EAANNUALstERn CAPE DEVElOPMEnt CORPORAtIOn REPORT · b) Leveraging of resources, strategic...

EAstERn CAPE DEVElOPMEnt CORPORAtIOn

ANNUALREPORT

2014/15

Published by:Eastern Cape Development CorporationOcean Terrace Park, Moore Street, Quigney, East LondonPO Box 11197, Southernwood, 5231, South Africa© Eastern Cape Development Corporation, 2014

Enquiries:Marketing and Communications DepartmentEastern Cape Development CorporationTelephone: +27 43 704 5600 • Fax: +27 43 704 [email protected] • www.ecdc.co.za

ISBN: 978-0-620-67506-2Eastern Cape Development Corporation (ECDC) Annual Report 2014/15

Contents1 About Ecdc 04

2 boArd of dirEctors 10

3 chAirPErsoN’s forEword 16

4 ActiNg chiEf ExEcutivE 22 officEr’s rEPort

5 ExEcutivE MANAgEMENt 28

6 chiEf fiNANciAL officEr’s rEPort 32

7 oPErAtioNs rEviEw 38

8 huMAN rEsourcEs rEPort 62

9 ENtErPrisE risk MANAgEMENt 68

10 PErforMANcE AgAiNst 72 PrEdEtErMiNEd objEctivEs

11 govErNANcE rEPorts 78

12 ANNuAL fiNANciAL stAtEMENts 101

AnGoRA RABBItWool

R800 000of risk capital

to Equipt Consulting for establishmentof textile factory

company spins

AnGoRARABBIt fIBRe

PRoduCes

hIGh-end PRoduCts eg. gloves, scarfs etc

1ABouteCdC

ABout eCdC

VisionTo be an innovative leader in promoting sustainable economic growth and development of the Eastern Cape.

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

a) Provision of innovative development finance.b) Leveraging of resources, strategic alliances, investment and partnerships.

Corporate Values Integrity

In all our dealings with all people we are known for our spirit of honour, reliability and accuracy.

Professionalism We are defined by our positive, presentable demeanor and our quest for continuous improvement.

Accountability We are always ready to give truthful, accurate account of our use of company time, assets and opportunities.

Teamwork None of us is as productive as all of us when we complement each other to achieve a common goal.

What we value we become

Eastern Cape Development Corporation AnnuAL RePoRt 2014/1505

Legislative MandateECDC draws its mandate directly from the Eastern Cape Development Corporation Act (Act 2 of 1997) and is led by the economic development priorities of the provincial government, as detailed in the Provincial Growth and Development Plan (PGDP), Eastern Cape Provincial Industrial Development Strategy (PIDS), the policy statements and budget speech of the Member of the Executive Council (MEC) of Economic Development, Environment Affairs and Tourism (DEDEAT).

Section 3 of the ECDC Act states that the Corporation shall “plan, finance, co-ordinate, market, promote and implement development of the Province and its people in the fields of industry, commerce, agriculture, transport and finance”.

Strategic Goals & ObjectivesIn support of its Corporate Plan and strategy, the ECDC has set itself the following strategic goals:

Goal 1: Deliver a transformed and sustainable organisation.

Goal 2: Stimulate economic development through focused investment in vital sectors of the Eastern Cape economy.

These goals are underpinned by a commitment to long-term financial sustainability through making development core to business, securing optimal revenue streams and ensuring sustainability. The Corporation will also ensure that there are sound strategic partnerships and stakeholder engagement.

Clear strategic goals, supported by corresponding, well aligned strategic objectives have been identified to ensure that the ECDC succeeds in the delivery of its mandate.

06

Alignment of strategicgoals with measurable objectives1. Deliver a transformed and sustainable organisation

1.1 To optimise organisational financial performance and sustainability.1.2 To implement and manage sustainable and financially viable strategic property investments.1.3 To ensure efficient alignment of organisational resources and systems.1.4 To establish integrated partnerships with stakeholders to ensure maximum leverage of resources and development outcomes.

2. Stimulate economic development through focused investment in vital sectors of the provincial economy

2.1 Provide loans and services to qualifying beneficiaries. 2.2 To effectively administer and implement desired developmental strategies of administered funds.2.3 To support socio-economic transformation.

Core Business AreasTo be a development finance corporation for the promotion of economic growth in the Eastern Cape, ECDC renders a variety of services related to the following operational areas:

• PropertyInvestmentsandDevelopment• BusinessFinance• RiskCapitalFacility• GovernmentFundedProgrammes(AdministeredFunds) - ImvabaCo-OperativeFund - JobStimulusFund - BusinessSupport - Investment and Trade Promotion - Market Access• IntegratedSocialInfrastructureDeliveryProgramme(ISIDP)


umoyAIR soLutIonsA Cutting Edge Innovation in Mobile Network Marketing

R1.05 millionrisk capital

for application development

application designedfor platforms such as

AndRoId, Ios, BLACkBeRRy

Works on hardWare such asseRveRs,

ComPuteRs, testInG & vALIdAtIon

2BoARd ofdIReCtoRs

Sub-committees•Governance& Nomination Committee, Chairperson

Qualifications•B.Com(University Botswana&Universiry of Swaziland)•MBA(BentleyUniversity)•Mastersdegreein Education (Ed.M) (HarvardUniversity)

Current Position•SeniorAssociate:NMMU Centre for Intergrated Post School Education and Training•Coordinator:Ilima Community Economics

Directorships•NelsonMandela InstituteforEducation& RuralDevelopment

nhLAnGAnIso dLAdLACHAIRPERSONOFTHEBOARD

AppointedOctober 2014

Sub-committees•Funding&Investment Committee, Chairperson•Governance& Nomination Committee,

Qualifications•MBAFinance (cumlaude)(University of Massachusetts, Amherst)•BAHons(Economics) (UCT)•BA(Economicsand Industrial Sociology) (Rhodes)

Current Position•ExecutiveChairman: Jiya Associates

Directorships•BannowAfrica•RTIHoldings•RTIEnergyAfrica

LoyIso JIyADEPUTYCHAIRPERSONOFTHEBOARD

AppointedOctober 2011

Qualifications•B.Agric(Universityof FortHare)•B.AgricHonours (UniversityofFortHare)

•MasterofBusiness Leadership(Universityof South Africa)

Directorships•None

ndzondeLeLodLuLAneACTINGCHIEFEXECUTIVEOFFICER

AppointedJanuary 2015

Sub-committees•Audit,Risk& Compliance Committee, Chairperson•Funding&Investment Committee•Governance& Nominations Committee

Qualifications•CA(SA)•B.Com,Accounting (UniversityofNatal)•HonoursBachelorof Accounting Science (UniversityofSouth Africa)

•PostgraduateDiploma inAuditing,(University of South Africa)

Current Position•Chairmanofthe BoardofDirectors: Lumoka Chartered Accountants

Directorships•Kwazulu-Natal SharksBoard•LumokaStrate

PAmeLABosmAnAppointedOctober 2014


Sub-committees•Social&Ethics Committee, Chairperson•HumanResources& Remuneration Committee

Qualifications•BA,Honours(University ofWestminister,UK)•CertificateinStrategic Management(University ofStellenboschBusiness School)

Directorships•SaCOilLimited•KarooMining Development (Pty) Ltd•ErnestMaqetuka FamilyTrust•FutureForesightGroup

mzuvukILemAqetukAAppointedNovember 2012

Sub-committees•Funding&Investment Committee•Social&Ethics Committee

Qualifications•B.Com,Logistics (UniversityofSouth Africa)•PostGraduate Diploma in Public Management (RegenesysSchoolof Public Administration)

•MastersInTown &RegionalPlanning (UniversityofKwaZulu- Natal)

Current Position•Director:NLKNHolding

Directorships•ILIMATrust

sImPhIwethoBeLAAppointedOctober 2014

Sub-committees•Funding&Investment Committee•HumanResources& Remuneration Committee

Qualifications•BA(Universityof FortHare)•BA,Honours (UniversityofFortHare)

•MasterofArts, Anthropology(Boston University)

Current Position•Director:Mirrione


mALusIdAmAneAppointedOctober 2014

Sub-committees•Audit,Risk& Compliance Committee•Funding&Investment Committee

Qualifications•B.Acc,Financial Accounting(University of South Africa)•IndividualProfessional Certificate, Public FinancialManagement (UniversityofLondon)

•MSc,PublicPolicyand Management(University of London)

Current Position•DeputyDirectorGeneral: MunicipalFinancial Governance:Eastern Cape Treasury


BuLeLwAnqAdoLoAppointedNovember 2012

12

Qualifications•B.Acc,Honours (UniversityofTranskei)•CertificateinTheory of Accounting•HigherDiplomain Auditing•SAICAITC(QE1)


sAndILesentwACHIEFFINANCIALOFFICER

AppointedAugust 2012

Sub-committees•Audit,Risk& Compliance Committee•HumanResources& Remuneration Committee•Governance& Nominations Committee

Qualifications•B.Juris(Universityof Transkei)•LLB(Universityof Transkei)

Current Position•AdvocateofHighCourt•MemberoftheSociety of Advocates of Transkei &Bhishoaffiliatedwith the General Council of theBarofSouthAfrica

Directorships•MayibuyeTransport•ZulukamaDevelopment Trust

AdvoCAtemAthoBeLAsIshuBAAppointedOctober 2014

Sub-committees•HumanResources& Remuneration Committee, Chairperson •Audit,Risk& Compliance Committee•Social&Ethics Committee

Qualifications•B.Compt,Honours•PostGraduateDiploma, FinancialManagement

Current Position•ExecutiveChairmanand SoleDirector:About Survival Consulting Agency (ASCA). •ConsultingAdvisor (Governance&Financial Management)

Directorships•GautengProvincial LegislatureBoard (Audit Committee)

•MineHealthandSafety Council (Audit Committee)•DepartmentofEnergy (RiskCommittee)•NationalHeritage Council (Audit Committee)•TshwaneNorthTVET College (Council)•Mpumalanga Department of Agriculture (RiskCommittee)•Mpumalanga Department of Social Development (Audit Committee)•EasternCapeProvincial Treasury (Audit Committee)•EasternCape Department of Social Development (Audit Committee)•ASCA(Ownermanaged enterprise)

nAndIsIwAhLA-mAdIBAAppointedOctober 2014


mC BAvu ConstRuCtIonMxwele Clinic in Mthatha

R9 millionin loans

emPLoys moRethAn 42

Builds schools,clinics & other infrastructure

3ChAIRPeRson’s foRewoRd

Nhlanganiso dladla

ChAIRPeRson ofthe BoARd

ChAIRPeRson’s foRewoRdThe 2014/15 financial year presented challenges which threatened to erode the Eastern Cape Development Corporation’s (ECDC) hard-won reputation as a trusted steward of public assets, as well as being a competent agent of socio-economic development in the Eastern Cape Province. Forone,ECDCmovedintothe2014/15financialyearsaddledwithanunfortunatecloudemanatingfromitsroleinthemishandling of financial authorisations surrounding the funeral arrangements of the late State President in the third quarter of the 2013/14 financial year. This, in addition to earning the organisation a qualified audit and occasioning tumult in relations among the leadership collective of the organisation, also brought ECDC under the unflattering glare of a critical media and a nonplussed public, as well as the consternation of public oversight bodies in the province and further afield, including piquing the attention of the Public Protector. The latter’s report is still outstanding at the time of issuing this annual report.

Notwithstanding the organisation’s financial standing as a going concern, ECDC continues to be burdened with a number of historical encumbrances which can threaten the future health and efficiency of the organisation if not decisively dealt with. These include the continued ownership of certain non-strategic assets such as property with a history of poor rental collections, unsatisfactory repayments and recoveries on loans – the perennial bane of development financiers in depressed regional economies such as ours, and a long outstanding undercapitalisation of the organisation.

As behoves an organisation of our nature, however, difficulties encountered should trigger pauses for a deep and honest introspection, against a determination to address such challenges decisively. To this end, the following has happenedandisinprocess:

• ArevitalisedBoardofDirectorswasappointedbytheshareholderMECatthebeginningofthethirdquarterofthe reviewperiod.ThecurrentBoardcomprisesahealthymixofinstitutionalmemoryintheretentionofthreemembers fromthepreviousBoard,andaninfusionofnewenergyinsixnewmembersintroducedinSeptember/October 2014.ThenewBoardmovedquicklytorefocusthestrategicdirectionoftheorganisation,whiledealingdecisively with concerns affecting the stability of the organisation, including treating allegations of misdemeanour carried over from the previous financial year.

• Thedevelopmentofarevisedstrategyfortheorganisationduringthelastquarterofthefinancialyearunderreview. The new strategy is built against a careful consideration of the strategic priorities of the province, an appreciation of key challenges facing the organisation, as well as a mindfulness for opportunities we may not be taking full advantageof.Amongstthelatterare: - Re-gearingourselvesforasmarterutilisationofourcapablehumanresourcetoaffordusamoreresponsive and efficient organisation, - A more strategic leveraging of partnerships to accentuate delivery against mission, - Improving the accessibility and efficiency of the organisation in all parts of the province, as well as encouraging innovation at local levels through a properly managed devolution of relevant delegations, which can also enhance our footprint.

• AnimprovementinrelationsbetweentheBoardandexecutivemanagement,evenasprobitywithintheorganisation isbeingtightenedthroughourinternalauditfunctionandAudit,RiskandComplianceCommitteeoftheBoard.In additiontotheintra-organisationalimprovementofworkingrelationswithintheBoard-executiveleadership collective, is the development of a healthy relationship of trust as well as improved communication between the organisation and shareholder department.

18

Remouldingandbuildingastrong,fit-for-purposeECDCwiththerightstrategicfocusisawork-in-progress,andrequiresus to dig deep in resolve, creativity and energy. Important elements of the foundation are in place, while some essential outstanding pieces are being addressed. Included in the latter are the appointment of a full Chief Executive Officer, held in abeyance per understanding with the shareholder while a review of public entities in the province is being conducted by the National and Provincial Treasury. Also to be addressed in the new financial year is a realignment of the organisational structure to respond to the strategic refocusing of the organisation.

