLA : Service Level Agreement

SMME Small Micro and Medium Enterprises

ToR : Terms of reference

UA : Unit of Account

ZAR : South African Rand

SA : South Africa

iii

GRANT INFORMATION

Client’s Information

RECIPIENT: Republic of South Africa

IMPLEMENTING AGENCY: The Department of Trade and Industry

Financing Plan

Source Amount Instrument

ADB UA 1, 200,000 MIC Grant

Government UA 258,000 GoSA

Total Cost UA 1,458,000

ADB’s Key Financing Information

MIC Grant Currency UA

Timeframe – Main Milestones (expected)

Submission of MIC Grant to Country teams : 31/07/2014

MIC Grant Approval : 25/02/2015

Effectiveness : 31/03/2015

Last Disbursement : 30/06/2018

iv

RESULTS-BASED LOGICAL FRAMEWORK

Country and project name: South Africa: Enterprise Development Support Project

Purpose of the project: To contribute towards job creation, social inclusion and the reduction of the gender poverty

gap, through supporting skills, infrastructure and enterprise development in South Africa.

RESULTS CHAIN

PERFORMANCE INDICATOR MEANS OF

VERIFICATION

RISKS/MITIGATION

MEASURES Indicator (including CSI)

Baseline Target

IMP

AC

T Reduced unemployment

and poverty incidence

a) Poverty Incidence

b) Gender poverty gap

c) Unemployment rate d) Gender gap in labour

force participation

a) 45.5% (2011)

b) 30% (2013)

c) 25.2% (2013)

d) 14% (2012)

a) 35% (2020)

b) 20% (2020)

c) 18% (2020)

d) 9% (2020)

Statistics South

Africa Reports.

OECD Reports

National Treasury

Annual reports

OU

TC

OM

ES

1. Improved capacity of

Local Municipalities in

planning and

implementing LED

Programmes.

1.a: % increase in target

Municipalities integrating

LED in their budgets;

1.b: % increase in target

Municipalities

implementing LED plans

jointly with Mining

Companies

0% (2013)

0% (2013)

25% in 2017

25% in 2017

Quarterly Progress

Reports;

dti Annual Reports

Risk: Priority of Local

Economic Development

(LED) reduces.

Mitigation: the dti will

use the stakeholder events

under the Project to

promote LED.

Risks: Inadequate

financial resources for the

maintenance of

Specialized Industrial

Facilities (SIF) set up in

pilot FET Colleges.

Mitigation: Cost recovery

approach will be

developed under the

Project for SME access to

Facilities.

2. Improved SMME

access to innovative

production technology in

pilot districts

3. Increased SME

participation in

manufacturing

% increase in SMMEs

accessing innovative

production technologies

(Specialized Industrial

Facilities) in pilot

districts

Increase in manufacturing

output from SMEs

0% (2013)

45% (2013)

30% female-

headed

SMMEs in

2017

30% male-

headed

SMMEs in

2017

55% (in 2017)

OU

TP

UT

S

1. Supporting LED:

Quarterly Progress

Reports;

dti Annual Reports

Risk: Inadequate

coordination between the

numerous stakeholders.

Mitigation: Project design

includes regular

stakeholder coordination

meetings with monitoring

by the dti.

Risk: Non-readiness of

Pilot FET Colleges to

receive SIFs.

1.1 Municipal

Authorities trained on

LED strategies

1.2 LED Maturity

Assessments reports

prepared

1.1 N° of Municipalities

trained in LED strategies

1.2 N° of LED Maturity

Assessments reports

prepared.

0 (2013)

0 (2013)

6 n° (by 2017)

31 n° (by 2017)

1.3 Regional business

activity profiles prepared

1.4 Participative

Appraisal of

Competitive Advantage

reports prepared

1.5 Business Retention

and Expansion

Strategies prepared

1.6 District Growth

Coalitions established

1.3 N° of Regional

business activity profiles

prepared

1.4 N° of Participative

Appraisal of Competitive

Advantage reports

prepared

1.5 N° of Business

Retention and Expansion

Strategies prepared

1.6 N° District Growth

Coalitions established

0 (2013)

0 (2013)

0 (2013)

0 (2013)

6 n° (by 2017)

6 n° (by 2017)

6 n° (by 2017)

6 n° (by 2017)

v

RESULTS CHAIN

PERFORMANCE INDICATOR MEANS OF

VERIFICATION

RISKS/MITIGATION

MEASURES Indicator (including CSI)

Baseline Target

2. Developing Pilot

SIFs:

2.1 SIFs set up in pilot

FET Colleges

2.2 Pilot FET Colleges

provide BDS to SMMEs

2.3 New SMMEs set up

to exploit innovative

technologies at the Pilots

2.4 Jobs created in the

SMME sector

3. Assessing the

Feasibility of Industrial

Parks:

3.1 Industrial Parks

Programme Long- Term

Strategic Plan approved

3.2 Detailed Pre-

Investment Study

(including a bankable

project with detailed

designs and financing

options) undertaken

2.1 N° of SIFs set up in

pilot FET Colleges

2.2 N° SMMEs receiving

mentoring and

counselling from Pilots

2.3 New SMMEs set up

to exploit innovative

technologies at the Pilots

2.4 N° of new jobs

created in the SMME

sector under the Project

3.1 Existence of approved

Industrial Park Strategic

Plan

3.2 Existence of approved

Detailed Pre-Investment

Study Report.

0 (2013)

0 (2013)

0 (2013)

0 (2013)

No Plan (2013)

No Report

(2013)

4 n° (by 2017)

100 n° (by

2017)

40 n° (by 2017;

40% female-

owned)

1000 (2017)

Strategic Plan

approved (by

2017)

Detailed Pre-

Investment

Study Report

approved (by

2017)

Quarterly Progress

Reports;

dti Annual Reports

Mitigation: Final

selection of pilot FET

colleges to be based on

complete readiness to

receive the Specialized

Industrial Facilities (SIFs)

Risk: Delays in recruiting

the consulting firms to

conduct pre-investment

studies and prepare the

strategic plan.

Mitigation: Bank to

provide training and

support to the dti in the

process of procuring

consulting services.

KE

Y A

CT

IVIT

IES

COMPONENTS INPUTS

1. Supporting LED::

Conduct various LED Studies with a gender perspective.

Establish Coalitions and prepare LED strategies

2. Developing Pilot SIFs:

Set up Specialized Industrial Facilities (SIFs) in pilot FET Colleges

Provide Business Development Services (BDS) to SMMEs and promote the

establishment of new SMMEs to exploit facilities.

3. Assessing Feasibility of Industrial Parks:

Prepare Industrial Parks Programme Long- Term Strategic Plan

Conduct detailed Pre-Investment Study (including a bankable project with detailed

designs and financing options)

4. Project Management:

Conduct Annual Audits of the Project

Organize stakeholder workshops and coordination meetings

Prepare quarterly progress reports

Procure Project goods and services.

INPUTS (UA) :

MIC FUND: 1,200,000

GoSA: 258,000

TOTAL: 1,458,000

1

REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP TO

THE BOARD OF DIRECTORS ON A PROPOSED MIC GRANT TO THE REPUBLIC OF

SOUTH AFRICA FOR THE FOLLOWING PROJECT: ENTERPRISE DEVELOPMENT PILOT

PROJECT

Management submits the following Report and Recommendation on a proposed MIC Grant of UA 1.2

million to the Government of the Republic of South Africa to support Enterprise Development through

Local Economic Development Strategies, pilot Specialized Industrial Platforms and a Detailed Pre-

Investment Study for Industrial Parks.

1. INTRODUCTION

1.1 Background

1.1.1 It its efforts to foster inclusiveness in the socioeconomic development of the country, the

Government of South Africa (GoSA) identified 23 district municipalities as poverty nodes in

2001. These areas, which were described as the spatial manifestation of the second economy, were

characteristically underdeveloped, contributed little to the national GDP, absorbed the largest

percentage of the country’s population and incorporated the poorest of the rural and urban poor. They

were also structurally disconnected from the relatively more developed economy of the country, and

the municipalities were incapable of self-generated growth. The GoSA later reprioritized the 23 poverty

nodes municipalities and placed mining towns at the top of the list for urgent intervention.

The mining towns face particular challenges because there is little or no economic activity planning

beyond the activities of the mining companies; most of the mining companies have now reached the

end of their lifespan and have started shutting down their operations resulting in a large number of

people who have no alternative employment opportunities after losing their jobs. It is now imperative

to build the capacity of the mining town municipalities in formulating Local Economic Development

(LED) strategies and in implementing LED programmes jointly with mining companies. The capacity

of local Small, Micro and Medium Enterprises (SMMEs) in these poverty nodes also needs to be

strengthened to enable them improve their share of goods and services provided to the mining

companies and thereby support job creation. The development of LED strategies and plans and the

capacity building initiative will be piloted in the 6 mining towns that have been identified for

immediate intervention. Youth unemployment in some of the targeted poverty nodes exceeds 60%.

With an overall lower labour force participation rate than men and a gap of about 14% (2012), the

unemployment rate for women and female youth in these poverty nodes is even higher.

1.1.2 Access to technology is one barrier that is still keeping SMMEs in the second economy in

South Africa, where they remain inefficient and less competitive. Efficient equipment and

machinery are expensive for individual SMMEs, and a large proportion of these entrepreneurs do not

have access to capital to invest in the equipment and machinery to improve their productivity,

contributing to the poverty incidence in the populations living in the second economy. On average,

women are up to 30% poorer than men in the country as a whole, and particular efforts need to be made

to ensure women participate more in entrepreneurial activities and benefit from the lowering of the

access to technology barrier envisaged under the proposed pilot project. SMMEs and self-employed

people remain a driving force for development, economic growth and the creation of apprenticeship

opportunities and jobs. They shoulder a great deal of social responsibility in their communities, where

they make a major contribution to economic and social stability. In the National Development Plan

(NDP, 2011 – Vision 2030), the GoSA counts on the job creation potential of SMMEs to contribute to

its target of creating 4.5 million jobs by 2020 aimed at reducing the high unemployment rate of 25.2%

(2013). The GoSA, through the Department of Trade and Industry (dti), has prioritized the setting up of

Specialized Industrial Facilities (SIF) within certain municipalities in order to address the access to

technology constraint faced by SMMEs in improving their productivity and competitiveness.

Specialised Industrial Facilities (SIFs) are small production facilities with equipment and machinery

that enable different users in the same sector to produce products, processes and services with ease,

2

thus increasing productivity. These equipment and machinery are expensive for individual SMMEs to

acquire but can be easily shared among a number of SMMEs. Under the proposed Enterprise

Development project, SIFs will be piloted in 4 Further Education and Training (FET) colleges and

improve access to technology and innovation to SMMEs in the surrounding communities. The targeted

SMMEs will equally receive business development services support from the FETs in order to grow

their businesses sustainably. SMMEs in the target communities will be sensitized to make use of the

SIF facilities in their communities for a minimal cost recovery fee to be determined by the dti and the

FET colleges in order to ensure sustainability.

1.1.3 The revival of industrial parks that were established in former homelands and town ships

prior to 1994 holds a potential for job creation and poverty reduction in depressed communities

in South Africa. The former homeland governments offered significant incentives such as lower taxes,

free infrastructure and premises as well as subsidized wages to investors operating in the industrial

parks. However, after 1994 the incentives were withdrawn by the GoSA and the investors abandoned

the industrial parks, the majority of which are now dilapidated. The GoSA has now prioritized the

revival of these industrial parks, aiming to ensure that they play the role they were initially designed to

play, namely in boosting manufacturing by SMMEs, job creation and poverty reduction in targeted

municipalities. The feasibility study support under the proposed Pilot Project will target a sample of the

industrial parks and enable the development of a focussed industrial clustering and planning strategy in

line with the industrialisation programme of South Africa and thereby promote inclusive economic

growth by strengthening industrial linkages, fostering value-addition activities and enhancing the

productivity of SMMEs in particular. The GoSA, through the Department of Trade and Industry,

intends to conduct a comprehensive revitalisation of the State-owned Industrial Parks that demonstrate

viability as well as to facilitate the establishment of logistics hubs to support the functioning of the

Industrial Parks.

1.1.4 The proposed Enterprise Development Pilot Project will promote an integrated approach

to SMME development by supporting demand-side and supply-side interventions in the sector.

The feasibility study for the revitalization of the Industrial parks and integration of Local Economic

Development (LED) in Municipal Development Plans will enable the generation of economic activities

that will increase the demand for goods and services from SMMEs in the second economy. On the

other hand, improving access to technology and skills to these SMMEs in the second economy will

improve their ability to efficiently supply the goods and services demanded in their municipalities. The

synergies from these interventions will improve job creation, lead to reduced poverty amongst the

youth in particular and foster inclusive growth in the economy as a whole, through increased

participation from the second economy. Furthermore, training for district municipalities shall include

aspects of managing industrial relations, which are currently having a negative impact on the

competitiveness of the South African economy.

1.2 Project Goal and Objective

The overall goal of the proposed Enterprise Development Pilot Project is to contribute to job

creation, social inclusion and the reduction of the gender poverty gap, through supporting skills,

infrastructure and enterprise development in South Africa.

Objectives:

The specific objectives of the intervention are to:

i) Improve the capacity of local municipalities in planning and implementing Local Economic

Development Programmes;

ii) Improve SMME access to innovative production technology in pilot districts; and

iii) Increase SME participation in manufacturing

3

1.3 Sector Responsible for Preparing the Request

1.3.1 The Human Development Department of the Bank is responsible for preparing the proposal.

1.4 Justification

1.4.1 The Industrial Park Revitalisation and Resuscitation Programme is anchored in South

Africa’s New Growth Path (NGP, 2010) and the Industrial Policy Action Plan (IPAP, 2014-2017) and the Programme is formulated to contribute to the attainment of the goals of the country’s Industrial

Policies and Strategies in synergy with other initiatives under these strategies. In order to achieve the

GoSA’s objective of creating 5 million jobs and reducing the unemployment rate to 15% by 2020, the

NGP aims to increase annual economic growth to sustainable rates of between 6% and 7% between

2010 and 2020. The New Growth Path identified job drivers to which the provinces of the country are

to align their development plans in accordance with their comparative and competitive advantages. The

role of women, particularly in leadership positions, in these sectors will have to be strengthened, as

their employment, for the majority, tends to remain within either the traditional female occupations or

within the domestic and farming sectors. By mainstreaming gender equality, interventions in these

sectors can thus contribute to reducing the gender gap in youth unemployment, which stands at 54% for

young women and 45% for young men (2012).

1.4.2 In order to migrate from the resource-based economic development and growth, the

GoSA has recognized the need to strengthen the manufacturing sector of the economy and to

provide the required socioeconomic infrastructure. Also, the limited skills and access to technology

of SMMEs needs to be addressed, in order to limit the constraints they face in meeting market

demands. The promotion of Industrial Parks contributes to the attainment of this objective through the

implementation of industrialisation, diversification and regional development of the country. The

support to be provided under the proposed project will enable the development of a blue print and a

model to guide the revitalization of state-owned Industrial Parks in South Africa and thereby contribute

towards sustaining industrial growth, accelerating industrial restructuring and raising the level of

competitiveness of the economy. The support will enable the conducting of a Detailed Pre-Investment

Study for the upgrade and expansion of State Owned Industrial Parks located in the former homelands

and townships of South Africa; and the development of a Long- Term Strategic Plan (Implementation

Model) for the revitalization of the Industrial Parks. The Strategic Plan shall include a sustainable

capital investment programme (bankable subprojects) and define options for revitalising existing

Industrial Parks and developing new ones.

1.4.3 Local Economic Development (LED) is a principal tool in the implementation of the

National Development Plan (NDP), 2011 (Vision 2030), which aims at creating 11 million jobs by

2030 and address the current high levels of unemployment, particularly amongst the youth. However, the analysis of competitiveness of the municipalities, market opportunities, requirements and

existing capacity, including gaps need to be conducted in order to design measures that improve the

effectiveness of municipal authorities in implementing and supporting LED programs. LED contributes

to the attainment of a number of objectives of the NDP, including Economy and employment – which

targets the proportion of working adults in rural areas from 29 percent to 40 percent by 2030; Inclusive

rural economy – which aims at creating an additional 643 000 direct jobs and 326 000 indirect jobs in

the agriculture, agro-processing and related sectors by 2030; and Building a capable and developmental

state – which aims to develop a state that is capable of playing a developmental and transformative

role, and staff at all levels have the authority, experience, competence and support they need to do their

jobs. Support to be provided under the proposed project for LED will contribute in assisting the GoSA

in implementing some NDP recommendations on improving social inclusion such as ensuring that

South Africa’s rural communities have greater opportunities to participate fully in the economic, social

and political life of the country; institutional capacity building for local governments particularly

strengthening their planning capabilities; developing neighbourhood spatial compacts to bring civil

society, business and the state together to solve problems; and strengthening local governments’

4

implementing capacity, while ensuring equitable participation of women at all levels. Training sessions

and workshops shall be conducted under the proposed Pilot Project in order to contribute to addressing

the skills gaps of the officials in targeted municipalities on LED.

1.4.4 Local authorities constitute a critical component of GoSA service delivery system and

implementation capacity constraints have led to increasing service delivery protests targeting

local municipalities. Municipal officials in the country also face capacity challenges in dealing with

local economic development issues, which hamper the generation of economic opportunities for local

SMMEs. For the mining towns in particular, the Minerals and Petroleum Resources Development Act

(2002) has made it a requirement for the mining companies in the municipalities to participate in local

economic development activities; however, the low skills levels of municipal officials impede any

meaningful collaboration with the mining companies to design and implement local economic

development programmes. Therefore, there is an urgent need to capacitate municipal officials in long

term participatory economic development planning in partnership with mining companies for the

mining period and the post-mining period in order to capitalize on all the economic opportunities of the

municipalities and develop a vibrant SMME sector that generates job opportunities and contributes to

the attainment of the manufacturing targets of the country.

1.4.5 The National Development Plan, 2011 (Vision for 2030) puts innovation and technology

development at the core of South Africa’s economic growth and notes the importance of ensuring

that Small, Micro and Medium Enterprises (SMMEs), home-based enterprises and self-employed

individuals enhance their competitiveness by increasing value-addition and productivity. SMMEs

and the self-employed are important drivers of development, economic growth and the creation of

apprenticeship opportunities and jobs. In line with the NDP, 2011, Specialized Industrial Facilities

(SIFs) assist SMMEs to improve their business performance, quality and productivity, and to adopt

appropriate technology, thereby ensuring a greater level of success as well as increased output and job

creation. SIFs further reduce duplication in financial support of similar equipment for the enterprises in

close proximity and are now an effective platform to broaden the production base, activate growth and

redress regional economic imbalances.

1.4.6 The concept of the Specialised Industrial Facilities is informed by the Informal Business

Development Strategy and aims to put the most vulnerable SMMEs to a sustainable, long-term

economic growth trajectory. A Specialised Industrial Facility is a shared small production facility

with production equipment and machinery, which is made accessible to SMMEs operating in the 2nd

economy for a competitive fee. SIFs constitute an important long-term approach for building

competence in innovation as well as competitive advantage and productivity in the informal business

sector. The proposed intervention involves the creation of tangible assets such as design and testing

centres, production and processing units, raw material depots, product display centres, training and

information centres in 4 pilot Further Education and Training (FET) colleges with priority given to

access by female-headed SMMEs, rural communities, townships and the poorer regions of South

Africa.

1.4.7 The proposed pilot project is consistent with the Bank’s 2013-2022 Strategy, and will

contribute to the implementation of the Strategy’s and the attainment of its inclusive growth

objective. The proposed intervention is also in line with the Bank’s Country Strategy Paper (CSP

2013-2017) for South Africa, which identifies support to infrastructure development, and regional

integration as its two main pillars. The pilot project is equally aligned to the Bank’s Human Capital

Strategy (2014 – 2018), which prioritizes skills development, technology and innovation. Lastly, the

intervention will contribute to the implementation of the Bank’s Gender Strategy (2014 – 2018),

especially under the women’s economic empowerment pillar through the mainstreaming of gender

equity in all the activities of the project.

5

2. SUMMARY DESCRIPTION OF THE PILOT PROJECT

2.1 Project Components

2.1.1 Project Objectives: The overall development objective is to contribute towards job creation,

social inclusion and the reduction of the gender poverty gap, through supporting skills,

infrastructure and enterprise development in South Africa.

2.1.2 Project Components: The major activities under each of the three mutually reinforcing

components of the pilot project are summarized in the sections below while further details are found in

Annex 2.

2.1.3 Component 1: Supporting Local Economic Development (LED)

Six key activities shall be conducted under this component, to support LED in six pilot District

Municipalities and provide development opportunities for SMME growth. The six pilot District

Municipalities shall be following: Sekhukhune, Lejweleputswa, West Rand, Nkangala, Waterberg and

Bojanala – these six districts have been selected by the Government as requiring immediate attention,

out of the 23 prioritised poverty node municipalities in the country, given lack of resources to cover all

23 nodes at the same time. The six District Municipalities comprise a total of 31 Local Municipalities

with a total population of 6,020,461.001. With a focus on mainstreaming gender equality in all the

activities, the following are the main activities under this component:

Conduct LED maturity assessments studies and prepare reports for the 6 District Municipalities

and the 31 Local Municipalities; the study will evaluate the capacity of Municipalities in

formulating LED strategies as well as their readiness in implementing them; municipality staff

will participate in these studies, in order to build their capacity.

Prepare regional business activity profiles, which will capture the economic potential of the

target District Municipalities and the extent to which the potential has been developed.

Carry out participative appraisal of competitive and comparative advantage studies and prepare

reports for the target District Municipalities.