Alltold,however,weareinnodoubtthat,betweentheBoard,executivemanagement,andsupportoftheshareholderdepartment, we are on course to working the organisation back from the trough it has found itself in over the past year and a half, and placing it back at a position where it can be a trusted agent of development in the province, as well as worthy partner for public and private organisations in the province, nationally and abroad.

Gratitude Finally,IwouldliketoexpressmygratitudetotheHonourableMECforFinance,EconomicDevelopment,TourismandEnvironmental Affairs, Sakhumzi Somyo, for his continued support and guidance in a very demanding and challenging operationalenvironment.IwouldalsoliketoextendappreciationtofellowBoardmembersfortheirsupportaswellas their collective and incisive wisdom in handling with diligence a complex and broad mandate. In addition, gratitude goes to the executive team for their patience and diligence in the execution of the ECDC mandate.

Nhlanganiso dladla Chairperson of the Board


mAkAnA wAteRCRIsIs InteRventIon

At Makana Local Municipality

R92.8 millionof integrated social

infrastructure development programme funds

two-yeARwAteR CRIsIs InteRventIon

PRoGRAmme

R59 millionspent on

project implementationin 2014/15

James Kleynhans Water Treatments Works

Electrical Transformers at Howisons Poort Pump Station Upgrade of 10.3km 11kV line at Howisons Poort

4ACtInGChIefeXeCutIveoffICeR’sRePoRt

Ndzondelelo dlulaneACtInG ChIef

eXeCutIve offICeR

ACtInGChIef eXeCutIveoffICeR’s RePoRtI am pleased to present a measured reflection and considered appraisal of the performance of ECDC as well as its operating environment in the 2014/15 review period. My tenure as acting Chief Executive Officer of ECDC began in the last quarter of the period under review. This was a particularly difficult period as the corporation had to provide sustainable solutions for the various challenges it inherited during the last quarter of the 2013/14 financial year. The consequence was organisational instability which threatened to undermine stakeholder and shareholder confidence in the institution. As such, the review period necessitated the application of inspired and inventive solutions to improve staff morale as well as organisational productivity.

The most urgent task was to ensure the restoration of a conducive environment for ECDC and its people to discharge the business on a well-equipped and resourced platform enabling delivery of the required shareholder value and socio-economic dividend. The significance of prioritising this aspect is recognising that the aspirations of thousands of small businesses in the province rely on the ability of the corporation to deliver robust and vibrant financial and non-financial instruments to unlock energised economic activity in the Eastern Cape. The process of reshaping public perceptions and rebuilding confidence in the corporation’s ability to deliver on its stated mandate is therefore underway.

Strategy ReviewWithalargelynewBoardinplacebytheendofthethirdquarteroftheperiodunderreview,theBoard,undertheleadership of the new chairperson Nhlanganiso Dladla impressed upon executive management the need for the deployment of capable and committed human capital and resources to ensure that the corporation maintains and rebuilds its quest to attain its high-performing development finance institution aspirations.

Tothisend,theBoardassumedaconsultativeanddeliberatecollaborativeapproachwithmanagementtoundertakeastrategy review process which should continue to provide the necessary resolve to achieve the ultimate goal of a high-performingdevelopmentfinanceinstitution(DFI).Assuch,bytheendofthethirdquarterthebuildingblockstowardsrealisationofthisvisionhadbeenamassedandculminatedinafinalBoard-approvedstrategybytheendFebruaryof2015.

The strategy recognises the rural architecture of the province which means that the majority of small businesses particularly those at the lower end still encounter challenges in accessing financial services from formal financing institutions. This is largely because of the perceived inherently risky nature of this market category as a result of the vulnerability of their small businesses as they generate narrow margins making them susceptible to market vagaries, as well as lack of the requisite collateral largely required by private lenders and commercial financiers to cushion their exposure.Furthermore,thehightransactioncostsinvolvedinpackagingandmanagingloansinthiscategorydeterprivate lenders and commercial financiers. In this regard, the need to provide innovative and inventive development finance and concomitant support becomes ever more urgent to create a financial intermediation base for small businesses as a precursor for crowding in financial capital in the lower end of the market.

The strategy review was also aimed at ensuring the alignment of the corporation’s business with the National and Provincial imperatives also taking into account the geographic dynamics of the province. In recognition of these elements, the strategy review culminated into a focused direction which resulted into two strategic goals. The first goal which is more outward looking is premised on stimulating economic activity while the latter is concerned with the optimisation of resources to maximise investment returns and achieving sustainability to accentuate the continuous SMME support for the betterment of the economy.

These strategic goals will be realised through the implementation of four core business areas which are development finance and business support aimed at providing financial and non-financial support to SMMEs and aiding in job creation. The second business area is innovation which includes risk capital, trade and investment promotion and coordination aimed at researching and developing new industries and testing their efficacy in support of SMME development. The third business area is priming ECDCs property stock to provide working space for businesses operating in the hospitality and industrial sectors. Lastly, strategic projects have been identified to support government in the development of integrated social and economic infrastructure. This should also provide the much needed alternative revenue source to enable ECDC to augment its development mandate. All these core business components operate in concert for contribution towards economic development and growth.

24

Strategic ThrustsSome of the key thrusts of the strategy are to strengthen the regional offices which constitute the distribution channels and outreach for the organisation in providing support to SMMEs. As a result, and subsequent to the approval of the strategy, the corporation is busy finalising the structure review to align it to the approved strategy.

EquallyimportantisthedevelopmentofanEnterpriseResourcePlan(ERP)whichwillhelpinstrengtheningtheplanneddevolutionofsomeauthoritytotheregionsthroughfacilitatingtheprocesslogistics.ImplementationoftheERPwillhelp address the current fragmented system challenges which thwart effective resource management. The structure review and ERP implementationwill help optimise resource allocation for improved efficiency.Thisresource allocation talks to staff among other things particularly in matching human resources to their strengths for optimal performance. In view of the opportunity created to assist in social infrastructural development, our procurement system had to be reinforced and augmented in order to accommodate this new challenge. This meant ensuring the recruitment of properly skilled staff able to deal with high-level infrastructure procurement in support of the roll-out of social infrastructure.

CapitalisationThe strategy reemphasises the critical need to properly capitalise ECDC if the central tenets of the strategy are to be realised. This is on realisation that for the sustainability of the organisation, and in the interest of attaining a high-performingDFIgoal, thevalueof the loanbookneeds tobehighlyelevated in theECDCbalancesheet.The loanbook and properties are potentially the main revenue generators within the ECDC core business. However, these are currently not performing to desired levels due to inadequate capital within the organisation. The capitalisation issue is crucial considering that a strong loan book remains the main feature of a high-performing development financier. The property portfolio requires revitalisation for better market posture to enable decent revenue generation for boosting ECDCs financial health in the interest of the economy. This will also help to reduce ECDCs dependence on the fiscus over time.

Delivery EnvironmentWhile the strategy review provided the required clarity of thought and impetus for operational delivery, the economic environment continues to stunt growth prospects. Since the 2008 downturn, economic recovery has been very slow which continues to impact on the performance of the already vulnerable SMMEs due to the narrow margins they generate from their businesses, thus impacting on payment capacity thereof resulting in high loan and rental impairments. This necessitates restructuring and workouts interventions to keep those businesses that still have potential to recover afloat.

Operational HighlightsDespite the above stated challenges, ECDC continued to discharge its mandate in a diligent and resourceful manner in order to provide empowering business support interventions to the SMME sector. In this regard, ECDC disbursed R96.5millionworthofloansto261enterprises.Theseloansresultedinthecreation,savingandretentionof1431jobs.In2014/15,ECDCcollectedR141millioninloanrepayments.ECDCsdevelopmentfinanceunitentirelydependsonloanrepayments for the financing of the loan book. During the review period, a total of 337 SMMEs received non-financial support. This support is in the form of business plan development; assisting with branding and marketing of the SMME businesses, training of the entrepreneurs in various aspects of the business, facilitation of marketing of the products of the enterprises, etc. ECDCs creative industries programme has assisted over 80 art and craft enterprises with accessing national and international markets through exposing their products to various expos and exhibitions.

Furthermore,ECDCsriskcapital facilityspentmore thanR17.5million insupportofentrepreneurswhopresentedviable business ideas. The support came in the form of research, feasibility studies, trials and pilots, market studies andenvironmental impactassessments.Theseinterventionsledtothecreationof469jobswithR93millionworthof third party funding leveraged into these projects. ECDCs risk capital fund is pivotal in researching, testing and de-risking emerging and new industries preparing them to be able to absorb commercial funding instruments towards their viability. This creates a fertile ground for crowding in other financiers into the provincial development financial intermediation space.

In addition, the corporation continued to sharpen its investment and trade promotion instruments in the period under review. In2014/15,ECDCfacilitated investmentofR672million intotheprovincetargetingprioritysectorssuchasmanufacturing, agro-processing, forestry, ICT and film as well as renewable energy.


ECDCsIntegratedSocialInfrastructureDeliveryProgrammespentsomeR59millionintheperiodunderreviewintheimplementationofMakanaLocalMunicipality’swatercrisisinterventionprogrammes.AnamountofR98.2millionhasbeen allocated to this project over the next two years. The programme is focused on six intervention areas namely electrification, major pump station capacitation, raw water rising mains, plant production and supply capacity as well as water loss control.

The corporation’s property portfolio stretches across the province and has the potential to create significant rental income while providing a conducive operating space for commercial investors and industrialists. However, a critical aspect of this is the need for rationalisation of assets, particularly the disposal of non-performing and non-revenue generating stock and the development of vacant land to increase this role. Income generated from the disposal of the identified assets will be used to revitalise high-potential properties.

RentalrevenuecollectedfromtheoverallpropertyportfoliostandsataboutR61millionduringtheyearunderreview.This stillmaintains an increasing trend compared to previous years. Following its batch disposal approach, ECDCcontinued with the disposal process of standalone residential houses as part of its non-core assets. Some 19 vacant properties have already been sold. An additional 10 are in the process of final award to be disposed of early in the 2015/16.

A total of 120 properties valued at R86.2million are in the process of being transferred to current tenants. Thishas ensured security of tenure and ownership for those that have occupied these houses on a protracted tenancy arrangement giving them dignity in their families. TheImvabaFund,whichwasestablishedtosupportthedevelopmentofco-operativesasvehiclesforruraleconomicdevelopment, has regained momentum disbursing R8.3 million to 38 co-operatives and approving an additional R10millionto20newco-operatives.Thissupporthasresultedinthecreationand/orretentionof531directjobs.Thebulk of these co-operatives are involved in agricultural activities, supporting one of the province’s priority sectors. There is a great need to boost agricultural production as feed stock for agro-processing and bio-energy. TheconsiderationofanumberofdistressedcompaniesfortheJobsFundincentivehasculminatedinthecommitmentofR4.25millionto10SMMEsassistingthemwithsavingorretainingasmanyas425jobswithintheirenterprises.

OutlookIn the 2015/16 financial year the corporation will focus on thefollowing priority areas:

• Finaliseandimplementtheorganisationstructuretooptimiseresourceuseinsupportingtherecentlyapprovedstrategy.• Addressthematters thathaveresulted intoadverseaudit results inorder toregainconfidenceasthetrusted steward of the public assets.• Increase the intensityon thedisposalof thenon-coreassetsandnon-performingcostlyproperties tounleash revenue for investment in the key business areas for the benefit of the provincial economy and the corporation.• Improvetheconditionoftheretainedpropertiestoderivebettervalue.• ImplementtheERPforimprovedefficiencies.• StrengthentheprocurementfunctionasoneofthekeyareasofECDCbusiness.

Appreciation Iwould liketoextendmyappreciationtotheBoardofDirectorsunder the leadershipofChairpersonNhlanganisoDladla for its support, wise guidance and strategic counsel as well as its honest assessment and appraisal of the needs of the institution. This has placed the corporation on a steady path towards energised shareholder value and mandate delivery. Despite the challenges as alluded above, the support and diligence from the executive team and the contribution of the entire ECDC personnel has not gone unnoticed. I would also like to extend my gratitude to the various partners and stakeholders who continue to help ECDC navigate the vagaries and challenges of the development landscape.

Ndzondelelo dlulaneActing Chief Executive Officer

26

mAX PoweRInnovation in Household Toothpaste Dispensing & Reduction in Waste

R200 000of risk capital

for product packaging & market access

produces innovative

toothPAste dIsPenseR

1 000 dIsPenseRs already produced

5eXeCutIvemAnAGement

summeRPRIdeInvesting Patient Capital into Pineapple Benefication

Luyanda tsipaGeneral Manager:Operations

Mxolisi LindieChief Economist

sandile sentwaChief FinancialOfficer

Noludwe NcokaziGeneral Manager:Innovation & Product Development


david MandellActing Executive Manager: Development Investment

Nosipho NgewuExecutive Manager: Corporate Services

john cerffExecutive Manager: Infrastructure Projects

babini MelitafaExecutive Manager: ISIDP

Ndzondelelo dlulaneActing ChiefExecutive Officer

30

ozzy eCo deCoRArts and Craft

R20 000first prize

Lithuba Lakho Eastern Cape Craft Competition

prize forBest eAsteRn CAPe

CRAfteR 2014:

homeweAReCdC AssIstAnCe

to ACCessinternational markets, expos & exhibitions

6ChIeffInAnCIALoffICeR’sRePoRt

sandile sentwaChIef fInAnCIAL offICeR

ChIef fInAnCIALoffICeR’s RePoRtThe 2014/15 financial year presented a sound platform for ECDC to further consolidate and crystalise its corporate finance division to provide innovative financial and support services to various other business units in delivery of the corebusinessinordertodrivethedevelopmentgoalsoftheorganisation.Furthermore,theChiefFinancialOfficer’soffice sought to strike a delicate balance between ensuring that financial sustainability is achieved in pursuit of its developmental goals.