Prepare business retention and expansion strategies for the 6 District Municipalities.

Establish District growth coalitions, which will constitute forums for regional economic actors;

and

Conduct District LED summits and workshops in order to provide training and address the

skills gap of the officials in targeted municipalities on LED.

In addition, the Department of Trade and Industry (the dti) will conduct a review of existing LED

strategies in the country and their alignment to national policies, using counterpart funds. The review

will contribute to the integration of the marginalised communities into the mainstream economy;

industrial decentralisation; improving local beneficiation in mining municipalities; and the

improvement of the competitiveness of marginalised regions.

2.1.4 Component 2: Developing Pilot Specialized Industrial Facilities (SIFs) with a perspective to

ensure gender equality.

Under this component, Specialized Industrial Facilities (SIFs) shall be set up in 4 pilot Further

Education and Training (FET) colleges to support skills development for students and provide

technology access to SMMEs to improve their productivity. The pilot SIFs shall be set up in the

following FET colleges: Northern Cape Urban FET College – Kimberly, Northern Cape Province;

Lovedale PFET College – King Williams Town, Eastern Cape Province; Sekhukhune FET College –

Sekhukhune, Limpopo Province; and Ekurhuleni West FET College – Germiston, Gauteng Province.

The areas of focus that will be supported with efficient SIF equipment within the colleges under the

pilot project include: construction, metal fabrication; jewellery manufacture; agro-processing; and

vehicle maintenance – these sectors have been selected due to their job creation potential. The

following principal activities shall be conducted under the intervention: 1 Statistics SA, 2011

6

Set up SIFs in 4 pilot FET Colleges, which shall include design centres and production units in

order to improve SMMEs’ business performance and productivity.

Review and develop entrepreneurship curriculum modules adapted to SIFs set up in the FET

colleges.

Create testing facilities, within the SIFs, for appropriate technologies that are accessible to

SMMEs to enhance quality of products.

Provide Business Development Services (BDS) within training and information centres set up

along with the SIFs in the target FET colleges.

2.1.5 Component 3: Assessing the Feasibility of Industrial Parks

A Detailed Pre-Investment Study (DPIS) on the upgrade and expansion of State-Owned

Industrial Parks and the Development of a Strategic Plan shall be carried out under this

component. The DPIS will include an analysis for the upgrade and expansion of a pilot of 5 State-

Owned Industrial Parks located in the former homelands and townships of South Africa, while the

Strategic Plan will include an Implementation Model for the Industrial Parks Programme aimed at

increasing the rate of industrialization and the participation of SMMEs in the manufacturing sector.

The DPIS will comprise technical, environmental, institutional, financial and economic analysis as well

as the design of bankable Industrial Park Development subprojects to facilitate investment decisions.

The DPIS will equally address the following issues: increasing the productivity of industries; fostering

inclusive economic growth considering poorer regions and gender equality; reducing the cost of doing

business and increasing the creation of employment by SMMEs.

2.1.6 Component 4: Project Management

Under the Project Management component, the following activities shall be carried out:

Conduct Annual Audits of the Project

Organize stakeholder workshops and coordination meetings

Prepare quarterly progress reports

Procure Project goods and services.

2.2 Expected Outputs

The expected outputs are detailed in Annex 2 and some are outlined hereunder:

Municipal Authorities are trained on LED strategies

LED Maturity Assessments reports prepared

Participative Appraisal of Competitive Advantage reports prepared

SIFs set up in pilot FET Colleges

Pilot FET Colleges provide BDS to SMMEs

Industrial Parks Programme Long- Term Strategic Plan approved

Detailed Pre-Investment Study (including a bankable project with detailed designs and

financing options) undertaken.

3. COST AND FINANCING OF THE PILOT PROJECT

3.1 Project Cost

The cost estimates for the pilot project are shown in Tables 1 and 2 below. The total estimated cost

of the pilot project is UA 1,458,000 (equivalent to South Africa Rand (ZAR) 23,897,037). A price

contingency of 4.5% and a physical contingency of 3% have been included in the cost estimate. The

detailed cost estimate is found in Annex 3.

7

Table 1: Project Cost Estimates

Component ZAR Cost (UA) %

Total Local Foreign Total Foreign Base

Component 1: Supporting Local

Economic Development 9,426,672 431,888 143,249 575,137 24.91 41.97

Component 2: Developing Pilot

Specialized Industrial Facilities (SIFs) 3,902,206 172,772 65,308 238,080 27.43 18.47

Component 3 – Assessing the

Feasibility of Industrial Parks 5,000,000 228,794 76,265 305,058 25.00 22.26

Component 4: Project Management 3,655,088 236,957 - 236,957 - 17.29

Total Base Cost 21,983,966 1,070,411 284,822 1,355,233 21 100

Physical Contingency (3%) 666,895 32,562 8,545 41,107

Price Contingency (4.5%) 1,000,342 48,843 12,817 61,660

TOTAL 23,651,202 1,151,816 306,184 1,458,000

Table 2: Summary of Estimated Costs by Expenditure Categories

Disbursement categories Cost in UA

Local Foreign Total Cost

Civil Works - - -

Goods 143,000 57,000 200,000

Services 479,409 160,552 639,961

Operating Cost 278,907 81,132 360,039

Total cost 901,316 298,684 1,200,000

3.2 Financing Plan

The pilot project shall be financed by a MIC grant allocation of UA 1,200,000 under the MIC Technical

Assistance Fund (TAF) and a Government of South Africa (GoSA), in-kind, counterpart fund of UA

258,000. The MIC TAF will finance 82.480% of the total cost of the project, while 17.52% will be

supported by the GoSA contribution, which will mainly cover the review of existing Local Economic

Development (LED) strategies in the country (§2.1.3) and will be reflected in the Agreement. Table 3

presents the estimated project costs by financing source.

Table 3 Estimated cost by source of financing Sources of Financing

(UA) FE % LC % Total %

ADB MIC Grant 306,184 100.00 893,816 77.60 1,200,000 82.30

GoSA Contribution - - 258,000 22.40 258,000 17.70

Total 306,184

1,151,816

1,458,000 100

Percentage 21.00

79.00

3.3 Cost Estimates by Components

The cost estimates by components is shown in Table 4 hereunder:

Table 4: Cost estimates by components Component Cost Estimate (UA)

Component 1: Supporting Local Economic Development 575,137

Component 2: Developing Pilot Specialized Industrial

Facilities (SIFs) 238,080

Component 3 – Assessing the Feasibility of Industrial Parks 305,058

Component 4: Project Management 236,957

Total Base Cost 1,355,233

Physical Contingency (3%) 41,107

Price Contingency (4.5%) 61,660

TOTAL 1,458,000

4. PROCUREMENT

4.1 Procurement of Services

The acquisition of consulting services financed by the Bank will be in accordance with the Bank’s

Rules and Procedures: “Rules and Procedures for the Use of Consultants”, dated May 2008 (revised

8

July 2012); as amended from time to time, using the relevant Bank Standard Request for Proposals

Documents, and the provisions stipulated in the Financing Agreement. The Department of Trade and

Industry (dti), the Executing Agency, through the Broadening Participation Division (BPD) will be

responsible for the implementation of the project and procurement of goods, consulting services, and

training. Given its experience in using the Bank’s Procurement Rules, the Supply Chain Management

Unit at the National Treasury, will support the Procurement Unit at the dti in conducting procurement

activities for the Project. The procurement arrangements are presented in Table 6. All selections of

consultants shall be carried out using the shortlisting process. For the consultancy services (studies), the

selection procedure will be based on Quality-and-Cost Based Selection (QCBS). The external annual

audits of the operation shall be conducted by the Office of the Auditor General of South Africa

following national procedures. However, provisions have been made for the procurement of an external

auditing firm to carry out the annual auditing of the project accounts in case the Office of the Auditor

General authorizes the recruitment of an external audit firm to conduct the exercise.

4.2 Procurement of Goods

The procurement of goods financed by the Bank will be in accordance with the Bank’s Rules and

Procedures: “Rules and Procedures for Procurement of Goods and Works”, dated May 2008 (revised

July 2012), using the relevant Bank Standard Bidding Documents, and the provisions stipulated in the

Financing Agreement. National Competitive Bidding (NCB) procedures shall be used for goods.

4.3 Procurement of Training

The procurement of training activities including seminars, workshops, travels, meetings and

communications shall be carried out using Government of South Africa procedures (“other” in

Table 6). Further information on the procurement arrangements for goods, services and training

activities is found in Annex 5.

5. IMPLEMENTATION OF THE PILOT PROJECT

5.1 Implementation Schedule

The project will be implemented over a period of three years between January 2015 and

December 2017, following its approval by the Bank. The indicative timeframe is presented in Table

5, which shows the key activities and the indicative dates for their completion.

Table 5: Indicative implementation plan

Action by

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Project Processing and Management

Grant approval AfDB

Signing Protocol of Grant

Agreement/Effectiveness

AfDB & the

GoSA

Supervision and Monitoring AfDB

Project Completion Report AfDB & the

dti



Procurement of Consulting Services the dti

Conduct Local Economic Development

(LED) Studiesthe dti

Review existing LED strategies and align to

national policiesthe dti

Conduct LED Workshops and National

Conference on LEDthe dti


Specialized Industrial Facilities (SIFs)

Procurement of Goods (equipment) the dti

Set up fo SIFs in FET Colleges the dti

Providing Business Development Support

Services to SMMEs in FET Collegesthe dti


Feasibility of Industrial Parks

Procurement of Consulting Services the dti

Conduct Detailed Pre-Investment Study

(DPIS) on the upgrade of Industrial Parks the dti

Develop Industrial Parks Programme

Implementation Strategic Plan the dti

Component 4: Project Management Support the dti

Activities/Years2015 2016 2017

9

5.2 Annual Work Programme and Procurement Schedule

The draft annual work programme is summarized in Table 5, which shows the key activities and

the indicative dates for their commencement and completion within the timeframe of the Project.

The Procurement schedule is shown in Table 6.

Table 6. The Procurement Arrangement (UA) for the activities financed under the MIC-TAF Grant Categories

NCB Shortlist Shopping Other*

Non-

Bank

Funded

Total

1 GOODS

1.1 SIF Equipment & machinery (tech. Specs

prepared by FET colleges) 200,000

200,000

2 WORKS

-

3 SERVICES

-

3.1 Local Economic Development Study

Consultancy (LED maturity assessments; Business activity profiles; Competitive advantage appraisal;

Business retention & expansion strategies)

255,332

255,332

3.2 Detailed Pre-Investment Study (DPIS) on the

upgrade and expansion of State-Owned Industrial Parks and the Development of a Strategic Plan -

Consultancy

321,379

321,379

3.3 Review of existing LED strategies and alignment to national policies (GoSA)

258,000 258,000

3.4 Annual Auditing of Project (OAG-SA)

42,853

42,853

3.5 Procurement Consultant – IC**

13,118

13,118

3.6 Project Completion Report Mission (Individual Consultant)

7,279

7,279

4 OPERATING COSTS

-

4.1 District LED Workshops / Seminars

65,588

65,588

4.2 National conference on LED

32,794

32,794

4.3 Field monitoring of activities (travel, DSA, field accommodation etc.)

134,983

134,983

4.4 Advertisements & publicity (Tender documents

and other project activities) 11,806

11,806

4.5 Project Steering Committee Meetings (quarterly)

15,741

15,741

4.6 Reporting (preparation, reproduction and dissemination; quarterly)

3,935

3,935

4.7 Project communication costs (telephone;

internet; etc.) 5,337

5,337

4.8 Validation / dissemination workshops &

seminars 32,794

32,794

4.9 Review and Design of Teaching and learning

material (Entrepreneurship curriculum development for SIFs) - MoU with FET Colleges

12,462

12,462

4.10 SIFs Facilitation (Business Development

Support and mentorship of SMMEs) - MoU with FET Colleges

44,600

44,600

TOTAL 200,000 632,682 - 410,171 258,000 1,458,000

*Other: Gov’t of South Africa procedures and Individual Consultant (IC**).

5.3 Executing Agency

5.3.1 The Department of Trade and Industry (the dti) will be the Executing Agency of the MIC

technical assistance grant.

5.3.2 Broadening Participation Division (BPD) team of the dti will be responsible for the

management and supervision of the project and for reporting to the Bank (MIC fund) on its

implementation. The team will work closely with focal points in the targeted Municipalities,

Provincial Economic Development Agencies and FET Colleges. The principal person in the BPD team

will be the Director of Innovation and Technology, who will manage the day-to-day activities of the

Project and the preparation of quarterly progress reports. The implementation of the Local Economic

Development component of the Pilot Project shall be supported by the newly created Department of

Small Business Development (DSBD). In addition, the team will be supported by Financial

Management and Procurement services of the dti that will be responsible for procurement,

disbursement and financial control and reporting. The Supply Chain Management Unit of the National

Treasury will support the Procurement Unit at the dti in conducting procurement activities for the

10

Project. The Procurement Unit at the dti will equally be strengthened with a Procurement Consultant to

support the implementation of the project. Monitoring and evaluation of the Project will be undertaken

by the BPD with support from the M&E services of the dti.

5.3.3 Strategic guidance in the implementation of the Project will be provided by a Project Steering

Committee comprised of the dti (BPD), the DSBD, the National Treasury, the Department of Higher

Education; Department of Cooperative Governance and Traditional Affairs; Private Sector

representatives ; representatives of targeted Provincial Economic Development Agencies;

representatives of targeted Provincial Economic Development Departments; and representatives of the

targeted District Municipalities.

5.3.4 To enable the effective implementation of the Specialized Industrial Facilities (SIFs)

component of the Project, Memorandums of Understanding (MoUs) shall be entered into by the

dti and the targeted FET colleges. Under the MoUs, the FETs will be responsible for developing the

technical specifications of the equipment and machinery to be procured for the pilot SIFs and for the

review and design of teaching and learning material (entrepreneurship curriculum development for

SIFs) as well as for SIFs facilitation (providing Business Development Support and mentorship to

SMMEs that access the SIFs).

5.4 Supervision and Monitoring

5.4.1 During the project implementation period, the BPD team will prepare and forward to the Bank,

within 45 days of the end of each quarter, Quarterly Progress Reports highlighting the status of

activities, disbursements made and anticipated, problems encountered and solutions envisaged, as well

as the schedule of activities for subsequent quarters. The Bank will monitor the implementation of the

project through reviews of key outputs of the project (Inception Reports, Interim & Final Reports for

studies and quarterly progress reports for SMME support activities under the SIFs and capacity

building for Municipalities under LED). The Bank will equally conduct annual supervision of the

Project.

6. FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS

6.1 Terms of Financing

6.1.1 The Dti, through the Broadening Participation Division (BPD) will be responsible for the overall

financial management aspects of the project including budgeting, recording, accounting, reporting and

audit coordination. The division will also ensure that at all times, a sound system of internal controls

governs the operations of the project to ensure that the project objectives are achieved, and that funds

are used solely for intended purposes with due care to economy and efficiency.

6.1.2 The National Treasury oversees all funds flows from ODA, and has sufficient controls around

expenditure management, payment process and bank account management. Under the project, the

Grant Funds will be disbursed to an already existing account (The Public Investment Account-PIA)

through a process outlined in Annex 4. The PIA is a Donor-pool account held with the Reserve Bank of

South Africa and the National Treasury manages and tracks funds deposited per Donor by use of GL

Accounts. 6.1.3 Disbursements to DTi (from National Treasury) will be based upon periodic requests.

Disbursements to FET colleges by the Dti shall be made from funds deposited into Dti’s account by the

National Treasury. Replenishments of both the Dti and FET colleges’ accounts shall be based on duly

submitted 6 months budgets and conditional upon full justifications of funds previously advanced. The

Direct Payment Disbursement Method could also be used for some disbursement applications. Details

of the Financial Management Arrangements are provided in Annex 4.

6.2 Suspension of Disbursement

Suspension of disbursement of MIC grant funds can take place in accordance with the Bank’s

disbursement regulations contained in the Disbursement Handbook.

11

6.3 Legal Instruments and Authority

6.3.1 The legal instrument for the grant shall be a letter of agreement between the Republic of South

Africa and the African Development Bank.

6.3.2 The letter of agreement shall become effective upon its counter-signature by the Bank.

6.3.3 The obligation of the Bank to make the first disbursement of the Grant shall be conditional upon

effectiveness of the letter of agreement in accordance with clause 6.3.2 above and the fulfilment, in

form and substance satisfactory to the Bank, of the following conditions:

a. creation of a separate portfolio (the “Special Account”) for the Grant in the South African

Government’s Reconstruction and Development (RDP) Fund; and

b. establishment of a Project Steering Committee with terms of reference and composition

acceptable to the Bank.

7. CONCLUSIONS AND RECOMMENDATIONS

7.1 Given the key role of the Small, Micro and Medium Enterprises (SMME) in supporting inclusive

growth, job creation and poverty reduction in South African, the Government has prioritized, SMME

development, Industrial Parks and Local Economic Development as essential tools for the

implementation of the New Growth Path and the National Development Plan.

7.2 In this regard, the Government of South Africa has endorsed the Department of Trade and

Industry’s MIC Grant Request towards enterprise development in support of SMMEs, Municipalities

and the Industrial Parks Programme. The intervention will, in particular, enable the conducting of a

detailed pre-investment study that will lead to bankable investment projects under the Industrial Parks

Revival Programme.

7.3 Considering the foregoing, it is recommended that a grant not exceeding UA 1,200,000 from the

ADB MIC Technical Assistance Fund be extended to the Department of Trade and Industry, through

the Government of South Africa for the purpose of co-financing the above mentioned pilot project. The

grant will enter into force immediately after the signing of the Letter of Agreement by the parties.

I

ANNEX 1: MIC GRANT REQUEST

V

ANNEX 2: DETAILED DESCRIPTION OF PROJECT AND TORS

A: Component 1: Supporting Local Economic Development

TERMS OF REFERENCE FOR LOCAL ECONOMIC DEVELOPMENT STUDY

Background

Mainly due to poor planning during the apartheid regime, mining towns were planned as dormitories

for migrant labourers and they were not set up as places where people can sustainable live in. This

resulted in little or no economic activity planning beyond the activities of those mining companies.

Unfortunately most of the mining companies have reached their lifespan and have started shutting

down their operations in these areas, resulting in big number of people who have no alternative

employment opportunities that they can look into.

The introduction of the requirement by mining companies to include Social Labour Plans has not had a

huge impact in ensuring that these mining companies engage in other economic activities that will

benefit the local economies. This could be due to the fact the Social Labour Plans are only done with

the purpose of securing mining rights by the private or also by the fact that the local municipalities who

are supposed to engage the mining companies and ensure that proper plans are put in place for the

benefit of the local economy have no capacity to do that.

The four studies that have been conducted on the mining companies-municipality interface indicate that

there has been a significant increase in the engagements between the two institutions since the

introduction of the Mineral and Petroleum Resources Development Act (MPRDA). Even though there

are these positive developments but there are a still a number of negative aspects that affect the

relationship between municipalities and mining companies which include:

Distrust, suspicion and a lack of understanding between mining companies and municipalities of

‘the world of the other’;

Weak and absent intergovernmental relations in and between spheres of government;

A lack of shared long-term visions and accompanying long-term strategic planning and plans for

municipalities with strong mining economies;

A tendency on the side of the State and mining companies to delay the tackling of major issues in

mining areas, with both hoping that ‘someone else’ will take care of these;

A lack of strategic leadership and a passion for development, coupled with a prevalence of political

infighting and a disconnect between officials, councillors and communities, which often leads to

disillusionment amongst mining companies;

A lack of alignment between (1) mining companies’ CSI and SLPs and (2) municipalities’ IDPs and

LED plans and strategies;

In the current context of Industrial unrest, which is having a negative impact on the competitiveness

of the economy as a whole, training to district municipalities in aspects of industrial relations

management are required; and

A lack of planning and preparation for cyclical mining cycles, the scaling down of mining

operations and the inevitable post-mining phase

To try and turn around this unfortunate situation and built a better relationship between the

municipalities and mining companies amongst other things the studies made the following proposals2:

Undertake capacity-building for municipal officials, officials involved in/with the mining

industry/sector in other spheres of government, municipal councillors and local communities to

strengthen their skills sets, deepen their understanding of how mining companies operate, and

enhance their ability to meaningfully engage mining companies

Strengthen skills development initiatives in local host communities to facilitate greater (1) entrance

of community members into job opportunities in mining companies and (2) procurement by mining

2 Mining company-Municipality engagements and relations in South Africa: Status Quo and Recommendations for

improvement: IDC, 2013

VI

companies of local providers of goods and services

Prioritisation of municipalities

In year 2001 the government identified twenty three (23) district municipalities as Presidential Poverty

Nodes. These poverty nodes were described as the spatial manifestation of the second economy. These

areas are characterised by underdevelopment, contributing little to the GDP, absorbing the largest

percentage of the country’s population, incorporating the poorest of the rural and urban poor,

structurally disconnected from both the First World and the global economy, and incapable of self-

generated growth. Out of the 23 prioritised poverty nodes municipalities the government has since

further reprioritised and identified mining towns as the ones that should be attended to on an urgent

basis given lack of resources to cover all 23 nodes at the same time. Therefore this capacity building

initiative will be piloted in the six mining towns that have been identified for immediate intervention.

Brief socio-economic profile of Mining Towns

The analysis below will give a brief background on the current situation in these mining areas which

will in the end be used to measure the impact of the intervention at the end of the programme.