Corporate SustainabilityAs such, part of the corporate finance unit’s goals in the period under review was the improvement of organisational processes and systems.The objectivewas to develop a business case for an Enterprise Resource Plan (ERP) forintegrated reporting for improved efficiencies. I am pleased to report that a business case has been finalised and we are now at solution acquisition stage. The objectives of this system is to improve efficiencies in as far as reducing the cost to income ratio from 1.2 to 1 over the mid-term budget framework.

There was also a significant focus on improving the turnaround time for loan disbursements to customers to 48 hours. I am pleased to report that this target has been achieved and it indicates ECDCs efforts toward assuming the posture of a responsive and customer-centric development financier.

The unit also placed great emphasis on improving governance to ensure that an unqualified audit report is achieved as well as compliance with regulations and legal prescripts governing the use of public assets.

In essence, the improvement of the cost to income ratio should ensure financial sustainability; the ERP systemimproves efficiencies, while sound governance improves the audit outcome and compliance with legal requirements.

Balance SheetAssuch,ECDC’sbalancesheetremainsstronginthatitstotalassetsexceedtotalliabilitiesbyR1.1billion.Thedriverfor this positive book value is mainly an increase in the value of investment properties. Currently, ECDC’s balance sheet is not reflective of its developmental goals in that the loan book compared to investment properties is disproportionate takingintoaccounttheECDC’sDFIrole.Forexample,thebalancesheetreflectsinvestmentpropertiesvaluedat R903millioncomparedtoonlyR102millionforloans.

2015

2014

2013

2012

2011R576 million R22 million R92 million R95 million R143 million R32 million R310 million

R605 million R27 million R90 million R56 million R128 million R46 million R359 million




INVESTMENTPROPERTY

PROPERTY,PLANT&EQUIPMENT

INVESTMENTS&LOANS IN

SUBSIDIARIES&ASSOCIATES

INVESTMENTS

LOANSADVANCES

TRADE&OTHERRECEIVABLES

CASH&CASHEQUIVALENTS

Balance Sheet Items for the last 5 years

34

Loansandinvestmentsshouldideallymakeup80%ofthebalancesheet.Generally,DFIsneedtohaveacombinationofaninvestmentearningbookandloans.ThishasnecessitatedtheECDCBoardtotakeadecisiontodisposeacertainportfolio within the corporation’s investment properties in order to improve cash availability for the developmental mandate. ECDC therefore generates its own funds for disbursal to SMMEs through rentals on investment property and loan repayments. The cost of packaging loans remains high further compromising ECDCs cash position. Discussions are underway and ongoing with the shareholder for adequate capitalisation of ECDC to deal with the huge costs of packaging loans.

Asof31March2015,thetotalcashpositionofECDCwasR279million.Theliquiditypositionisalsobeingaffectedbythe continuous increase in the debtors book driven by non-payment of rentals by residential tenants. As of 31 March 2015,theunpaidrentalbookstoodatR348millionfortheentireportfolio.

Financial PerformanceThecorporation’sbottomlinehasincreasedfromR49milliontoR98millionduringthereviewperiod.ThisincreaseinprofitisdrivenprimarilybyagrowthinthevalueofinvestmentpropertiesofR175millioncomparedtoR75millioninthe previous year.

Income

Total incomehasdeclinedbyR3million (2%) fromR313million in thepreviousyear toR306million in theperiodunder review. The most noticeable variance in the sources of income is the 20% decrease in government grants. This declineismainlyattributabletotheonce-offcapacitationgrantofR30millionreceivedin2014forsocialinfrastructure.ThedeclinewasalsoslightlymitigatedbyincreaseinrentalrevenuebyR6millionfromR66millionin2014toR72millionandinterestonrentaldebtorsofR5millionfromR15millionin2014toR20millioninthereviewperiod.OtherincomeprovidedahealthyreturnofR23millionin2015;anincreaseofR20millionfromthepreviousfinancialyear.TheincreasewasprimarilyduetoR7millionfromthesaleofsharesininvestments,R4millionfromprofitonassetsdisposedandR9millionbeingthemanagementfeeschargedonprojects.

The return on average investment property has declined from the 10.1% in 2014 to 8.8% in 2015; this is mainly due to the growth in the value of Investment property.

R’million 2011

R’million2012

R’million 2013

R’million2014

R’million2015

175.

43

10.9

5

26.6

7

164.

75

22.4

6

71.5

6

REVALUATIONFINANCEINCOME:BANK/OTHEROTHERINCOMEGOVERNMENTGRANTSINTERESTONLOANSRENTALINCOME

75.0

7

9.5

7.17

202.

72

22.1

9

65.7

6

65.3

8

8.7

13.1

4

146.

99

21.1

6

59.9

8

44.8

4

17.9

1

8.94

92.1

6

24.5

1

54.8

5

42.1

8

24.2

6

12.4

0

84.7

1

20.6

5

56.8

3

Sources of Income


ExpenditureAlthough operational expenditure is up by 13% compared to the previous financial year, the current year includes non-recurringexpenditureofbaddebtswrittenoffofR37millionandanimpairmentofBushmanSandsinvestmentofR23million.OperatingexpenditureininvestmentpropertiesremainshighwithratesandtaxesofR19million,waterandelectricityatR14million,aswellasbuildingandsecurityservicesatR17millionmakingupthemajorityofthecosts.A facilities management initiative is in the process of being implemented to manage, reduce and recover property operating costs from tenants.

Subsidiaries & AssociatesAll ECDC subsidiaries’ and associates’ balance sheets reflect a going concern position with the exception of Transido (Pty)Ltd,AIDC,ECMAandUSICO.ThenetliabilitypositionsofthesesubsidiariesareduetoloansowedtoECDC.ECDCdoes not intend to recall these loans in the near future.

sandile sentwaChief Financial Officer

Percentage Return on Average Investment Property

10.1%

% Return2011

9.3%

% Return 2012

9.5%

% Return2013

9.5%

% Return2014

8.8%

% Return2015

36

BARdAhL eyethuA Convenience of Automotive Lubricants & Parts for Taxi Operators

R3 millionof risk capital

for establishment of car parts pilot shopin Mthatha

ConvenIenCe stoRe At

tAXI RAnkseLLs

lubricants, oil, brake fluid, brake pads,spark plugs

7oPeRAtIonsRevIew

deveLoPmentfInAnCeThe period under review continued to provide the requisite platforms, channels and resources necessary to discharge the corporation’s high-performing development finance aspirations. These aspirations aren’t merely a theoretical postulate but a practical embodiment of the hopes and imaginations of thousands of entrepreneurs spread across the vast expanses of the Eastern Cape.

ECDC therefore carries a nerve-wrecking commission of bringing to life the aspirations of these entrepreneurs within an equally challenging economic environment. This development finance mandate calls for an imaginative corporation which applies innovative and inventive solutions to respond to the pressing socio-economic demands of the Eastern Cape economy. This is particularly important in a very competitive global SMME environment. ECDCs task is therefore to provide loan finance tools that enhance the competitiveness of Eastern Cape entrepreneurs to ensure that they are ready for the nuances and rigours of the global entrepreneurial landscape.

As such, ECDCs loan finance instruments are premeditated to deliver a maximum socio-economic dividend not only for entrepreneurs but also to stimulate general economic activity within the province. During the review period, the corporation’s strategy review exercise reinforced and reaffirmed ECDCs development finance role pledging further support and resources toward the realisation of a high-performing DFI status. In this respect, a furthercommitment was made to advocate for a greater devolution of powers to the various regional offices spread throughout the province to allow them to make funding decisions.

This is a significant development that should significantly reduce transport and opportunity costs often incurred by entrepreneurs who have to travel from far-flung areas to the East London head office to access funding decisions. This progressive decision reaffirms ECDCs customer-centric approach of bringing SMME services closer to its clients and communities to ensure ease of access to these and other non-financial instruments.

Loan Product & Loan DisbursementsDuringtheyearunderreview,thecorporationapprovedfordisbursementloansofR80,4million.However,atotalofR96.5millionwasdisbursedto261enterprises inclusiveofprioryear’sapprovals.This isdecidedly lowerthanthepreviousyear’sR122millionbecauseoftheslowuptakeofloansespecially,long-termloans.Atotalof1431jobswerecreated, retained or saved during the review period as a result of the application of the loan finance instruments to stimulate economic activity.

AtotalofR12millionwentto116youth-ownedbusinessesandR15,4millionwentto64women-ownedenterprises.Of theR96.5milliondisbursed,R38.7millionwent toNEXUS loansor otherwise called government invoice-basedloans. These are the loans where contractors have a contract from government and ECDC takes a cession on the contract.NEXUSloansmakeup40%ofthetotalloansdisbursements.Workflowcontractorloansorcontractorloanfinance,standsatR42.3millionor44%.Powerplusorsmallbusinessandstart-uploanswereR6.7millionor7%andfinallyTermcaporlong-termloansaccountedforR8.7millionor9%oftheloandisbursements.ThestrategyistopushTermcap loans to 65%. Long-term loans are required for the desired sustainability.

Approvals, disbursements and number of SMMEs per loan product

Per product Approvals(R)

Disbursements(R)

Disbursements(%)

Number of SMMEs

Equitrader 0 114 439 0% 1

Nexus 45 372 345 38 720 644 40% 227

Powerplus 7 505 362 6 676 394 7% 19

TermCap 7 497 270 8 703 715 9% 5

Workflow 20 036 897 42 318 225 44% 9

TOTAL 80 411 875 96 533 417 100% 261

TOTAlDISBURSEMENTS

R96.5 million 261 SMMEs funded


sEctor ProfiLEIn terms of the sector profile, 49% went to construction, 35% to services, 6% to manufacturing; 5% to retail, 2% to agriculture and agro-processing and the remaining 3% to other sectors. The services sector is a combination of Nexus loans, fuel stations and hospitality.

Per sector Disbursements(R)

Disbursements (%) Number of SMMEs

Agriculture 594 689 1% 2

Agro-processing 812 058 1% 2

Construction 46 876 891 49% 29

ICT 1 837 747 2% 4

Manufacturing 6 113 445 6% 5

Renewableenergy 412 295 0% 4

Retail 5 090 223 5% 10

Services 33 471 690 35% 201

Tourism 479 921 0% 2

Transport 844 458 1% 2

TOTAL 96 533 417 100% 261

Approvals and disbursements per loan product

R’millionEquitrader

R’millionNexus

R’millionPowerplus

R’millionTermCap

R’millionWorkflow

APPROVALSDISBURSEMENTS

Geographic spread Disbursements(R)

Disbursements (%)

Numberof SMMEs

Alfred Nzo 26 042 548 27% 12

Amathole 8 048 650 8% 37

BuffaloCity 19 837 548 21% 87

Cacadu / Sarah Baartman

866 552 1% 3

Chris Hani 4 771 302 5% 32

Joe Gqabi 1 286 892 1% 10

Nelson MandelaBay

16 483 175 17% 33

ORTambo 19 196 749 20% 47

TOTAL 96 533 417 100% 261

TheloansbiastowardregionssuchasAmathole,ORTambo and Alfred Nzo is a clear indication of ECDCs resolve to support government’s efforts in ensuring that rural municipalities are developed to an extent that sustainable economic activity is created within these areas to slow down the pace of urbanisation in line with the PDP.

Geographic Spread

Eastern CapeProvince

Disbursements per loan product

NexusWorkflowTermCap

PowerplusEquitrader

40%

44%9%

7%

Disbursements (%)per district

Alfred Nzo

27%

ORTambo

20%Amathole 8%

Buffalo City

21%

Cacadu/Sarah Baartman

1%

NelsonMandelaBay

17%

Chris Hani 5%

Joe Gqabi 1%

0

114.

34

45.3

7

38.7

2

7.51

6.67

7.48

8.70

20.0

4

42.3

2

40

Demonstrable ImpactForexample,ECDCdisbursedR4.2milliontoablackyouth-owned company that develops emerging contractors by supporting them on low cost housing projects which is an area of acute demand in the province. They provide contractors with all-round support and assist them with raw material for construction, training and the monitoring of quality of work of small contractors. They demolish old and poor quality low cost houses and replace them with good quality structures. The company is based in Port Elizabeth but operates in various parts of the province. Nine jobs were also created.

InadditionR4.9millionwasdisbursedtoNo.1ProductDistribution (Pty) Ltd, a women-owned manufacturing concern that manufactures protein rich cereal manufactured with oats. They produce products for export to America through Dynamic Commodities. The loan was for equipment and working capital. They have a plant in Port Elizabeth that has created 24 jobs.

A loan of R2.5 million was disbursed to ZingwaziContractorsCCfortheconstructionofaR22millionmulti-purpose in Mbizana for the benefit of the community. The loan was for working capital to buy building material. Two jobs were created in the process.

Precursor for Growth & DevelopmentFurthermore,ECDCdischargesitsrolefullyawarethatasadevelopmentfinanceinstitutionitisviewedasaprecursorand stimulant for economic development funding even for those enterprises that would otherwise be turned away by private funders. These entrepreneurs often have no access to alternative sources of funding. ECDCs role is to assist these entrepreneurs with the aim of later attracting other financiers to come into this space. Consequently, the loans that ECDC grants are inherently high-risk, particularly under the current adverse economic conditions characterised by slow economic recovery. This places ECDC in a constant dilemma of high impairment rates because of the need tobalancecorporatesustainabilitywiththedevelopmentmandate.Bytheendofthereviewperiod,impairmentsonloans stood at 64%.