District Municipality Population Unemployment Youth

Unemployment

GDP

Sekhukhune (5 LMs) 1 076 840 50.9% 60.6% 14 378 960 669

Lejweleputswa (5

LMs)

627 626 36.5% 48.7% 31 282 588 030

West Rand (4 LMs) 820 995 26.3% 35.2% 45 950 292 287

Nkangala (6 LMs) 1 308 129 30.0% 39.6% 82 944 205 351

Waterberg (6 LMs) 679 366 28.1% 35.5% 53 816 027 479

Bojanala (5 LMs) 1 507 505 30.7% 39.1% 89 420 962 614

Source: Statistics SA, 2011

Capacity building

Rationale

Local authorities are a very key component of government delivery system, which could be one of the

reasons why many service delivery protests target them. It is a well-known fact that there is a also a

challenge in the country when it comes to the capacity of municipal officials in dealing with economic

development issues. For the mining towns in particular, the Minerals and Petroleum Resources

Development Act has made it a requirement for the mining companies to get involved in local

economic development activities and the studies mentioned above shows that there is a change in

attitude of the mining companies but this is not matched by the skills level of municipal officials.

Therefore there is an urgent need to capacitate municipal officials in long term participatory economic

development planning in partnership with mining companies for the mining period and post-mining

period.

The capacity building programme will take mainly the form of ‘hands-on’ mentorship of local

government officials and politicians to enable them to plan and implement local economic development

initiatives in partnership with other stakeholders in their localities.

Deliverables

Inception report

50 x people who will be trained on Local Economic Development Planning and

Implementation. The combination of municipal officials and councillors, private sector

bodies and the academic sector

31 x LED Maturity Assessments reports

6 x Regional business activity profiles

6 x Participative Appraisal of Competitive Advantage reports

6 x Business Retention and Expansion Strategies

6 x Centre for entrepreneurships/Incubators

VII

6 x District LED Summits/Workshops

6 x District Growth Coalitions (Forum for regional economic actors)

1 x National conference to share lessons learnt from the intervention

Policy environment

The Local Economic Development Programme is governed by a host of legislative and regulatory

framework which the service provider must fully understand and review. These legal frameworks

include amongst others:

The Local Economic Development Policy

Industrial Policy Action Plans

Provincial Employment, Growth and Development Plans

Manufacturing Development Act No. 187 of 1993

National Development Plan

National Infrastructure Development Strategies

Project Timing

The work break down structure (WBS) of the project is expected to cover all possible and required

activities. The final report of the project is expected to be tabled not later than 6 months after the

appointment of the service provider.

Expertise Required

The team of experts of specialized service providers shall be required with the knowledge of local

economic development need an understanding of the socio economic dynamics of South Africa with

special reference to spatial economic regions. Strategies designed in the regions should take

consideration of the regional context and stage of development per district.

Qualifications and Professional Experience

The team should display the talent in this particular field of study. Recognized qualification with

documented proof might be required as well as work done in the related field of local economic

development and business development. The table hereunder indicates the key experts that should be in

the team.

Experts Estimated Time

Input (Months)

Socio-economist (Team leader) 6

Local Economic Development expert 4

Business Development and retention expert 4

Entrepreneurship development expert 3

Micro economist 3

a) Review of LED Strategies and alignment to national policies

Rationale

This component is necessitated by the fact that most of the municipalities in the country have existing

strategies but these were mainly developed by service providers and most of them are not

implementable and were developed on behalf of the municipalities and without any transfer of skills. In

addition the strategies that have been developed in the past have not taken into account the specific

challenges that are faced by individual municipalities and in the context of this project the mining

towns. Mining towns have unique challenges that need to be addressed through the development of

strategies that takes into account the current situation (when there are still mining operations) and post-

VIII

mining situation.

The Department of Trade and Industry will develop these strategies internally. The component is

expected to have the following outputs:

Credible LED Strategies

Alignment of regional economic/industrial development with provincial and national policies

Customised strategies that responds to challenges in the municipality, reflects on the changes in the

local economy and acknowledges quick economic gains (low hanging fruits);

B: Component 2: Developing Pilot Specialized Industrial Facilities (SIFs)

Summary and Background

Innovation and technology development are at the core of the country’s economic growth while

ensuring that enterprises, SMME’s and self-employed individuals enhance their competitiveness by

increasing their value-add and productivity. Therefore, competence building in innovation is an

important long-term approach for creating a competitive advantage for the economy and improving the

quality of people’s lives.

The concept of the Specialised Industrial Facilities is based on the assumption that for SMME’s to

improve productivity, the needs and dynamics in specific sectors differ, thus each sector requires a

specific innovation approach to address the needs and challenges specific to the sector.

Specialised Industrial Facility is a shared small production facility with equipment and machinery

which is made available free or at a minimum fee to small enterprises, self-employed people, street

vendors, and developing entrepreneurs. The Specialised Industrial Facilities (SIFs) are proposed to

assist small, medium and micro enterprises (SMMEs) mostly operating in the 2nd economies to be

innovative and competitive and offer these SMMEs opportunities to access appropriate technologies

and skills to exploit technology.

These SMMEs are committed to improving their competitiveness however, they need appropriate

information to keep abreast of all changes and a supporting infrastructure which can help them select

and apply the techniques and technologies best suited to their own businesses. The key thrust of the

SIFs is to encourage enterprises to carve out new markets, expand their level of business and hence

their contribution to the wider economy including the creation of new employment opportunities.

The role of the Specialised Industrial Facilities (SIFs) in promoting economic growth has been

significantly recognised both in developed and developing countries. The SIFs are now widely

considered as an effective platform to broaden production base, activate growth and re-dress regional

economic imbalances. However, access to technology is one barrier that is still keeping SMMEs in the

2nd economy to make businesses more competitive, faster and simpler than before. Many of these

entrepreneurs do not have own capital to invest in the equipment and machinery to improve their

productivity.

1. DESCRIPTION

The Specialised Industrial Platform/Facility (SIF) is defined as a small production facility with

equipment and machinery which enables different users in the same sector to produce

products/processes/services with ease thus increasing productivity. These equipment and machinery are

extremely expensive for individual SMME to acquire, however they may be easily shared among a

number of users.

IX

The SIF involves the creation of assets like testing facility, design centre, production unit, training and

information centre. These SIFs will be established at the FET Colleges, to mitigate the risk of

escalating costs associated with the management and maintenance of such centres and leverage on the

expertise that exist in these institutions for the benefit of emerging and established small enterprises.

Priority will be given to rural communities, townships and poor regions. This intervention aims to put

the SMMEs to sustainable, long-term economic growth; and to reduce the burdens on SMMEs.

The main beneficiaries of this intervention are the small and medium-sized enterprises as well as self-

employed people who are the driving force for development, economic growth and the creation of

apprenticeship opportunities and jobs. Such enterprises are not only at the heart of our country’s

economic capacity, they also shoulder a great deal of social responsibility in their communities. They

make a major contribution to economic and social stability.

2. RATIONALE AND OBJECTIVES

The main objectives of the project are to:

Establish design centre and production units in order to improve SMMEs business performance

and productivity

Create testing facilities for low technologies that are available for SMME’s to enhance quality

of products

Establish and facilitate the use of training and information centre for SMME’s in the specific

sector

Adopt appropriate technology ensuring a greater level of success; and increased turnover and

job creation.

The establishment of SIF’s will further reduce duplication in financial support of similar

equipment for SMMEs in close proximity. SIFs will enable the growth of SMMEs which are

able to create more employment.

X

Logic Model for establishment of SIF

Machinery for Acquisition Sekhukhune FET

College

Lovedale PFET College Northern Cape

Urban FET College

Ekurhuleni West

FET College

Static Brick making

machine

Spray booth Welding tools Sewing machines

Marula processing

machines for skin

products

Spray booth

Chassis straightener (to straighten

accident-damaged vehicles)

Carpentry machine Fabrication machine

Vehicles diagnostic

machine

Paint-mixing bank Jewellery

manufacturing tools

Oven for bakery

Furniture making

machine

Air compressor (to supply air under

pressure to preparation and

finishing spray booths

Carpentry machine

Mig brazer/aluminium welder (to

braze and weld body parts)

Electrical tools

Button machine

M7 EX Block making machine

Inputs Outcomes

Long-term

Activities Outputs Short-term

Entrepreneurial

Training

Courses

Business

Skills

Development

SMME

Training and

Mentoring

Manufacturing/

Production

Facilities

Increased number of

sustainable business

Development Employment

Creation

Improved production

processes for SMME

Infusion of

Technologies into

small business

New Technologies

New/Improved

product design and

manufacturing

Technology

development

and adaptation Leveraging on

Municipal Tenders

Reduced production

cost for SMME

Increased number of

emerging SMME

Increased number of

SMME in a specific

sector

Formation of Large

Industries

Business growth and increased

revenue for SMME

XI

C: Component 3: Assessing the Feasibility of Industrial Parks

TERMS OF REFERENCE FOR RESUCITATION AND REFURBISHMENT OF INDUSTRIAL PARKS

1. INTRODUCTION

The Department of Trade and Industry seeks the services of a multi- disciplinary firm(s) of service provider professionals to develop a blue print for the implementation of the Industrial Parks Programme. This Programme includes the resuscitation and refurbishment of the Industrial Parks in South Africa with special reference to Industrial Parks located in the former homelands and townships as well as developing a model for national intervention for creation of new Industrial Parks in order to promote industrialisation and improving spatial economic growth with specific focus on the manufacturing sector. This document will contribute to the development of a focussed industrial clustering and planning and target the industrialisation programme of South Africa, thus promoting inclusive economic growth by strengthening industrial linkages, increasing value-added activities and enhancing productivity. The Department of Trade and Industry in collaboration with the Provincial Economic Departments in South Africa intend to do comprehensive revitalisation of the State owned Industrial Parks that demonstrate viability and facilitate the establishment of Logistics Hubs to support the functioning of the Industrial Parks. 2. BACKGROUND South Africa is faced with underlying economic structural weaknesses, which include the consumption driven growth path and the relatively low competitiveness of manufacturing industries compared to service sectors. The New Growth Path and Industrial Policy Action Plan (IPAP) provided an intensified industrial development direction and strategic thrust for the South African economy. The new growth path identified job drivers which the country should align their plans to and customises them as per comparative and competitive advantages. Furthermore both IPAP and the New Growth Path re-emphasised the key sectors which provinces should prioritise their efforts on in order to support employment creation. These sectors are namely;

Infrastructure

The agricultural value-chain

The mining value-chain

The green economy

Manufacturing sectors which are included in the IPAP2, and

Tourism and certain high-level services. In order to improve competitiveness, there is a need to develop robust industrial policies and strategies which can be implemented as projects and programmes that will improve both the rate of industrialisation and the quality of the outputs ensuring inclusive industrial growth. One of the ways to achieve this objective, is through the promotion of Industrial Parks so as to contribute in the industrialisation, diversification and regional development of the country. The economy hasn’t optimised the utilisation of the Industrial Parks to promote investment growth and spatial development especially at a municipal or metro level. The challenges facing the existing Industrial Parks in the country range from poor infrastructure, dilapidated buildings, poor management, not aligned to municipal and provincial economic strategies and lack of investment. These challenges can be alleviated by providing assistance to management agencies, in this case Provincial Development Agencies, to refurbish the Industrial Parks/Estates. It is therefore in the same sentiment that the he promotion of industrial development has become an integral part of South Africa’s industrial policy as enshrined in Industrial Policy Action Plan, National Industrial Policy Framework and the Provincial Employment, Growth and Development Plans.