This is also due to legacy loans that have not been performing over a period of time. Impairments on the legacy loans or old loan book classified as those loans dating back pre 2008, sits at 96% while the new loan book is under 50%. TheoldloanbookisaboutR60millionandthenewbookisR154millionpre-impairments.Afterimpairments,thenewloanbookstandsatR102million. Impairmentson longertermloans isat56%whileconstruction loanssitat46%.The challenge with the economy is that it is not attracting new quality loans onto the book because of the economic environment. In the development finance environment impairment rates of about 35% are considered as tolerable. There are measures in place to try and manage the level of impairments, which include a plan to increase the volume of disbursements as well as intensify monitoring on disbursed loans and intensify due diligence on pre-approvals.

ECDC discharges its role fully aware that as a development finance institution it is viewed as a precursor and stimulant for economic development funding even for those enterprises that would otherwisebe turned away by private funders.

ECDCs role is to assist these entrepreneurs with the aim of later attracting other financiers to come into this space.


CapitalisationIt needs to be borne in mind that the ECDC loan book is self-funding and does not receive any funding from government. It depends entirely on loan repayments. Whilst we are reporting a high impairment rate most of the loan repayments are coming from the impaired loans. Grant funding from government goes to non-financial support activities within the organisation. The loan book accounts for about 10,4% of the total asset base of the corporation. Ideally 80% of the total asset base should be loans. However, this is a function of capitalisation.

ECDC is currently exploring capitalisation comprised of various options including negotiating with the shareholder, alternative revenue sources, as well as disposing of non-core and non-revenue generating assets to fund the development agenda. About R500 million is needed inrecapitalisation to make the desired development impact in the loan business. This will allow the organisation to disburse larger long-term loans which have a potential for job creation.

As such, during the period under review, ECDC focused its energies on providing financial support to entrepreneurs plying their trade in the agro-processing, renewable

energy, manufacturing, construction and services sectors. These sectors have been identified as key economic development drivers in the Provincial Development Plan (PDP). The focus on renewable energy is driven mainly by ECDCs quest to respond to national imperatives in promoting the development of the green economy and complementing Eskom’s electricity grid. Agro-processing has been identified as a key sector in the PDP that should play a key role in stimulating growth and development in the north eastern parts of the province such as Alfred Nzo, ORTamboandJoeGqabidistricts.

The construction sector has come to occupy centre stage in the development discourse at a national and provincial level to support programmes such as the accelerated schools development initiative as well as the presidential infrastructure coordinating committee. The general manufacturing sector is being targeted to align with the national imperativetodevelopandsupportBlackindustrialists.The services sector provides a cushion for women and youth who do not have the requisites such as collateral to take up big loans. The services loans help them to build the capital base to take up bigger loans in future.

Imvaba Co-Operatives Fund& Jobs Stimulus FundThe management of these two administered funds has been the subject of numerous discussions during this financial year. A concerted effort was made to disburse the remainder of the already approved co-operatives’ allocations to ensure closure and reduce the risk of funding not being available. Consideration, adjudication and approval of a number of applications took place during the fourth quarter in order to commit the funding provided by DEDEAT for co-operatives. The policies relating to the Jobs Stimulus Fund werereviewed in order to concentrate on supporting distressed companies and to save jobs, which is an appropriate response to the province’s stressed economy. Consideration ofanumberSMMEsfortheJobsFundwasundertaken.

Atotalof58co-operativesweresupportedandR8.4million was disbursed. This support has resulted in the creation and/or retention of 531 direct jobs contributing significantly to the job creation target of the corporation.

The bulk of these co-operatives are involved in agricultural activities, an appropriate base for the province’s rural economy. The consideration of a number of distressed companies for theJobsFundincentivehasculminatedinthecommitmentofR4.25millionto10SMMEs,toassistthemwithsavingor retaining as many as 425 jobs within their enterprises.

Ec jobs stiMuLus

fund

58 Co-operatives supported

R8.4 million disbursed

531 Jobs facilitated

10 SMMEs supported

R4.25 million disbursed

425 Jobs facilitated

42

BusInesssuPPoRtWhile the organisation recognises the pre-eminence of effective financial support as the core driver of a successful development financier, high-performing development finance institutions also place a high premium on the provision of technical support and other mechanisms to provide a wholesome and eclectic suite of services to the emerging entrepreneurial and start-up market.

These non-financial support services are largely carefully crafted to improve the competitiveness and the sustainability of qualifying small businesses within the province. The intention is to position them for long-term growth, job creation as well as stimulating economic activity. ECDC achieves this goal through the provision of pre-and post-finance support tools to ensure that their businesses are also equipped with the support structures to allow them to honour their loan obligations.

Market IntelligenceIn order to plan better and continue to promote entrep-reneurship and small business development, development institutions and business development services providers need to be empowered with the necessary data and information about the performance and challenges of small businesses. Small businesses remain the priority of government and the establishment of the Ministry for Small Businessisaconfirmationofgovernment’scommitmentto driving SMME development.

As such, ECDC conducted an SMME survey during the period under review which is not only a consequence of ECDCs resolve to improve its product, service and value offering in an increasingly competitive SMME environment, but to also provide the sector with valuable intelligence

and information for better decision-making. The survey provides the requisite intelligence and insight into the Eastern Cape’s SMME landscape while offering critical inputs into ECDCs endeavour to provide effective, efficient and integrated development as well as support services to priority SMME sectors.

The data and intelligence gathered from the survey should also become a valuable addition in the mix of tools at ECDCs disposal with which to discharge its mandate. In addition, the data should provide adequate input into the type of desired SMME support which possesses a potential to stimulate economic growth and development throughout the province.

Provincial SMME DatabaseDue to the vastness of the province and limited resources, the survey was conducted among 8 006 SMMEs drawn from around the Eastern Cape province. The primary objective of the study was the compilation of an SMME database, but it was also felt that this exercise should provide a deeper understanding of challenges faced by SMMEs. SMMEs were required to respond to a questionnaire that was aimed at shedding light in relation to their functionality, business needs and the required support interventions. Through the report, ECDC was able to compile an SMME database for the province.

SMME Support

337 SMMEsSupported

87CraftEnterprises

90NewEnterprises


Non-financial Support Interventions

Types of intervention Number of SMMEs PercentageMarketing Support 116 34%

BusinessPlanning 90 27%

Creative Industries 87 26%

Mentorship 31 9%

OtherincludingAdmin.&HRSupport 13 4%

Total 337 100%

During the review period, 337 SMMEs benefitted from ECDC business support services of which 90 were fledgling businesses. The support comes in the form of feasibility study support, business plans for start-up businesses as well as support to existing SMMEs with marketing collateral, websites, financial statements, mentorship, and link-ups with the market access unit.

Of the 337 supported entrepreneurs, 87 were craft enterprises which continue to benefit from ECDCs extensive crafts support programmes. These businesses are supported to attend exhibitions, trade shows, expos and festivals in order toencourageaccesstothemarket.SomeoftheseexposincludeDecorexCapeTownandJohannesburg,RandEasterShowaswellas theGrahamstownNationalArtsFestival.ECDCalsotooksomecraftenterprises to Indonesiaandothers received support to participate at the Tourism Indaba with the Eastern Cape Parks and Tourism Agency as well as the Tourism Enterprise Partnership.

ECDC also supports the Eastern Cape information Technology Initiative (ECITI) with grant funding support to drive the growth of the ICT and film sectors through business incubation. Grant funding to ECITI in the period under review supported 19 incubates.

MentorshipMarketing SupportBusiness PlanningCreative IndustriesOther

9%

4%

34%

27%

26%

Non-financial Support Interventions

44

Creative Industries ProgrammeDuring the period under review ECDCs creative industries programme continued to promote the Eastern Cape Handmade brand in an attempt to facilitate market access for craft products. ECDC partnered with Nelson Mandela Bay Museum in running a Provincial Craft competitionentitled “Lithuba Lakho”.

A team of craft experts went around the province identifying and evaluating products in line with set criteria. A total of 87 craft producers, both small enterprises and individual crafters, participated and benefited from the programme. More than two-thirds were women. The products of these craft producers were exhibited and sold at the Nelson MandelaBayMuseumoverthefestiveseasonforaperiodof six weeks from 12 December 2014.

The competition culminated in the launch of an exhibition where the winners of the competition were announced. Amongst the prizes received by the three winners was exposure and participation at Design Indaba and prize money

which went toward assisting the winners to purchase equipment for their businesses. Craft producers generated morethanR33000indirectsalesduringtheperiodoftheexhibition.

Inaddition,supportwasprovidedtoWalterSisuluUniversity in hosting a 2nd and 3rd year student fashion show. The fashion show was hosted by the University as part ofan attempt to expose their students’ products. Furtherassistance to expose their products was to showcase their products in a Food and Cultural Expo held in Chengdu,China. The function was held in partnership with ECDCs export promotion programme supported by the South AfricanEmbassyinBeijing.

Furthermore, ECDC assisted additional enterprises toparticipateattheCapeTownInternationalJazzFestivalasexhibitors.Fiveenterprisesparticipatedinthisexhibitionand they generated an income amounting to more than R15000overthetwodayperiod.

Enterprise Development ProgrammeECDCcollaboratedwiththeNelsonMandelaBayChamberofCommerceinimplementinganenterprisedevelopmentprogramme.Theprogrammeaimedtobenefit30SMMEsfromtheNelsonMandelaBayMunicipalarea.Outofthe31enterprises that initially registered, 28 completed the programme.

The programme was implemented over a period of six months and included SMMEs attending the 3-day Human Resourceshortcourseand5-dayFinanceforNon-FinanceManagerscoursepresentedbyNelsonMandelaMetropolitanUniversity as well as a salesworkshop.Alongside this training, amentorship programmewas implemented. Theparticipants to the programme were matched with seasoned and experienced businessmen and women.


RIskCAPItALThe 2014/15 financial year had the intended and desired effect of confirming and consolidating the corporation’s risk capital function as the investment hatchery for ECDC business. The corporation uses its risk capital facility to unearth potential in priority sectors as outlined in the Provincial industrial Development Strategy as well as the Provincial Development Plan (PDP). These priority sectors have been identified as agro-processing, renewable energy, tourism, manufacturing, infrastructure, petrochemicals, medicinal and aromatic plants, ICT and film as well as mining.

The significance of ECDCs risk capital function cannot be understated if one considers that most businesses or entrepreneurs approach ECDC without bankable business plans. Although their ideas and business concepts hold potential, other ECDC business units may not be able to make funding decisions due to inadequate business information. The risk capital function bridges that gap where a good idea without a clear and concise business plan is harnessed and developed as well as prepared for ECDCs debt and equity instruments.

The unit provides support for activities such as feasibility research, prototype development and testing, market surveys and regulatory compliance costs such as environmental impact assessments, as well as water licence and mining licences. These are costs that are necessary for big projects. However, investing in these projects doesn’t guarantee immediate financial returns. Therefore this investment requires patient capital in the form of risk capital.

ECDC takes the risk to research, develop and establish innovative projects in new economic growth sectors. The intention is that these will lead to crowding in of private sector capital to establish viable enterprises, expansion of existing businesses and the creation and/or saving of jobs. The unit continues to develop a strong pipeline, with the shortage of funding being a serious challenge.

Support For Catalytic InvestmentsIn the year under review, one of the biggest challenges that risk capital faced was the size of the budget available to finance risk capital investment initiatives. The unit had a R10millionbudgetandthereforefocusedonconsolidatingexisting projects and to push them to commercialisation. However,expenditureexceededR17.5millionbytheendof the review period from internal budget re-prioritisation and strategic partneships with the Technology Innovation Agency (TIA)whereby they contributed R5million. Interventionsfrom the risk capital unit resulted in the creation of 475 jobs created during the period under review.

In terms of its developmental responsibility, ECDC is obliged to increase its support to catalytic projects which have the potential to unlock economic benefits for remote low-income areas, thus addressing the imbalances resulting

from the concentration of economic activities around the province’s two main urban centres of East London and Port Elizabeth.

As such, during the period under review, ECDC has developed a business case to access additional funding for the development and support of the bio-fuels industry. Off-take agreements and guarantees are required to access funding for feedstock provision which requires significant investment due to mechanisation requirements.

A partnership is being negotiated with potential investors from Argentina to provide technical expertise and third partyfundingfromtheUnitedStatesofAmericatogrowthe bio-fuels industry.

R17.5million

spent onRISK CAPITAl

PROJECTS

475Jobs facilitated

46

Angora Rabbit Pilot

ECDCspentR800000assistingEquiptConsultingtoestablishanewtextilefactory in Greenbushes in Port Elizabeth which spins angora rabbit fibre into high-end products such as gloves and scarfs among other products.

Bardhal Eyethu Shop

AnadditionalR3millionwasusedtosetupapilotshopforcarlubricantsandfastmovingcarpartsinMthathacalledBardahlEyethushopinapartnershipwith BardahlSouthAfrica.Thepilot ismeantto introduceconveniencetothecaptive taxi commuter market by placing a shop that provides daily necessities such as oil, brake fluid, brake pads, spark plugs, etc. at taxi ranks. The Mthatha pilotisbeingconductedatCharthamTaxiRank.

Harrison Hope

ECDC helped finance Harrison Hope Wines to construct the first registered wineryintheEasternCapeinWhittlesea.TheR650000fundingwasfortheconstruction of the winery and the cost of getting a winemaker. The winery is now complete and operational and has increased wine production capacity and introduced new local flavours and varieties.

Incapeace Trading

In Mthatha, ECDC has financed a company called Incapeace Trading which produces concrete products such as concrete slabs and pavings to supply popularhardwarestoreBuild-It.ThecompanysuppliesallBuild-ithardwarestoresintheORTamboregion.AtotalofR1millionwasprovidedforequipmentsuch as excavators and tipper trucks to get crush stone to the factory. Theproject isbeingco-fundedwiththeMasisizaneFundwhichprovideda R4millionloan.

Ncedisizwe Co-operative

ECDC also played a significant role in the establishment of a soybean pilot for biofuels in Engcobo using the limited tillage method. ECDC provided R2.8milliontoNcedisizweCo-opforthepilottofundcostsplanningspecialistsas well as production inputs. The highlight of the pilot is that while the expectation was a yield of 2 to 2.5 tons per hectare, agronomist assessments indicate an expected yield of 4 to 4.5 tons a hectare.

ECDC-CSIR Fibre Bag Partnership

ECDChaspartneredwith theCouncil forScientificand IndustrialResearch(CSIR)todevelopfibrebags.AprototypeintheCSIRfacilityinPortElizabethisbeingdevelopedwhichwillbetestedthere.ECDCcontributedR580 000forthe development and testing of the prototype. A factory has been identified in Butterworthtomanufacturethebags.


UMOYAIR Communication Solutions

Port Elizabeth-based UMOYAIR Communication Solutions was financed todevelop marketing application software that provides companies with a platform to market their products to cellphone users in exchange for free airtime for potential customers. The company has already received offers from big companieswhowish toutilise theplatform.AboutR1,05millionwasprovided for the development of the application on four platforms such as android,IOS,Blackberryandhardwaresupportsystemlikeservers,computers,rentalofUSSDcode,testingandvalidation.

Anathi Oils

Through its risk capital facility, ECDC has also established a 50ha canola pilot plantation in Port Alfred which is owned by Anathi Oils. The pilot will supply thebiofuelsindustrywithoilwhichwillbesoldtorefineries.SomeR1,1millionwas provided for feasibility research, business plan development and a pilot.

Karoo Catch

TheECDC-fundedKarooCatchproject,managedtosecurefundingofR.4million fromthedti’sEmploymentCreationFund(ECF)toestablishafishprocessingplant inGraaff Reinet.More jobs are anticipated in light of this. Furthermore,the projectsignedaR23.5million loanwithDBSAwhichwillenable it to establish three commercial fish tunnels and service the current off- take agreement.

Black Light Solar

BlackLightSolarisestablishinga5megawattsolarfarminBerlinandaR1billionPVmanufacturingplantattheEastLondonIDZ.ECDCprovidedfinanceforthedesignandplanningofthesolarfarmandthedevelopmentofthebusinessplanforthefactoryattheIDZ.ThereisatotalamountofR4millioncommittedtotheproject.

SA Metal Resources and Trading

AfurtherR470000wasprovidedtoSouthAfricanMetalResourcesandTradingforthedevelopmentofabusinessplanandfinancialmodelforaprecisionsteelstripmill.Themill,whichwillbelocatedattheCoegaIDZ,willsupplytheautomotive industry with steel products such as bearings. ECDC is currently structuring funding for the factory.

Third-Party FundingThecorporationisalsodelightedthatithasraisedmorethanR92millioninthird-partyfunding.Inthisregard,notablehighlights includeR5million from theTechnology InnovationAgency (TIA) for technology innovation aswell as R1.5million from the Chris Hani DistrictMunicipality for the Ncedisizwe Biofuels project. Some R1.2millionwassecuredfromtheDGMurrayTrustforKarooCatch,R2.2millionfromtheclientforHarrisonHopeandR3millionfromCoegaDevelopmentCorporationforKarooCatchfortrainingpurposes.SomeR6.3millionwasalsosecuredfromA&GInternationalforthedevelopmentofasoybeanpilotandR261000fromBardhalSouthAfricafortheconvenienceshop.

Blue Crane Mining

RiskcapitalfinancedBlueCraneMininginIndwewithR850000toconductageo-techsurveyandbusinessplan.Thecompanywasassistedtothepointwhereitsecuredanoff-takeagreementtosupplyaggregatestonetoUmsoConstructionfora 17 kilometre road.

48

mARketACCessDuring the period under review, ECDC placed significant emphasis on improving and growing the value trade from the province as well as the number of exporters. To this end, ECDC continued to provide various export support programmes aimed at improving the competitiveness of local entrepreneurs to ensure the market readiness of their products to compete on a global scale.

In a globalised economic environment, the need to provide empowering export support mechanisms and incentives to local entrepreneurs and those investigating the possibilities of the export market is a non-negotiable. In this regard, ECDCs market access unit seeks to maximise the opportunities offered by various trade policies and to broaden trade within Africa. Beyond Africa, the marketaccess unit targeted Asia and more specifically China, HongKongandMacau,theMiddleEastandinparticularthe UnitedArab Emirates, whilstmaintaining a presenceand deepening penetration in traditional markets such as EuropeandtheUnitedStatesofAmerica.

ECDC regularly commisions research which inform the market access function of the growing demand for Eastern Cape products in these markets. Whilst working across

different sectors in terms of overall strategy, the unit’s focus in 2014/15 was directed towards supporting enterprises involved in agriculture and agro-processing, manufacturing, creative industries, information and communication technology (ICT), construction, engineering and business processes. The demand in these target markets, especially in the developing economies is mainly for food products in processed form such as jams, cherry peppers, chilli, pastries, cereals, processed meats, bottled water, energy drinks and snacks among other things. This is in line with rising income levels. There are also trade agreements that are favourable for Eastern Cape exports in these markets. The Africa Growth and Opportunity Act (AGOA)remainsastrongleverforagroproductsintheUSmarket.

The Eastern Cape has recorded an exciting increase in the value of trade with the world’s second largest economy in the last eight years. Eastern Cape exports to China increased nearly by 42% between 2008 and 2011 increasing sharply by 91.5% from 2011 to 2012 before stabilisingto51%between2012and2013.By2013, thevalue of exports from the Eastern Cape to China grew to R3.7billion.

Eastern Cape Products In China, Africa, Europe, United States and the rest of the worldProducts exported from the Eastern Cape to China in 2013 was dominated by a small number of high-value individual products such as wool/animal hair and related semi-processed products, hides (raw and tanned), machinery as well as mechanical appliances. Other notable exports, within the context of Eastern Cape exports, are motor vehicles (particularly with an engine capacity between 1 500 and 3 000 cc).


Value of TradeDuring the period under review, ECDC assisted 207 exporters with integrated export promotion support. This number includes existing and new exporters.

Outward Selling MissionsWhilsttheEbolaoutbreakwasarealthreatintermsofoutwardmissionstoWestAfrica,onlytheBeninandGhanaMissionswerecancelled.TheMissiontoNigeriawasaresoundingsuccesswithastrongcollaborationwithWESGROfocussingonICT,filmandenergy.ECDCalsoparticipatedinatrademissiontoZimbabwewhichfocusedonhoneyproducts.Fourlocalco-operativesshowcasedtheirproducts.

InEurope,theSIALGlobalFoodShowheldinParisalsopresentedasignificantopportunityforfourlocalcompanieswhoalreadymeetEUimportrequirementsandstandardsintheexportofspecialitiessuchasgamemeat,frozenfoods,sorbet and gourmet products.

Inaddition,ECDCparticipatedforthefirsttimeinthesecondeditionofAfrica’sInternationalFood&DrinkEvent(IFEA)which was held in Johannesburg in November 2014. ECDC also took along eight local companies. The reports received from all eight were positive, with some receiving orders and interesting enquiries both from retailers such as Pick `n Pay,ShopriteandBidvest,bigwholesalersandforeignbuyers.Someofthesebuyersarefromneighbouringcountriessuch as Mozambique and Angola.

Inward Buying MissionsIn partnership with a number of key strategic partners, ECDC facilitates inward buying missions which present an ideal opportunity for local companies to showcase their products as well as their operating environment to potential buyers.

To mention a few, ECDC in partnership with SA Electrotechnical Export Council, SA High Commission in Mozambique and the Coega Development Corporation, hosted a high-powered delegation from Mozambique’s energy and telecommunications sector. Twenty local companies across ICT, electrical engineering and energy among others, participated and showcased their offerings.

CHENGDU FOOD & CULTURAL FESTIvAL

InanendeavourtoexpandthefootprintofEasternCapeproductsinChina,ECDCpresentedaFood&CulturalFestivalin Chengdu City in March 2015. Participants through samples included products from Carara, Hinterveld, Momentos, Berrynice,SageKitchen,MakanaMeadery.

To bring a cultural twist and real experience of the Eastern Cape culture and food, the ECDC took along one local performingartist,ThembelaniBatalaandchef,MarkOosthuizen,ofFushinSushi&EasternCuisineforliveperformances,demonstration and food tasting.

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Export Research and PartnershipsECDC completed its export market research into some of the most lucrative markets in Asia which consisted of Japan, SouthKorea,India,ChinaanditsSpecialAdministrativeRegions,namelyHongKongandMacao.Thisreportwillassistin future planning and it will provide insight to existing and aspirant exporters on opportunities in these markets.

ECDC, in partnershipwith DEDEAT and various entities such as the Coega Development Corporation, NMBM andECPTA, hosted an Orientation Session for the dti’s Marketing Officers who will be placed in 11 different countries and presented investment and trade opportunities in the Eastern Cape. Through these kinds of initiatives, the Eastern Cape is positioned well and leads are passed on smoothly once the Officers are placed abroad as they have established contacts with the relevant people.

Export Help DeskECDC also entered into a three-year partnership with the Nelson Mandela Metropolitan Municipality and established an ExportHelpDesk.AnotherofficehasalsobeenestablishedinEastLondon.ECDCandtheNelsonMandelaBayMetrohave established an Export Helpdesk which aims to help increase the value of trade, grow the number of Eastern Cape exporters and help them explore new markets. The Export Help desk provides local businesses with access to export information and advice; export readiness assessment tools; information to HS (Harmonised System) codes; trade leads; information on export markets; country profiles; sector reports; calendar of export related events; export training; and trade statistics.

Lithuba Lakho Arts CompetitionTheECDCinpartnershipwiththeMandelaBayDevelopmentAgencyandtheNelsonMnadelaBayMuseumlaunchedan art exhibition called “Lithuba Lakho Arts Competition” from December 2014 to the end of January 2015. There were 82 exhibitors that participated and 56 of them reported sales during this period.


Investment PRomotIonThe Eastern Cape places particular emphasis on the need to stimulate high-impact economic activity through the active facilitation and promotion of foreign and domestic investment. Investment promotion is a catalytic economic activity which carries the capacity to create downstream economic opportunities as well as the required backward and forward linkages in the domestic economy. The facilitation of foreign and domestic investment also acts as an anchor for the growth and development of the SMME sector. As such, ECDC uses its experience and expertise to crowd in private and public sector investment into the Eastern Cape to drive economic activity, grow the small business sector as well as facilitating job creation. It does this through the promotion of the Eastern Cape as a premium investment destination, improving value propositions including specific project packaging. Furthermore, thecorporation works closely with other business units such as RiskCapitalandDevelopmentFinancetoprovideatotaland integrated solution to address investor demands and expectations.

The ECDC has forged a strong network of Investment Promotion (IP) practitioners in the province particularly those with a strong investment promotion focus such as theCoegaandEastLondonIDZs,theEasternCapeParksand Tourism Agency, various district and local economic development agencies, state owned companies as well as various government departments responsible for certain authorisations and permits to build a strong front-and back-end support for effective promotion of economic

opportunities in the province. In certain instances there are collaborations on joint missions, joint research and feasibility studies, joint project packaging and promotion activities. The huge success in the renewable energy space, and in particular around the wind farms that have been approved and successfully commissioned, are a depiction of such seamless collaborations.

ECDC facilitates training on an annual basis to this team of IP practitioners where they acquire and share knowledge on the latest trends and tactics in investment promotion. ECDC also coordinates a Provincial Investment Promotion Forumwhichmainlyservesasapointofcoordinationandinformation sharing. While ECDC is pleased with the R672 million worth ofinvestments facilitated during the period under review, it is also aware that significant work still remains to be done to ensure that the province reaches the pinnacle as the preferredinvestmentdestinationinSouthAfrica.Fortheinvestor, there exists a myriad of investment opportunities in the Eastern Cape in strategic sectors such as renewable energy, manufacturing, agro-processing, forestry, tourism as well as ICT and film. Equally, these sectors find resonance with the national Industrial Policy Action Plan, National Development Plan as well as the Local and Regional Economic Development Strategy. This ensuresthe requisite certainty and security of investment for investors interested in exploiting opportunities in these sectors remains safe in the knowledge that there is sound policy coherence and backing for the investment efforts.

Agro Processing Tourism Renewable EnergyICT & Film

strong network of IP Practitioners

InvestmentPromotion

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ManufacturingIn themanufacturingspace,strategic investmentswere facilitated for thestrugglingDimbaza localityoutsideKingWilliam’sTown.FortuneDistributors,whichmanufacturesHDPEInjection-mouldedproducts,investedmorethanR8million at the site-creating 44 additional jobs.

In the samevein,TenchTrade investedmore thanR9million and created47 jobs in theirDimbaza factorywhichproducesPVCbags.ECDCassistedthecompanyaccessingthedtiincentives,providingaftercaresupportandpermits.With the current economic status of Dimbaza, this means each job created by the two investments has the potential to support up to five people.

UniversalSafetyGlassbasedinFortJacksoninMdantsanewhichsuppliestheautoandconstructionindustrieswithglass for cars and households, expanded its plant by taking over another struggling company-saving 46 jobs. ECDC linkedthetwocompaniesandUSGboughtthecompanyunderstressfacilitatingthetake-overoftheemployeesaswell.

Renewable EnergyDuringtheperiodunderreview,ECDChelpedinthefacilitationoftheDorperWindFarminvestmentinMoltenointheChrisHaniregion.TheR2billioninvestmentwascommissionedinthereviewperiodalthoughconstructionbeganin2013. The wind farm will benefit the Chris Hani region by feeding into the national electricity grid bringing the much-neededrelieftoresidents.ThefarmisownedbyJapanesecompany,RainmakerEnergy.ECDCprovidedEnvironmentalImpact Assessment support linkages with relevant authorities which provide the necessary approvals.