XII

3. RATIONALE The purpose of the Industrial Park Revitalisation and Resuscitation Programme is to ensure that all the Industrial Policies and Strategic imperatives are attained. The Revitalisation and Resuscitation Programme should lead to the following: 3.1. Promoting growth in the manufacturing sector and value addition, migrating from dependency on

primary sectors; 3.2. Promoting participation of the SME’s in the manufacturing sector; and 3.3 Promoting regional and spatial development through the industrialisation process of previously

marginalised areas.

4. PROBLEM STATEMENT There is limited availability and/or access to economic infrastructure (such as (1) financial

systems, (2) business logistics, (3) manufacturing infrastructure, and all other support

infrastructure (power and energy, transport, communication, water reticulation, sewerage and

sanitation) for those who need to get involved in value addition of natural resources.

However government through its fiscus is struggling to allocate its limited resources to provide

assistance for manufacturing and value addition. In order to migrate from the resource based

economic development and growth, Government need to strengthen the manufacturing sector of

the economy to provide effective economic infrastructure and all support infrastructure.

It must be borne in mind that an attempt to provide such infrastructure was made but its state

and ability to attract investors, grow the economy and create jobs is minimal. It is therefore

important to device a big bang approach to turn around the status quo.

5. OBJECTIVES

The primary objective of these terms of reference is to develop a blue print and a model to

guide the establishment of an effective Industrial Park that shall facilitate the attainment of the

South African Industrial Policy and Strategic Objectives, which will contribute towards

sustaining industrial growth, accelerating industrial restructuring and raising the level of

competitiveness of the economy through:

• Restoring areas that might be old, unsuitable or unusable; • Expanding supply of services and well-developed industrial area; • Increasing property values and their attractiveness; • Encouraging existing businesses to stay; • Attracting new investment; • Providing opportunities and incentives for current businesses expansion; • Stimulating local economy; • Creating new jobs; • Increasing availability of land and buildings satisfying specific quality standards and regulatory

standards; and • Addressing spatial economic challenges and inequalities.

6. LIMITATIONS

There is currently no blue print as to how the then Government Industrial Parks were

established except that they were intended to achieve separate development objectives of the

previous dispensation which are not sustainable. And there is also no model to utilise in the

conceptualisation of new Industrial Parks in pursuing industrialisation and regional

development.

XIII

7. DELIVERABLES

Inception report

Scoping report including an assessment of the performance of the existing SEZ/FTZ in SA and the lessons learnt.

Industrialization Resuscitation and Revitalisation Programme based on amongst others o Regional Industrial Comparative advantage o Regional Industrial Competitive advantage o Industrial Clustering alternatives o Market Analysis report o Financial Analysis report o Skills Requirement report

8. POLICY ENVIRONMENT

The Industrial Development Programme is governed by a host of legislative and regulatory

framework which the service provider must fully understand and review. These legal

frameworks include amongst others:

The New Growth Path: The Framework

Industrial Policy Action Plans

Provincial Employment, Growth and Development Plans

Regional Industrial Development Strategy

Provincial Industrial Development Strategies

National Industrial Policy Framework

Manufacturing Development Act No. 187 of 1993

National Development Plan

National Infrastructure Development Strategies

9. PROJECT TIMING

The work break down structure (WBS) of the project is expected to cover all possible and required activities. The final report of the project is expected to be tabled not later than 10 months after the appointment of the service provider. 10. EXPERTISE REQUIRED

The team of experts of specialized service providers shall be required with the knowledge of economic and financial modelling that shall need understanding of the socio economic dynamics of South Africa with special reference to spatial economic regions. Models replicated in the regions should take consideration of the regional context and stage of development per region. 11. QUALIFICATIONS AND PROFESSIONAL EXPERIENCE

The team should display the talent in this particular field of analysis. Recognized qualification with documented proof might be required as well as work done in the related field of economic development and investment. The table hereunder indicates the key experts that should be in the team.

Experts Estimated Time Input (Months)

Economic & Financial Analyst (Team leader) 10

Socio-economist and gender expert 8

Industrial Development expert 4

Market Analyst 3

Skills development expert 3

XIV

ANNEX 3: DETAILED COST ESTIMATES Item N°

Description Units Q'ty Unit Cost Total Base Cost Source of Financing



ZAR UA ZAR UA

1 1.1 Local Economic Development Study Consultancy (LED maturity assessments;

Business activity profiles; Competitive

advantage appraisal; Business retention & expansion strategies)

u 1 3,893,000 237,519 3,893,000 237,519 ADB

2 1.2 District LED Workshops / Seminars u 6 166,666.67 10,169 1,000,000 61,012 ADB

3 1.3 National conference on LED u 1 500,000 30,506 500,000 30,506 ADB

4 1.4 Review of existing LED strategies and alignment to national policies

(GoSA)

u 1 3,933,672 240,000 3,933,672 240,000 GoSA

Sub-total Component 1 - 9,326,672 569,036


Specialized Industrial Facilities (SIFs)

-

5 2.1 Review and Design of Teaching and

learning material (Entrepreneurship curriculum development for SIFs) - MoU

with FET Colleges

u 1 190,000 11,592 190,000 11,592 ADB

6 2.2 SIFs Facilitation (Business

Development Support and mentorship of SMMEs) - MoU with FET Colleges

u 1 680,000 41,488 680,000 41,488 ADB

7 2.3 SIF Equipment & machinery (tech.

Specs prepared by FET colleges)

u 1 3,278,060 200,000* 3,278,060 200,000 ADB

Sub-total Component 2 - 4,148,060 253,080 ADB


Feasibility of Industrial Parks

-

8 Detailed Pre-Investment Study (DPIS)

on the upgrade and expansion of State-Owned Industrial Parks and the

Development of a Strategic Plan -

Consultancy

u 1 4,900,000 298,957 4,900,000 298,957 ADB


Component 4: Project Management -

9 Field monitoring of activities (travel, DSA, field accommodation etc.)

u 1 1,943,710 125,566 1,943,710 125,566 ADB

10 Advertisements & publicity (Tender

documents and other project activities)

U 1 180,000 10,982 180,000 10,982 ADB

11 Project Steering Committee Meetings (quarterly)

U 12 20,000 1,220 240,000 14,643 ADB

12 Reporting (preparation, reproduction and

dissemination; quarterly)

u 12 5,000 305 60,000 3,661 ADB

13 Project communication costs (telephone; internet; etc.)

month 36 2,260.5 138 81,378 4,965 ADB

14 Validation / dissemination workshops &

seminars

u 1 500,000 30,506 500,000 30,506 ADB

15 Annual Auditing of Project yr 3 200,000 13,288 600,000 39,863 ADB

Procurement Consultant - Individual yr 1 200,000 13,118 200,000 13,118 ADB

16 Project Completion Report Mission

Individual Consultant

u 1 50,000 6,772 50,000 6,772 ADB


Total Base Cost - 22,229,820 1,370,233

Physical Contingency (3%) 666,895 33,607

Price Contingency (4.5%) 1,000,342 54,160

TOTAL 23,897,057 1,458,000

* Max amount: contingency inclusive.

XV

ANNEX 4: FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS

FINANCIAL MANAGEMENT ASSESMENT REPORT

Summary description of Project

The EDP project aims to contribute towards job creation and poverty reduction through supporting

enterprise development in South Africa. This will be achieved through three interlinked components,

namely; Supporting Local Economic Development (LED), Developing Pilot Specialized Industrial

Facilities (SIFs) and Assessing the Feasibility of Industrial Parks. The total estimated cost of the pilot

project is UA 1,458,000 (inclusive of contingencies) and shall be financed by a MIC grant allocation of

UA 1,200,000 under the MIC Technical Assistance Fund while the Government of South Africa shall

finance the rest.

Summary Country Issues

The Government of South Africa has over the years been reforming its Public Financial Management

(PFM) systems focusing upon among other things, the establishment of a legal and regulatory

framework to strengthen and improve upon the transparency, comprehensiveness and credibility of the

budget, debt management and external scrutiny and oversight. This has continued to yield significant

benefits as indicated in the last PEFA (2008) that showed that South Africa has generally well

performing PFM systems at the national level. A 2014 PEFA assessment is currently underway.

Overall, fiduciary risk is deemed low, with a sound Public Financial Management system in place at

central Government level as enforced by the Public Finance Management Act of 1999. However there

still remains room for improvement at the municipal and provincial governments which has been

characterized by some unfavorable audit reports from the Office of the Auditor General. These

weaknesses in the municipal and provincial governments have been mainly attributed to capacity

constraints, both in terms of human skill and systems; staff turnover amongst the skilled FM personnel

also remains a contributory factor. Other concerns at all levels of Government include budgetary

disclosure deficiencies by some departments and in accuracy of in-year reporting, both which have a

negative impact on the transparency indicators.

The Government of South Africa is working on all the currently existing gaps through two major

instruments, 1) A comprehensive PFM reform program which includes the improvement of the ICT

environment; and 2) A PFM Capacity Development Strategy which now targets both the National and

Provincial Governments. Success in delivering on these will go a long way in minimizing impact of

existing gaps and even further narrow them down. There is a PFM Capacity Building Unit within the

National Treasury that is coordinating these reforms and quarterly meetings are held with the PFM

Donor Coordination group that provide opportunities for development partners to share experiences

related to the various PFM disciplines. The project will be implemented at the Central level and hence

will use the existing country systems.

Risk assessment and mitigation

The Bank’s principal concern is to ensure that project funds are used economically and efficiently for

the purpose intended. Assessment of the risks that the project funds will not be so used is an important

part of the financial management assessment work. The risk features are determined over two elements:

the risk associated to the project as a whole (inherent risk) and the risk attached to a weak control

environment of the project implementation (control risk). The content of these risks is described below.

XVI

Risk Type Risk

Ratin

g

Risk Mitigating Measures

Incorporated into Project

Design

Conditionali

ty (Y/N)

Residua

l Risk

Rating

Inherent risk H

Country level

Various diagnostic work

reports (including the

2008 PEFA) have pointed

out major concerns on

PFM at provincial and

municipal levels of

Government. The project

is mainly intended for

beneficiaries within

municipality and

provincial governance.

H

The project implementation

will be centralized/

concentrated at the Central

Government level, the Dti

will be the implementing

agency whilst the National

Treasury will play a key role

in funds management and

reporting. A comprehensive

PFM reforms program is

underway and have been

expanded to include

municipalities particularly in

areas of training and system

development.