Inaddition,ECDCalsoplayedanactiveroleinthefacilitationoftheGrassReachWindFarmintheNelsonMandelaBayMetro. Owned by Innowind, the farm will provide 59.8 megawatts feeding into the national grid.


ForestryIn2014/15,ECDCinpartnershipwiththeEasternCapeRural Development Agency (ECRDA), consolidated the imple-mentationof theNationalTreasury JobsFundR113million forestry initiative. In terms of the initiative, ECDC and ECRDAcontributeR15millioneachtowardtherealisationof the project objectives. The initiative currently supports five community forestry projects with a total target of eight. In the period under review, the five projects were implemented with planting, bush clearing and site preparation activities taking place. ECDC also established a project implementation office in Mthatha to build capacity toruntheprojectwithECRDA.

Service Providers have been appointed in Mkhambathi and Sinawo for the planting of 1 200ha each in order to accelerate the afforestation process.

Furthermore,alongtimeECDCclientsince2005,PGBisonhas taken on a new afforestation project of 572ha which created an additional 55 jobs in the period under review.

Singisi Forests also expanded and created an additional25 new jobs. Apart from being a shareholder, ECDC also assisted with the community facilitation process.

TourismEASTERN CAPE FROM ABOvEEXHIBITION LAUNCH INKNOKKE, BELGIUM

Theeye-catchingECDCexhibition -EasternCapeFromAbove(ECFA)waslaunchedinKnokke-HeistinBelgiumon 5 June 2014. This exhibition is a collection of 40 spectacular aerial photos showcasing the beauty of the province and its investment opportunities.

Knokke-HeististheBelgianequivalentofCampsBayorClifton. According to local tourism figures, more than six million people visited the Knokke-Heist coast betweenJune - July 2013. The exhibition was placed on the main esplanade in the city. The launch of the exhibition formed partofthe20YearsofFreedomcelebrationsbytheSouthAfricanHighCommissioninBrussels.

To this end, ECDC was invited to take part in the event, and representatives from the Investment and Trade PromotionunittravelledtoBelgiuminearlyJune. The opening of the exhibition was accompanied by open house tastings of South African products as well as an exhibition of some South African artworks. The event was attendedby themayorofKnokke-HeistandopenedbyMinisterPlenipotentiaryBeck(thedeputyambassador).

Good investment leads were generated at the event as well as at appointments set up as part of the mission. ECDC continues to position our province as a tourism and investment destination across the globe.

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Agro-ProcessingThe agro-processing sector in the Eastern Cape is gaining traction with fresh leads coming from various countries in Europe such as Belgium, Switzerland,Germany (for biomass, dairy processing and cosmetics), theNetherlands(greenhouse/tunnel production), dairy, red meat, chicory and citrus production and value addition.

All these stand to benefit rural economies throughout the province, particularly east of the province. The emphasis is the creation of requisite infrastructure such as silos, abattoirs as well as milling plants which was partly achieved this yearsupportedbytheDBSAJobsFundInvestment.

EASTERN CAPE HOSTS SAYTC CONFERENCE & TOURISM MINISTER

ECDCcelebratedTourismMonthbysponsoringtheSouthAfricanYouthTravelAssociationannualconferencewhichwas held in Hogsback in September 2014.

TheconferencewasthelargestSAYTCconferencetodatewithmorethan150peopleattending.Thevastmajoritywere product owners but there were also tour operators and government agencies in attendance. The youth travel market (backpackers and smaller lodges) is a critically important sector of tourism due to its impact in rural areas.

The highlight of the conference was the opening by Minister of Tourism, Derek Hanekom. Minister Hanekom engaged withthedelegatesduringadedicatedsessionaswellasholdingbilateralswithSAYTCandECDC.Theministershoweda keen interest in proceedings and listened to other presentations before having to take his leave.

AnotherimportantannouncementwasthatSouthAfricahasbeensuccessfulinitsbidtohosttheWorldYouthTravelConference in 2015. This event will be held at the ICC in Cape Town and will pose another opportunity to profile and province and its tourism offerings.

ECDC also continued it’s support to the tourism and hospitality industry with packaging of a number of projects with the main focus being in the Wild Coast and Joe Gqabi District.

ECDC with Tourism Minister at the National SAYTC Conference, Hogsback, September 2014


ICT & FilmInthe4thquarterof2014/15,ECDCconcludedthemuch-anticipatedBroadbandMasterPlanfortheEasternCapeandpresented it to the provincial IT Working Group. This framework sets priorities for the next five years. It is a powerful planning tool for provincial departments and municipalities. Its implementation thereof will catapult the province forward in terms of service delivery and socio-economic transformation. ECDC works closely with the Provincial ICT Working Group chaired by the provincial chief information officer, Eastern Cape Socio-Economic Consultative Council (ECSECC)as the secretariat. ECDCalsoactivelyengagesandsupports the roll-outofbroadband in theORTamboDistrict with the aim of maximising local beneficiation and skills development and transfer. In the ICT and film sector, ECDC facilitated the development of skills benefitting some 17 learners in ICT and 50 in film. This constitutes a significant pool in the emerging film-makers sector. They receive experiential learning exposure as part of this exercise.

ECDC also established a local content development hub. As part of the programme, the corporation started with the first intake of 50 students for the film sector. This is a build-up on previous years where 88 students were sent to Cape Town for training. The establishment of the hub should ensure that there is a support structure to ensure that they stay in the Eastern Cape. These students were recruited from further education training institutions as well as from second and third tier towns.

Makuhlehle Fekade from Mdantsane during a filmshoot. She is one of the 50 film learners that benefitted in this year’s Monyetla Work Readiness Programme (a Department of Trade and Industry (the dti) funded pogramme that is currently implemented in the 33 Church Street building - Local Content Generation Hub.

Film learners during a film production

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InteGRAted soCIAL InfRAstRuCtuRe deLIveRy PRoGRAmmeDuring the period under review, ECDC began the active and inspired implementation of the provincial Integrated Social InfrastructureDeliveryProgramme.TheprogrammebeganasaconsequenceofanEXCOresolution in2013whichrecognised the massive infrastructure backlog in the Eastern Cape particularly in the under-served areas and the rural hinterland. These infrastructure backlogs are most severe and prominent across key social and economic sectors and indicators such as education, health, human settlements, roads, water and sanitation. The successful and robust pursuit of these infrastructure goals cannot be understated as they have an intrinsically empowering socio-economic effect that should restore the dignity and confidence of our citizens.

While this is a significant undertaking, ECDC views its appointment by government as an additional infrastructure delivery vehicle of the province as a vote of confidence in its ability and capacity to enact the requisite effect on the Eastern Cape socio-economic architecture. Thus, during the review period, ECDC placed a particular emphasis on the maintenance and functionality of existing social infrastructure such as access roads, schools, clinics as well as water and sanitation.

Internal EfficienciesHowever, in order to give effect to these undertakings, ECDC was equally cognisant that a meaningful investment had to be in capacitating the corporation with the requisite skills and technical acumen to discharge this enormous assignment. The most significant challenge has been to implement the programme while building the necessary internal capacity.

As such, during the review period, the corporation began to assemble a team of qualified and experienced human capital to deliver the desired socio-economic dividend. At the beginning of the review period, the infrastructure unit began with a staff complement of three transferred from the Eastern Cape Provincial Treasury. The staff were

Graeme Cowley, a civil engineer who headed the new unit, Gcina Deliwe, a quantity surveyor and Palesa Ntema who provided administrative support.

However, Graeme Cowley has since returned to Treasury. ECDC is pleased that, by the end of the review period, this infrastructure delivery arm has grown to a team of 12 capacitated with the right skills to deliver on this complex mandate. In particular, ECDC appointed BabiniMelitafa, a qualified quantity surveyor and project management specialist with 14 years’ experience to head the programme.By the endof the period under review,there were three project managers, a quantity surveyor, a civil engineer, and three project administrators.


Future FocusMoving forward, ECDC intends to work with contractors which are registered with the Construction Industry DevelopmentBoard(CIDB)aswellaswiththosewhohaveagoodtrackrecordofproducingqualityworkonbehalfof government. The programme is not a “profit-making scheme” but rather a social investment for the benefit of the citizens of the province.

This is important because the public deserves quality services wherever people reside. ECDC should therefore jealously work toward achieving this goal. As such, a strong monitoring and evaluation component will feature prominently in theprogramme.ThecorporationwillalsohaveastrongbiastowardthosecompanieswhichareBBBEEcompliant.In rolling out this programme ECDC will work with contractors and employ people within these affected communities. This programme is about job creation, skills development and improving quality of life in such communities.

This is a social programme with key strategy thrusts such as job creation, improving the quality of life in terms of access to social infrastructure and it is therefore also an excellent platform to build skills for the economy. It is a social investment that should serve as a base for the improvement of the economic and material conditions of the people of the Eastern Cape.

Project ImplementationThe corporation began a spirited drive to identify social infrastructure projects that would benefit from this social infrastructure investment. One of the focus areas was water, sanitation and educational infrastructure. In this regard, ECDC entered into a tripartite agreement with Makana Local Municipality and water utility, the Amatola WaterBoardfortheimplementationofthemunicipality’swater crisis intervention programme. ECDC has allocated R98.2millionover a two-yearperiod toward theprojectwhich focuses on six intervention areas.

These areas are electricfication, major pump station capacitation, raw water rising mains, plant production and supply capacity and water loss control. In addition, a steady improvement is also required in the enhancement of water revenue generation and the collection of rates. As such,duringthereviewperiod,ECDCspentR59milliononthis project for implementation and progress across the six intervention areas.

In addition, ECDC carried out a conditional assessment of 79 schools on behalf of the Department of Education. The R1.6 million spent on this exercise was meant toassess the current state of the schools and the additional

infrastructure that is required. A team of six companies made up of quantity surveyors was appointed to conduct the assessments. The schools are located in Chris Hani, ORTambo,AmatholeandAlfredNzodistrictmunicipalities.

All the schools were costed and the report was submitted to the department and to the Provincial Treasury. The report indicated that some R1.4 billion was required toeffect the desired structures in these schools. Not only was a shortage of classrooms a concern, but also the state of the classrooms, substantial structural challenges, shortage of toilets, water and sanitation and access roads to the schools is a notable challenge.

In this regard, ECDC began a process that should lead to the refurbishment of three of the 79 schools. The three schools are Flagstaff Comprehensive School in Flagstaffwhich has 1 105 learners, Plangeni Junior Secondary School in Mbizana with 1 199 learners and Dilizintaba HighSchool inMthathawith892 learners.Bytheendofthe review period, the necessary plans were in place to make the required interventions. ECDC will refurbish the schools, provide additional classrooms and toilets as well as provide additional infrastructure.

Control Panel at Howisons Poort Pump Station

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PRoPeRty mAnAGementDuring the period under review, ECDC dedicated its energies to moulding a property portfolio that is responsive to the requirements of the corporation’s developmental mandate. The corporation’s property stock is well-positioned to play a central role in the realisation of the Provincial Industrial Development Strategy through actively providing the requisite platforms to support black industrialists.

The property stock places ECDC in a unique position to use its commercial and industrial properties to support the growth and development of its core business. ECDCs property portfolio is vast and expansive stretching across the province possessing the potential to generate significant rental income.

Portfolio PerformanceDuring the period under review, rental revenue collected from the overall property portfolio stands at about R61million.Therehasbeensubstantialinterestinthedisposalprocessofthestandalonehouses.Atotalof19vacantproperties to thevalueofR17.2millionhavealreadybeensold.Anadditional10,valuedatR6.4millionare in theprocess of final award.

Afurther120houses,valuedatR86.2million,areintheprocessofbeingtransferredtocurrenttenants.Thishasensured security of tenure and ownership for those tenants who have occupied the houses on a leasehold agreement. ECDC is processing offers to purchase for the remaining houses.

ECDC has employed a disposal agent to expedite the disposal process so as to unlock ECDC investment opportunities.

from the overall PROPERTY PORT

FOLI

OR61million

RENTA

L REvENUE collected SOlD

19 vacant PROPERTIES

to thevalue of

R17.2 million

120 hOUSES

being transferredto tenants

to the value of

R86.2million

to the value of

R6.4 millionin the process of

FINAl AwARD

10 properties


Commercial And Industrial StockECDC has identified for retention mostly commercial and industrial properties in areas where there is high economic activity and where it is easier to attract investment. Residential flats are also being retained. Industrial andcommercialpropertiesaremainlylocatedinFortJacksonin East London, Butterworth and Vulindlela Heights inMthatha. There is high economic activity in these areas in particular in Fort Jackson andVulindlela with a hugepotentialforgrowthinButterworth.

The residential flats are mostly located in Mthatha and Butterworthwhere there is high demand for residentialaccommodation. The plan going forward is to reinvest proceeds of disposal into the refurbishment of these flats in order to afford clients quality accommodation.

ECDC also owns vacant land in and around the Mthatha area. Driven by the high demand for quality accommodation, ECDC has development plans in place for its vacant plots. ECDC intends to reinvest the proceeds into building this new high-performing property portfolio which will ensure that it is able to generate revenues for long-term financial sustainability.

These developments are being undertaken with a view to ensure the growth and development of these areas while attracting skills into these regions. Currently businesses and government are struggling to attract quality skills into these areas because of a lack of quality accommodation. ECDC sees this as a stimulus of some kind to deliver quality accommodation and be able to attract and retain skills.

Asset DisposalA critical consideration of the property management and investment team, has been the need for rationalisation of assets, particularly the disposal of non-performing and non-revenue generating properties and the development of vacant land to increase potential rental income. Income generated from the disposal of identified assets will be used to revitalise high-potential properties.

As such, during the period under review, focus was on the disposal of non-core assets and the proceeds from the sale of these assets will be reinvested into the development of properties ECDC intends to retain as well as on new developments. This disposal strategy allowed ECDC to identify what is non-core and non-performing and what still adds value to the corporation in terms of ensuring financial sustainability going forward. That process entailed the identification of a portfolio for retention. Subsequently, standalone residential units were deemed as non-core assets and a decision was taken to dispose of this residential stock as the first phase. These are not necessarily non-performing assets in their entirety but are non-core in relation to ECDCs mandate. Any other non-performing property, whether commercial or industrial will also be disposed of. Properties which have been vacant for a long time because of their location resulting in an inability to attract tenants will also be assessed accordingly.. Even though these properties are identified as core assets, they are non-performing.

ECDC providing business space for entrepreneurs

60

stRAteGy sessIonCorporate Services

Staff members pledging to the new ECDC values at the Staff Strategy Session held at the ELICC, March 2015

8humAn ResouRCesRePoRt

humAn ResouRCesRePoRtHuman Resources Strategic FocusTheHumanResources(HR)departmentprovidesintegratedHRsolutionsforECDCstaffandtheBoardofDirectors.With a passion for quality and customer service excellence, the corporation ensures the availability of the right skills for the right jobs at the right time.

During the period under review, ensuring the capacitation of employees continued to be a challenge at ECDC as the skills aligned to operations are becoming scarce both internally and externally.

In order to ensure that the mandate is upheld, particular focus was placed on the following areas:

Strategic ProcessesHR PLANNING, RISK AND COMPLIANCEDemand and supply forecastingOrganisational designRiskmanagement

TheassessmentofHRneedsforthecurrentandfuture,analysingdemandandsupplydynamics and ensuring timeous access to competent people (MCPs and scarce skills). Activities include people forecasting, planning, budgeting and employment equity planning. Ensuring compliance to legislative and organisational governance, optimising organisational structure to support the delivery of strategy and mitigating against potential human capital risk.

COMPETENCY MANAGEMENTPerformance standards - pipelineLeadership and functional competencystandardsCompetency development

Developing employees to be fully performing individuals through alignment of strategy, structure and core competencies to develop organisational performance and competency standards cascaded in to individual role profiles. Individual and organisational gap analyses enable identification of mission critical and scarce skills positions, development of IDPs and organisational development programmes to feed in to WSP. Competency management focuses leadership development, assessment, mentorship, coaching and other developmental interventions around the required proficiency levels for current and future positions.

ORGANISATION DEvELOPMENTChangemanagementculture&valuesTransformation and diversity management

Defining, developing and rewarding a corporate culture conducive to achieving business objectives. This includes culture transformation and change management, individual, team and organisational development with a whole systems approach and continuous assessment of organisational effectiveness through work studies and job redesign to ensure maximum efficiency, productivity and job satisfaction.

TALENT MANAGEMENTSuccession planning retentionTalent reviews

The attraction and retention of key talent to the organisation, identification and succession planning of mission critical positions and scarce skills and focused development to ensure succession plans are implemented timeously.

The high level standard framework of HR areas of delivery to the business HR process are:

talent Management competency Management

hr Planning, risk & compliance organisation development

Attract Engage Develop Maintain Retain Release

ECD

C S

TRA

TEGY

HR

STR

ATEG

Y

HR vALUE

PROPO

SITIO

N


Proud staff members show-casing some of the products produced/manufactured by emerging entrepreneurs and SMMEs supported by ECDC

Best Corporate Exhibition Stand - Mthatha Region

Launching of the new ECDC Values (IPACTI) Launching of the new ECDC Values (IPACTI)

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Talent ManagementIn the year under review, ECDCs staff complement was made up of 165 employees. The vacancy rate was 13.6% due to several vacancies that were not filled as a result of cost containment measures. The staff turnover for this period was 8%.

Staff profile as at 31 March 2015:

ECDC staff turnover ActualPermanent employees at the start of the period 163

Add: Recruitment 17

Less:Resignations 14

Deaths 2

Dismissals 0

Retirements 7

Expiry of contracts 4

TOTAL PERMANENT EMPLOYEES AT THE END OF PERIOD 153

Contract Employees 12

TOTAL EMPLOYEES AT THE END OF PERIOD 165

Staff turnover rate 8%

•Management(Grades16-25) 3.6%

•BargainingUnit(Grades2-15) 4.8%

TOTAL STAFF ESTABLISHMENT 191

•Lessactualpositionsfilled 165

•Vacantpositions 26

vacancy rate 13.6%

•Management(Grades16-25)=8 3.1%

•BargainingUnit(Grade2-15)=18 10.5%

Occupational /equity categories

Occupational categories (and grade)

MALE FEMALEAfrican Coloured Indian White African Coloured Indian White Total

Top management (20-25) 3 0 0 1 3 0 0 0 7

Senior management (17-19) 7 1 2 2 2 0 0 1 15

Skilled supervision (12-16) 30 1 0 5 31 1 0 3 71

Semi-skilled (7-11) 11 0 0 0 42 2 0 0 55

Unskilled(2-6) 0 0 0 0 5 0 0 0 5

TOTAL PERMANENT 51 2 2 8 83 3 0 4 153

TOTAL TEMPORARY 6 0 0 0 5 1 0 0 12

Employees with disabilities 0 0 0 0 0 0 0 0 0

TOTAL EMPLOYEES 57 2 2 8 88 4 0 4 165


Staff breakdown by gender Staff breakdown by race

Average age:45 years.

Staff breakdown by age Staff complement per department

Future Focus AreasTo ensure optimal individual and organisational effectiveness, improved organisational capacity and performance alignment with ECDCs business needs, the corporation will focus on the following initiatives:

• Finalisethereviewedorganisationalstructure;• BoardapprovalofHumanCapitalStrategy;• Finaliseconsultations,changemanagementandaligningstrategy;• FinalisenewPerformanceManagementcontracts;• EmployeeValueProposition(EVP);• FinaliseappointmentoftheChiefExecutiveOfficer(CEO);• FillingRegionalManagerpositions;• ManpowerPlanning;• Addressauditfindings;and• UpdatingthePolicyRegister.

Challenges• Skillsshortagesinthemarketandattractingtherightskills.• Embeddingaperformancemanagementculturewhichalsorecognisesandrewardsgoodperformance.

30%

15%

18%

13%

24%

58%

42%

88%

4%

7%1%

Corporate ServicesCorporate FinanceOperationsCentre of ExpertiseOffice of the CEOISIDP

25 - 3536 - 4546 - 5051 - 5556 - 60

AfricanColouredIndianWhite

FemalesMales

7%

5%6%

14%

55%

13%

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fRAud & ethICs hotLIneSecure your future, it’s your call...

9enteRPRIseRIsk mAnAGement

Fraud &ethICs

hotline0800 204 854

(Toll-free from any Telkom landline)

Ecdc now has a confidential fraud and Ethics hotline to report any unethical conduct. reports can be made anonymously in any of the

eleven official south African languages.

Provide full details of the fraudulent, corrupt orunethical practice to the operator:

You will be given a reference number to use if you make afollow up feedback call or a call to add additional information to

the original report.

Who is involved

What hashappened

How(& how often)

is it done

Where isit done

(location or place )

When wasthe incident

observed(date & time)

valueinvolved(estimated

monetary value)

YOUR HOTLINEREPORT TO0800 200 796(within theborders of SA)

YOUR HOTLINEREPORT TOKPMG HotpostPo box 14671sinoville, PrEtoriAsouth Africa0129

e-mail YOUR HOTLINEREPORT TO

[email protected]

www.thornhill.co.za/kpmgethicslinereport

submitYOUR HOTLINEREPORT via the web


enteRPRIseRIsk mAnAGementTheBoardhasadoptedanenterprise-wideriskmanagementframeworkandpolicywhicharecentraltoallbusinessdecisions. The framework is focused on the need to seize opportunities as well as control threats. This framework wasdevelopedinaccordancewithinternationalanddomesticbestpractice,includingtheKingIIIReportonCorporateGovernance for South Africa.

ECDC performed robust annual and more regular assessments of risks, followed by fully populated strategic and operationalriskregistersandtreatmentplanswhicharemonitoredbytheBoardonaregularbasis.

As the tool for improvement of the ECDC risk management environment, the corporation uses a 5-level maturity assessmentmodel.TheBoardissatisfiedthatthecorporationhasadequatelyfulfilledtherequirementsofLevel3.

In order for the corporation to achieve the next level of the maturity assessment model, the risk management has a significant influence on the control environment at this stage.

The corporation will therefore pursue the following risk management goals to reach Level 4:

• Ongoingtrainingofallemployeesontheimportanceofriskmanagementandriskprocessesinoperations.• Riskappetiteisfullydefined.• Risktolerancelevelsareestablishedforallmajorcategoriesofrisk.• Effectiveenterprise-wideriskmonitoring,measuring,andreporting.• PerformanceagreementsoftheRiskChampionstoincluderiskmanagement.• Riskmanagementautomationsystem(technology)implementation.• Contingencyplansandescalationprocedures.

Fraud Prevention & DetectionThe Board condemns fraudulent, unethical or corrupt practices within the Corporation. ECDC employees wereencouragedtoreportanyofthesepractices,inaccordancewiththeadoptedAnti-FraudandCorruptionandWhistleBlowingpolicies, toaFraudHotlinewhich ismanagedbyan independentexternalserviceprovider.Thesourceofinformation remains anonymous. This complies with the requirements of the Protected Disclosures Act, No 26 of 2000 by creating an environment in which it is safe for employees to report impropriety. An ongoing awareness workshop will be conducted to ensure all employees are educated and inform employees on how fraud would impact their daily working environment.

70

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76

fez ConstRuCtIonSpecific Project / Building

R16 millionin loans

for construction projects

emPLoys moRe thAn

300 PeoPLe BuILdsBuilds schools, clinics & other infrastructure

11GoveRnAnCe RePoRts

stAtement ofResPonsIBILItIes And APPRovAL IntermsoftheCompaniesAct,PublicFinanceManagementAct(PFMA)andtheEasternCapeDevelopmentCorporation(ECDC)Act, theBoardhas the responsibility tomaintainadequate accounting records and is responsible for the content and integrity of the annual financial statements and related financial information included in this report. The directors are further responsible to ensure that the annual financial statements fairly represent the state of affairs of ECDC as at the end of the financial year, and the results of its operations and cash flows for the period then ended, in conformity with South African Statements of Generally Accepted Accounting Practice. The external auditors are engaged to express an in-dependent opinion on the annual financial statements.

The annual financial statements of ECDC are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates.

The directors place considerable importance on maintaining a strong control environment. To this end the directors

set standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. These standards include proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. During the year under review such controls were monitored as far as reasonably possible throughout ECDC and all employees are required to maintain high ethical standards in ensuring the ECDCs business is conducted in a manner that is above reproach in all reasonable circumstances. The risk management focus in ECDC is on identifying, assessing, managing and monitoring all known forms of risk across the ECDC. While it is acknowledged that operating risk cannot be fully eliminated, ECDC however endeavours to minimise it by ensuring that appropriate infrastructures, controls, systems and ethical behaviour are applied within predetermined procedures and constraints.

The Directors are of the opinion that the system of internal control provides reasonable assurance that the financial records may be relied upon for the preparation of annual financial statements. Any system of internal control can, however, provide only reasonable, and not absolute, assurance against material misstatement or loss.

Ndzondelelo dlulaneActing Chief Executive Officer

sandile sentwaChief Financial Officer


80

CeRtIfICAte of theComPAny seCRetARy I certify that the Eastern Cape Development Corporation has lodged with the Companies and Intellectual Property Commission(previouslytheCompaniesandIntellectualPropertyRegistrationOffice),allreturnsrequiredofapubliccompany in terms of the Companies Act, 2008, in respect of the financial year ended 31 March 2015 – and that all such returns are true, correct and up-to-date.

Mandla MpikasheActing Company Secretary


CoRPoRAte GoveRnAnCe

Introduction ECDCendorsesthecodeofcorporatepracticesandconductascontainedintheKingReportsonCorporateGovernance,and affirms its commitment to comply in all material respects with the principles incorporated in these reports. ECDC furthersubscribestothecorporategovernanceprinciplessetoutinthePFMAandtheCompaniesAct.

ECDC is committed to good corporate citizenship and organisational integrity in the running of its affairs. This commitment provides the shareholder(s), customers and stakeholders with the comfort that ECDCs affairs are being managed in an ethical and disciplined manner. ECDCs philosophy is founded on principles of service delivery, trust, integrity, transparency, accessibility, redress and ethics.

Corporate Governance Framework The Board continued to implement the Corporate Governance Framework, which consolidates the corporategovernance procedures, practices and rules applied by the ECDC. These are in line with best practice guidelines as containedintheKingReportsonCorporateGovernanceandothergoodgovernanceprescriptsandguidelines.

Conflict of InterestsECDC values are entrenched through an approved Code of Ethics (Code) which guides employee behaviour in all internal and external stakeholder relations.

In instances where a non-executive director has any direct or indirect personal or private business interest, he/she mustwithdrawfromtheproceedingswhenthematterisconsideredbytheBoardoranyofitsCommittees,unlesstheBoardoranyofitsCommitteesdeterminesthatamember’sinterestinthematteristrivialorirrelevant.

ECDC requires all employees to sign ‘declaration of interest’ forms on an annual basis prior to the commencement of the financial year.

TheannualdeclarationofinterestsregisterfortheBoardisnotedatthebeginningofthefinancialyearorasandwhena revised declaration of interest is submitted to the Company Secretary.