N

M

Entity level

The day to day

implementation of the

Project will rest with the

Broadening Participation

Division (BPD), which is

currently under the Dti,

and uses all the shared

systems, personnel and

procedures of the Dti.

However, following a

Cabinet reshuffle in May

2014, the BPD will

migrate to a newly

formed Department

(Ministry) of Small and

Medium Enterprises,

modalities and logistics

remain largely unknown.

M

The project implementation is

based entirely on central

Government systems, which

are uniform across all

Government departments

(ministries). The Dti has

assured the migration, should

it happen during project

implementation, will be well

managed to avoid disruptions.

Further, the involvement of

the National Treasury will

provide the necessary

continuity.

N

L

Project level

The project, despite its

small size will be

implemented with

involvement of multiple

partners; i.e. National

Treasury, BPD, and at

least three FET colleges

across different provinces

of South Africa

The Dti also has no

experience with Bank

funded projects

M

The Dti will assume the

central coordinating role as

well as the overall

responsibility over the project.

There will be training and

support provided by the Bank

during the implementation of

the project

Y

L

XVII

Risk Type Risk

Ratin

g



Design

Conditionali

ty (Y/N)

Residua

l Risk

Rating

Control Risk M L

Budgeting: The Project

resources are immaterial

from the perspective of

the National Budget of

South Africa, although

implementation will

follow the National

Budget execution

mechanisms. This could

lead to non-alignment in

budget vs. expenditures

for the project.

M

At the point of receiving

funds, budget lines shall be

introduced into the IFMIS,

against which expenditures

shall be posted as and when

payments take place. The

system will not allow

payments against codes to

which no budget allocation

exist.

N

L

Accounting:

No material risks

identified

N/A

N/A

Internal Control:

No material risks

identified

N/A

N

N/A

Funds Flow:

The National Treasury’s

procedures for ODA’s

funds are not fully

consistent with Bank’s

rules on use of Special

Accounts as they call for

commingling of funds.

Commingled funds face

risk of diversion to

purposes other than the

intended.

The project design is such

that funds for some

operating expenditures

will be disbursed to the

FET colleges, where

monitoring mechanisms

may need to be

reinforced.

M

An assessment into the

procedures reflect that despite

the commingling, the systems

in place adequately maintain a

visible trail of funds flow with

minimal chances of

undetectable diversion of

funds. The disbursement

division (FFCO.3) have

agreed to the procedures on

an earlier project and Bank

funds have already been

disbursed under the same.

Dti is already working with

FET colleges on a Project

under which they disburse

funds to FET colleges, the

established monitoring

mechanisms will be

applicable to the project.

Confirmation

of PIC and

related Grant

specific GL

account

details to the

Bnk

L

XVIII

Risk Type Risk

Ratin

g



Design

Conditionali

ty (Y/N)

Residua

l Risk

Rating

Financial Reporting

The project will be

implemented entirely via

Government PFM

systems. The National

accounts of the Republic

may render some projects

transactions/amounts

immaterial for disclosure,

thus resulting in deficient

reporting for Bank’s

purposes.

M

The Project’s financial

reporting will be prepared on

a separate basis in accordance

with the Bank’s information

requirements.

N

L

Auditing:

Whilst the financial

statements will be

prepared for the Project

on a ring fenced basis, the

Auditor General audits

the Department’s

Accounts as a whole. And

due to immateriality, the

Project funds may fall

outside the scope on the

AG’s work.

M

A specific request will be

made to the AG for the

Project, and resources have

been earmarked for an

independent external auditor

should the AG decide to

outsource the Audit. There is

a sufficient number of

competent audit firms in

South Africa.

N

L

OVERALL FM RISK M L

Strengths and Weaknesses

Strengths

The Implementing Entity has experience of implementing Donor funded projects, and the proposed

implementation mechanism with the FET colleges have been adopted and applied in ongoing projects

funded by other donors

Weaknesses

The Project implementation team is not familiar with the Bank’s project implementation procedures

(including those for Financial Management and Procurement).

Description of the Implementing Entity

The Project will be implemented by the Department [Ministry] of Trade and Industry (Dti), under

which the Broadening Participation Division (BPD) will be responsible for the day to day operations.

The Dti is headed by a Director General, who reports to the Minister of the Department (Ministry). An

executive board exists to provide strategic direction of the department and this comprises the Heads of

Divisions (at Deputy Directors-General level), Group Chief Financial Officer (GCFO), Chief Financial

Officer (CFO), Group Chief Operations Officer (GCOO), Head of Ministry, and Head of

Communications and Marketing, and is chaired by the Director-General. In addition to the Executive

Board, the following specialized sub committees also exist: Operations Committee, the Bid Evaluation

Committee and Bid Adjudication Committee, the ICT committee, the Audit Committee and Risk

Management Committee.

XIX

Reporting to the Director General are nine Deputies, each heading a specialized division, including the

BPD under which the project will be implemented. The Dti recruits its own finance personnel for

posting to different divisions, but all remaining under the Chief Financial Officer’s Directorate.

Although vacancies exist under this Directorate, the project implementation will not be directly

affected as the BPD has already identified suitably qualified individuals to assume responsibility over

the Project transactions who are expected to be in place for project implementation

Some activities will be conducted at identified beneficiary institutions, i.e. Sekhukhune, Lovedale,

Northern Cape Urban and Ekurhuleni West Further Education Training Colleges FET). These colleges

are colleges are established and governed in terms of the Further Training Colleges Act of 2006 (As

amended by the Higher Education and Training Laws Amendment Act of 2010. Each of the FET

colleges have a council, which appoints a number of sub committees including Finance and Audit &

risk committees. During appraisal, a visit was undertaken to the Ekurhuleni FET College, the largest of

the four. The Deputy Principal Academic Affairs will assume overall responsibility of the project at

college level, where funds will be managed through the CFO’s office. The CFO heads the finance

department, which is adequately staffed with persons of consummate qualifications and skills. The

accounting environment is fully computerized (making use of Integrated Tertiary Solutions - ITS) and

bank accounts are managed through cashbooks based on this system. The ITS also incorporate other

generic sub modules – creditors, debtors, procurement and assets. The College adopts the Treasury

Instructions as issued by the National Treasury and on its basis, bank reconciliations are conducted and

reviewed timely on a monthly basis. All other colleges operate on these basis, which are adequate for

the purposes of managing the grant funds.

Budgeting Arrangements

In terms of Section 52 of the PFMA, the annual budgets are due for submission to the Treasury not

later than thirty (30) days before the commencement of the relevant financial year. Such budgets are

policy based and based on national priorities at Central Government level. However, due to the Grant

amounts and nature of the pilot project, the Project budgets will not necessarily be consolidated to the

National Budgets, hence the preparation process will also be project specific. The Dti will prepare work

and procurement plans for the entire project, which will be subject to the approval of the Bank on the

basis of which project annual budgets shall be prepared for approvals following the Dti established

Governance process.

Key Accounting Policies and procedures

The South African Government’s public finances are guided by the Public Finance Act No.1 of 1999,

which is complemented by the Treasury Regulations of 2005 which cover all key areas of PFM

including planning and budgeting, expenditure management, internal control, accounting and reporting.

The regulations are reviewed every four years following established procedure and are widely

distributed through both the web and intranet. Staff have sufficient levels of understanding. The

Government’s financial systems are computerized and make use of an Integrated Financial

Management Information System, i.e. the Basic Accounting System (BAS) which is based on the

Government’s standard Chart of Accounts.

BAS allows transaction origination and/or entry to be directly posted to the appropriate function or

project (including ad-hoc ones), the system also allows for activation of additional GL accounts and

sub accounts based on strict approval by the National Treasury. This will allow for the project budgets

and associated transactions to be captured in an identifiable manner within the system. To ensure

integrity of the system and its content, there is sufficient segregation of duties between system users

and administrators, and any direct entries to the GL are subject to approvals of journal entries.

Passwords are issued with level of security controls depending on ‘view only’ or view and post’

requirements, this therefore ensures integrity of sub GL accounts. Supporting documents are neatly

filed away and retained for a period of up to 7 years. Accounting is on cash basis and adopts IPSAS.

The Government’s accounting policies, procedures and systems in application at the Dti are sufficient

for the purposes of implementing the project, as such no additional requirements will be placed. The

XX

FET colleges, which will receive some funds for operations expenses (once of workshops and

seminars) are also governed by the PFMA and the Treasury Regulations.

Internal Control and Internal Auditing

Based on the Government’s legislative framework, Treasury Instructions and systems in place (see

above), the Dti’s internal control environment is assessed as adequate. Most key processes are bases on

the IFMIS. The payment system is computerized, such that any payment has to be allocated from a

‘pulled up’ invoice already input into the system and different users are involved in this process.

However, manual supporting documents are still maintained in a systematically arranged filing system

for ease of reference as and when needed. Such supporting documents are part of submissions for

payments authorizations, and are stamped ‘PAID’ once processed to eliminate possibilities of double

payment.

Banking, Cash and Investment framework of the Government are governed by Section 7 of the PFM

Act, whose provisions guided the drafting of the relevant policy and its procedures enshrined in both

the Treasury Instructions and BAS. The Dti currently maintains a single Bank account with a

commercial Bank, into which the National Treasury disburses the department’s allocated funds. It is

also the account from which funds for other Dti’s units (including the FET colleges intended to benefit

under the EDP pilot project) are disbursed3. This account is well managed with monthly reconciliations

performed and approved not later than 11 days after month end.

Payments are all based on an Electronic Funds Transfer (EFT) platform with which controls are strict,

the officer loading payment requests is different from the ones authorizing payments and this is made

possible through the use of access rights passwords.

The Dti has a fully-fledged Internal Audit Department in house, headed by an appropriately qualified

Chief Internal Auditor reporting directly to the Director General. The findings and recommendations of

the internal audit department are timeously acted upon through departmental heads and there is regular

feedback reporting on progress, which the internal audit department cross checks. From time to time,

the Internal Audit department does include ad hoc projects in their annual work plans based on timely

requests received from project managers. It has been agreed that the Internal Audit department will be

requested to conduct the EDP pilot project at least at its mid-term.

Funds Flow and Disbursement Arrangements

The National Treasury oversees all funds flows from ODA, and has sufficient controls around

expenditure management, payment process and bank account management (See sections above on

accounting policies and internal controls). This will permit an exclusive use of the Special Account

method as requested by the Dti, being the preferred method by the National Treasury for smaller

Grants.

However, as per agreed procedures (in prior grant funded operations currently ongoing), the Bank has

exceptionally acceded to a request that the Grant Funds will be disbursed to an already existing account

(The Public Investment Account). The process will be as follows: 1) The Bank disburses funds to the

Public Investment Account held with the Reserve Bank of South Africa 2)The National Treasury

manages and tracks funds deposited per Donor by use of GL Accounts 3) As and when the Dti is to

spend, they place a request with the National Treasury, which then disburses the required funds to the

Dti’s Bank account held with a commercial Bank (currently Standard Bank of South Africa). The rest

of the justification process follows Bank procedure, and interim reporting between the National

Treasury and the Dti will take place on a monthly basis, outlining the status of the funds held in the

Public Investment Accounts.

Disbursements to FET colleges by the Dti shall be made from funds deposited into Dti’s account by the

National Treasury. Replenishments of both the Dti and FET colleges accounts shall be based on duly

submitted 6 months budgets and conditional upon full justifications of funds previously advanced.

In addition, the reimbursement method shall remain available for use in accordance with Bank rules.

3 The finalization of procedures relating to funds transfers to FET colleges, as well as their management will be subject to a

review of systems at the FET colleges, which is planned to take place before final approvals of the Grant.

XXI

The entire disbursement process will be in accordance with Bank’s disbursement rules which will be

outlined at Project launching.

Below is a graphic illustration of the proposed funds flow.

Financial Reporting

There is regular financial reporting at the Dti as guided by standing Treasury Regulations applicable at

central Government level. Quarterly management accounts are prepared by the for use by the Dti

management as well as the National Treasury, however, these does not ordinarily contain sufficient

details of smaller ad hoc projects funded through the ODA mechanism.

The Government’s fiscal year runs from 1st April to 31

st March. In accordance with the PFMA, annual

financial statements are due for submission to the Auditor General (who has been assessed as

competent in prior Bank assessments) not later than 31st May each year. The Auditor General has a

statutory timeline of 2 months within which to complete his audit and issued an audit report. By the 31st

August, an annual report (that include audited financials) is due for submission to the Minister in the

Dti, who then tables it to Parliamentary Portfolio committee on Public finances not later than the 30th

of

September. A review of past audited financial statements of the have not revealed any material

malpractices in the preparation of annual financial statements.

However, due to the size of the EDP pilot project, as well as the quantum of expected transactions, the

project financial reports (both quarterly and annual) will be prepared on a ‘stand alone’ basis. This is

mainly due to the fact that the project amounts could be below the disclosure thresholdsfor the Dti’s

own financial statements.

Formats of the financial reports will be developed and agreed during project launching but in any

event, the financial statements will include (i) a Statement of Financial Position that shows Assets and

Liabilities ; (ii) a Statement of Sources and Uses of Funds showing all the sources of Project funds,

expenditures analyzed by Project component and or category; (iii) a Summary of Withdrawals using

SOE, listing individual withdrawal applications by reference number, date and amount; and (iv) Notes

related to significant accounting policies and accounting standards adopted by management and

underlying the preparation of financial statements. These will be due not later than six (6) months after

the end of the financial year and project closure.

ODA Investment GL Level

Accounts

FET

College

FET

College

FET

College

SERVICE PROVIDERS

ADB PIC Ac

(NT)

Dti Bank

Account

XXII

On a quarterly basis, the Dti shall ensure that the overall Interim Project Progress Report contains

sufficient financial management information, reflecting among others sources and uses of funds, total

expenditures classified by Project component, against associated quarterly budgets as well as budget

forecasts for the next quarter. The Interim Project Progress Report shall be due not later than 45 days

after the end of the quarter.

External Audit

The Dti is audited annually by the Auditor General, as required by the PFMA. The statutory limits as

outlined in this annex (see section on ‘Financial Reporting’) are well complied with, i.e. the Auditor

General receives unaudited financials by 31st May each year and issues the audit reports not later that

31st July each year. The 2013 audited report was issued on the 31

st July 2013. The Auditor General

conducts his audit in terms of the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA),

the General Notice issued in terms thereof and International Standards on Auditing and has not brought

any accountability issues in his audits for the past three years. The Auditor General’s recommendations

are timeously implemented and the Internal Audit department periodically monitors progress.

To this end, the Project’s separate annual financial statements, fully disclosing project receipts and

associated expenditures by component be the responsibility of the Auditor General, and copies of the

audited statements and audit reports shall be submitted to the Bank not later than 30th

September each

year. However, should the Auditor General approves the audit to be outsourced, a competitive selection

process complying with the Bank’s procurement rules shall be undertaken, and associated costs shall

be paid from the Grant resources. In either case, the audit shall comply with bank approved Terms of

Reference.

Condition to first Disbursement

Confirmation of Special Account details (i.e. The Public Investment Account details plus the relevant

Grant GL Account details) in a form and manner acceptable to the Bank.

Supervision plan

Based on the current risk assessment, on site financial management supervision shall take place at least

once a year supplemented by another desk review based supervision which will be undertaken at least

once a year as well.

XXIII

ANNEX 5: PROCUREMENT ARRANGEMENTS AND OUTLINE PROCUREMENT

PLAN

1. All procurement of goods, and acquisition of consulting services financed by the Bank will be

in accordance with the Bank’s Rules and Procedures: “Rules and Procedures for Procurement of

Goods and Works”, dated May 2008 (revised July 2012); and “Rules and Procedures for the Use of

Consultants”, dated May 2008 (revised July 2012); as amended from time to time, using the relevant

Bank Standard Bidding Documents, and the provisions stipulated in the Financing Agreement. The

Department of Trade and Industry (dti), the Executing Agency, through the Broadening Participation

Division (BPD) will be responsible for the implementation of the project and procurement of goods,

consulting services, and training. Given its experience in using the Bank’s Procurement Rules, the

Supply Chain Management Unit at the National Treasury, will support the Procurement Unit at the dti

in conducting procurement activities for the Project. The procurement arrangements are presented in

Table 5 hereunder. All selections of consultants shall be carried out using the shortlisting process. For

the consultancy services (studies) the selection procedure will be based on Quality-and-Cost Based

Selection (QCBS) and National Competitive Bidding (NCB) for goods.

Table 5. The Procurement Arrangement (UA) for the activities financed under the MIC-TAF Grant

Categories


Non-

Bank

Funded

Total

1 GOODS

1.1 SIF Equipment & machinery (tech.

Specs prepared by FET colleges) 200,000

200,000

2 WORKS

-

3 SERVICES

-

3.1 Local Economic Development Study

Consultancy (LED maturity assessments;

Business activity profiles; Competitive

advantage appraisal; Business retention &

expansion strategies)

255,332

255,332

3.2 Detailed Pre-Investment Study (DPIS)

on the upgrade and expansion of State-

Owned Industrial Parks and the


Consultancy

321,379

321,379

3.3 Review of existing LED strategies and

alignment to national policies (GoSA) 258,000 258,000

3.4 Annual Auditing of Project (OAG-

SA) 42,853

42,853

3.5 Procurement Consultant – IC**

13,118

13,118

3.6 Project Completion Report Mission

(Individual Consultant) 7,279

7,279

4 OPERATING COSTS

-

4.1 District LED Workshops / Seminars

65,588

65,588

4.2 National conference on LED

32,794

32,794

4.3 Field monitoring of activities (travel,

DSA, field accommodation etc.) 134,983

134,983

4.4 Advertisements & publicity (Tender

documents and other project activities) 11,806

11,806

4.5 Project Steering Committee Meetings

(quarterly) 15,741

15,741

4.6 Reporting (preparation, reproduction

and dissemination; quarterly) 3,935

3,935

4.7 Project communication costs

(telephone; internet; etc.) 5,337

5,337

4.8 Validation / dissemination workshops

& seminars 32,794

32,794

4.9 Review and Design of Teaching and

learning material (Entrepreneurship

curriculum development for SIFs) - MoU

12,462

12,462

XXIV

Categories


Non-

Bank

Funded

Total

with FET Colleges

4.10 SIFs Facilitation (Business

Development Support and mentorship of

SMMEs) - MoU with FET Colleges

44,600

44,600

TOTAL 200,000 632,682 - 410,171 258,000 1,458,000

*Other: Gov’t of South Africa procedures and Individual Consultant (IC**).

2 To enable the effective implementation of the Specialized Industrial Facilities (SIFs)

component of the Project, Memorandums of Understanding (MoUs) shall be entered into

between the dti and the targeted FET colleges. Under the MoUs, the FETs will be responsible for

developing the technical specifications of the equipment and machinery to be procured for the pilot

SIFs and for the review and design of teaching and learning material (entrepreneurship curriculum

development for SIFs) as well as for SIFs facilitation (providing Business Development Support and

mentorship to SMMEs that access the SIFs).

3 Documents to be approved by the Bank during procurement:

6.2.1 General and Specific procurement notices;

6.2.2 Short-list of consultancy firms;

6.2.3 Letter of invitation to Consultants (RFPs);

6.2.4 Technical and Financial/Final evaluation reports;

6.2.5 Bidding documents for goods;

6.2.5 Draft contracts, if these have been amended from the drafts included in the tender

invitation documents;

6.2.6 Amendments to the signed contracts, if any; and

6.2.7 TOR for annual audit.

4 For the procurement of services estimated to cost UA 200,000 and above, the Request of

Expression of Interest (REoI) shall be published in the UN Development Business (UNDB online)

and Bank’s website. For the procurement of services below UA 200,000, the announcement shall be

published in local and regional newspapers.

5 The external annual audits of the operation shall be conducted by the Office of the Auditor

General of South Africa following national procedures. However, provisions have been made for

the procurement of an external auditing firm to carry out the annual auditing of the project accounts in

case the Office of the Auditor General authorizes the recruitment of an external audit firm to conduct

the exercise.

Goods Contracts with Procurement Methods and Time Schedule:

Package description

Estimated

Amount in

UA

Procurement

Method

Pre-or Post-

Qualification

Dom. or

Regional

Preference

Prior or

Post

Review

SPN

Publication

Date

Contract

Start

Date

SIF Equipment &

machinery (tech. Specs

prepared by FET

colleges)

200,000 NCB Post N/a Prior Feb 2015 May

2015

XXV

Services Contracts with Procurement Methods and Time Schedule:

Description Selection

Method

Lump sum or

Time-Based

Estimated

Amount in

UA (‘000)

Prior/Post

Review

EOI

Publication

Date

Contract

Start Date

Local Economic Development Study

Consultancy (LED maturity

assessments; Business activity profiles;

Competitive advantage appraisal;

Business retention & expansion

strategies)

QCBS Lump sum 255,332 Prior Feb 2015 June 2014

Detailed Pre-Investment Study (DPIS)

on the upgrade and expansion of State-

Owned Industrial Parks and the


Consultancy

QCBS Lump sum 321,379 Prior Feb 2015 July 2014

Annual Auditing of Project (OAG-SA) OAG or LCS Lump sum 42,853 Post Sept 2015 March

2015

Procurement Consultant - IC IC Lump sum 13,118 Post Feb 2015 April 2015

Project Completion Report Mission

(Individual Consultant) IC Lump sum 7,279 Post Dec 2016 April 2017

XXVI

ANNEX 6: SOUTH AFRICA DISTRICT MAP

Project Districts:

Sekhukhune (47); Lejweleputswa (18); West Rand (48);

Nkangala (31); Waterberg (36);

and Bojanala (37).