82

Company Secretarial FunctionTheCompanySecretaryisresponsiblefor:

• EnsuringthatBoardproceduresarefollowedandreviewedregularlyandthatapplicablerulesandregulationsfor theconductoftheaffairsoftheBoardarecompliedwith;• GuidingBoardmembersastohowtheirresponsibilitiesshouldbeproperlydischargedinthebestinterestsofthe organisation;• Keepingabreastof,andinforming,theBoardofcurrentandnewdevelopmentsregardingcorporategovernance thinking and practice; and• Maintainingstatutoryrecordsinaccordancewithlegalrequirements. TheBoardhasaccesstotheservicesandadviceoftheCompanySecretary.Inadditiontovariousstatutoryfunctions,theCompanySecretaryprovidesindividualnon-executivedirectorsandtheBoardwithguidanceonduties,responsibilitiesandpowers,andtheimpactofregulatorydevelopments.TheBoardhasempoweredtheCompanySecretarywiththeresponsibilityforadvisingtheBoard,throughtheChairperson,onallgovernancematters.TheCompanySecretaryactsastheprimarypointofcontactbetweentheBoardandtheECDC.

The Company Secretary is qualified to perform the duties in accordance with the applicable legislation and is considered bytheBoardtobefitandproperfortheposition.

Board CompositionThe Member of the Executive Council responsible for the Department of Economic Development, Environmental Affairs andTourism,appointstheBoardofDirectorsintermsofsection7(3)oftheEasternCapeDevelopmentCorporationAct, 1997 (Act No.2 of 1997).

The ECDCs Memorandum of Incorporation provides that there shall not be less than 5 and not more than 18 directors. Asat31March2015,theBoardiscomprisedof10directorsofwhomthemajority(9),arenon-executive,includingthe Chairperson.

The Chairperson and the Chief Executive’s roles and responsibilities are separate.

Board Induction & InformationTheCompanySecretary is taskedwithassisting theBoardwith the inductionofnewnon-executivedirectorsanddirectors’ orientation.

A formal induction programme introduces non-executive directors to ECDCs business environment, risk management, regulatoryenvironment,governanceframework,sustainabilityissuesandfiduciarydutiesascontainedinthePFMAand the Companies Act. Non-executive directors are regularly kept abreast of relevant ECDC matters and regulatory developments.

Succession PlanningThe chairperson is in constant engagement with the shareholder representative on the ECDCs needs and requirements asfarastheBoardmattersareconcerned.


Delegation of AuthorityTheBoardhasdelegatedtotheChiefExecutiveOfficer,theday-to-dayrunningofthebusinesswithintheapprovedDelegationofAuthorityFramework.

TheDelegationofAuthorityFrameworkappliestoallemployeesofECDC.

Matters reserved for Board decision• Approvingthestrategy,CorporatePlan,annualbudgetsandanysubsequentmaterialchangesinstrategic direction.• Approvingannualfinancialstatements,aswellasthedeclarationofdividends.• Approvinganysignificantchangesinaccountingpoliciesorpractices.• RecommendingtheacquisitionordisposalofasignificantshareholdinginECDCfortheShareholder’sapproval.• RecommendingtheacquisitionordisposalofasignificantassetfortheShareholder’sapproval.• RecommendingamendmentstotheECDCsMemorandumofIncorporationtotheShareholder.• EnteringintoaCompactwiththeShareholder.• AppointingandremovingtheCompanySecretary.• ApprovingtermsandconditionsoftheECDCsrightsissues,publicofficers,capitalissuesorissuesofconvertible securities, including shares or convertible securities issued for acquisitions.• RecommendingtheapprovalofanyordinaryorspecialresolutionsinrespectofECDCtotheShareholder.• AppointmentsandchangesinthecompositionoftheBoardCommittees,astheBoardmayelectfromtimetotime.• Effectinganychangesindirectors’feesandbenefitsasrecommendedbytheHumanResourcesand RemunerationCommitteeandapprovedbytheShareholder.• AnyamendmenttosuchrulesasrecommendedbytheHumanResourcesandRemunerationCommittee.

Board & Committees’ Membership &Meeting Attendance TheBoardhasdelegatedsomeofitsresponsibilitiestoCommitteesinaccordancewiththeapproveddelegationofauthority.EachCommitteeactswithintheambitofclearlydefinedtermsofreferenceapprovedbytheBoard.ThesemandatesareperiodicallyreviewedandupdatedtoaddresstherecommendationsofKingIIIandtherequirementsoftheCompaniesActandPFMAincludingProtocolonCorporateGovernanceinthePublicSector.

TheBoardhasfiveCommitteestoassistitindischargingitsroleandresponsibilities,namely:

• Audit,RiskandComplianceCommittee;• HumanResourcesandRemunerationCommittee;• FundingandInvestmentCommittee;• SocialandEthicsCommittee;and• GovernanceandNominationsCommittee.

Appropriate Committee structures have been established in line with legislative requirements and business imperatives. These Committees continue to operate appropriately and assist ECDC with comprehensive control improvement and sound governance.

84

Board of Directors in the Office in the Financial Year 2014/15Retired Non-Executive Directors and Committees:

Committees / Members

Appointment andRetirement Date

Audit, Risk & Compliance

Human Resources &

Remuneration

Funding & Investment

Social & Ethics Governance & Nominations

Ms N. Magwentshu (1) 26/05/2011 - 31/05/2014

Prof M. Mazibuko (2) 03/11/2009 - 30/09/2015

Ms N. Maliza (3) 19/10/2011 - 14/09/2015

MrT.Fikizolo 08/11/2012 - 14/09/2015

Ms N. Medupe (4) 06/02/2013 - 31/12/2015

MrR.Naidoo(5) 08/11/2012 - 31/01/2015

1. ChairpersonoftheBoarduntil31/05/20142. DeputyChairpersonoftheBoarduntil31/05/2014;ActingChairpersonoftheBoardfrom01/06/2014to30/09/2014)3. ChairpersonofHumanResourcesandRemunerationCommitteeuntil30/09/20144. ChairpersonofAudit,RiskandComplianceCommitteeuntil30/09/20145. ActingChiefExecutiveOfficeruntil31/12/2014andmemberoftheBoarduntil31/03/2015

New and Retained Non-Executive Directors:

Committees /Members

Appointment Date Audit, Risk & Compliance

Human Resources &

Remuneration



Mr N. Dladla (6) 01/10/2014

Mr L. Jiya (7) 19/10/2011

Ms N. Siwahla-Madiba (8) 01/10/2014

MsP.Bosman(9) 01/10/2014

Mr S. Thobela 15/09/2014

Adv M. Sishuba 01/10/2014

Mr M. Damane 15/09/2014

MsB.Nqadolo 03/11/2009

Mr M. Maqetuka (10) 08/11/2012

6. ChairpersonoftheBoardfrom01/10/20147. ActingDeputyChairpersonoftheBoardfrom01/06/2014to30/09/2014;Deputy ChairpersonoftheBoardfrom01/10/2014;ChairpersonofFundingandInvestmentCommittee8. ChairpersonofHumanResourcesandRemunerationCommitteefrom01/10/20149. ChairpersonofAudit,RiskandComplianceCommitteefrom01/10/201410. Chairperson of Social and Ethics Committee


Board and Committee meeting attendanceRetired Non-Executive Directors:

Commitees/Members

Board Audit, Risk & Compliance

Human Resources &

Remuneration

Funding & Investments


Special Meetings

2 meetings 2 meetings 2 meetings 2 meetings 1 meetings 1 meeting

N. Magwentshu 1 1

M. Mazibuko 2 2 1 1 7

N. Maliza 1 3 1 4

N. Medupe 2 2 1 3

R.Naidoo 1 1 1 1

Retained Non-Executive Directors:

Commitees/Members


Human Resources &

Remuneration



Special Meetings


L. Jiya 5 2 4 5

B.Nqadolo 3 3 3 9

M. Maqetuka 5 1 3 1 1 1 19

R.Nicholls 3 1

New Non-Executive Directors:

Commitees/Members


Human Resources &

Remuneration



Special Meetings


N. Dladla 3 1 15

S. Thobela 3 2 2 10

M. Sishuba 2 2 2 2

N. Siwahla-Madiba 3 2 2 2 1 21

P.Bosman 3 2 2 2 1 29

M. Damane 3 2 1 21

86

AudIt, RIsk & ComPLIAnCe CommIttee RePoRt

MandateThisreport isprovidedbytheAudit,RiskandComplianceCommittee inrespectof the2014/15financialyear.TheAudit,RiskandComplianceCommittee’sfunctionisguidedbyadetailedcharterwhichisinformedbytherelevantgovernance prescript and aligned to the business.

Audit, Risk & Compliance Committee’s Roles & Responsibilities TheAudit,RiskandComplianceCommitteeisacommitteeoftheBoardandhasdischargeditsresponsibilitiesastheyrelatetothegroup’saccounting,internalauditing,internalcontrolandfinancialreportingpractices.TheAudit,Riskand Compliance Committee has formal terms of reference, regulated its affairs in compliance with these terms of reference and discharged its responsibilities contained therein.

TheAudit,RiskandComplianceCommitteeeffectivelyassiststheBoardindischargingitsdutiesrelatingtothesafe-guarding of assets, the operation of adequate systems, control and reporting processes, and the preparation of accurate reporting and financial statements in compliance with the applicable legal requirements and accounting standards.

Audit, Risk & Compliance Committee Members & AttendanceTheAudit,RiskandComplianceCommitteeconsistsofthememberslistedhereunder.Asperitstermsofreference,the committee is required to meet at least 4 times a year. During the year under review, four (4) obligatory meetings and two (2) special meetings were held.


Name of Member Period of Membership

21/05/2014 14/08/2014 23/10/2014 11/11/2014* 03/02/2015 16/02/2015*

P.Bosman(Chairperson)

01/10/2014 - 31/03/2015

N/A N/A

B.Nqadolo 01/04/2014 - 31/03/2015

X

N. Siwahla-Madiba 01/10/2014 - 31/03/2015

N/A N/A

R.Nicholls(1) 01/04/2014 - 31/03/2015

X X X

M. Sishuba 01/10/2014 - 31/03/2015

N/A N/A X X

L. Jiya 01/04/2014 - 31/10/2014

N/A N/A N/A N/A

N. Medupe 01/04/2014 - 31/12/2014

N/A N/A N/A N/A

N. Maliza 01/04/2014 - 30/09/2014

X N/A N/A N/A N/A

1. ExternalAudit,Riskandcompliancecommitteemember Present

X Absentwithapology* Special meetingN/A Meeting not applicable to the member

Effectiveness of Internal ControlsIn the year under review, various audit reports on the annual financial statements and management letter of the Auditor General indicated that the system of internal control has shortcomings.

TheAudit,RiskandComplianceCommitteefocusonimprovingtheinternalcontrolenvironmentandinparticular:

• ImprovementoftheprocurementpolicyandtheSupplyChainManagementpracticesingeneral• AvailabilityofsupportingdocumentsforPerformanceinformation• ReviewingsecurityandmunicipalratescostsrelatedtopropertiesthatareownedbyECDCinordertoeliminate any inefficiencies and errors.

88

Performance InformationThe Audit, Risk and Compliance Committee have evaluated the content and quality of performance informationprepared and presented by Management. It had noted a significant improvement in the usefulness and reliability of performance information in so far as assisting in decision-making.

Internal AuditInternalAuditexecuteditsauditactivitiesbasedontheauditcoveragefromtheapproved2014/15RiskBasedAnnualAudit Plan.

TheAudit,RiskandComplianceCommitteereviewedtheactivitiesoftheinternalauditfunctionandhaveconcludedthefollowing:

• Thefunctioniseffectiveandthattherewerenounjustifiedrestrictionsorlimitations;• TherecommendationsofinternalauditreportswerebeingimplementedbyManagement;• Theactivitiesoftheinternalauditunitarecoordinatedwiththeactivitiesoftheexternalauditors;and• ThereportsofsignificantinvestigationundertakenbyInternalAuditwerepresented.

In respect of the co-ordination of assurance activities, the Audit, Risk and Compliance Committee reviewed theplans and work outputs of the external and internal auditors and concluded that these were adequate to address all significant financial risks facing the business.

Risk ManagementThere is implementation of appropriate risk management activities that ensures that regular risk assessments, including consideration of Information and Communication Technology risks and fraud prevention, are conducted. A risk management framework, policy and plan to address the risks have been developed and are monitored.

Compliance with laws & regulationsTheAudit,RiskandComplianceCommitteenotedsomeshortcomingsincompliancewithlawsandregulations.TheprocessesarebeingputinplacetoensurethattheAudit,RiskandComplianceCommitteeinstilacultureofcompliancewith laws and regulations.

External auditorsTheAuditorGeneralactedastheexternalauditorsthroughouttheyear.TheAudit,RiskandComplianceCommitteereviewed the external auditors’ scope and work plan to ensure that key risk areas of the business were being addressed during the audit process.


Evaluation of Annual Financial StatementsTheAudit,RiskandComplianceCommitteehasperformedthefollowingfunctionsinrelationtotheannualfinancialstatements of ECDC for the year ended 31 March 2015.

• ReviewedanddiscussedwiththeAuditor-GeneralandManagementtheauditedannualfinancialstatementsas included in the annual report;• ReviewedtheAuditorGeneral’smanagementreportandmanagementresponsesthereto;• Reviewedtheappropriatenessofaccountingpolicies;• Reviewedanddiscussed theappropriatenessofassumptionsmadebyManagement inpreparing thefinancial statements;• Reviewed and discussed the significant accounting and reporting issues, and understand their impact on the financial statements;• Reviewedanddiscussedsignificantadjustmentsresultingfromtheaudit;and• ObtainedassurancefromManagementwithrespecttotheaccuracyoftheannualreport

TheAudit,RiskandComplianceCommitteeconcursandacceptstheconclusionsoftheAuditor-Generalontheannualfinancial statements and is of the opinion that the audited financial statements be accepted and read together with thereportoftheAuditor-GeneralandtheDirectors’Report.

ConclusionTheAudit,RiskandComplianceCommitteeconsiderstheAuditorGeneral’squalifiedauditopinionasaseriousmatterand the necessary steps will be implemented to ensure that the required corrective actions are taken. The Committee will regularly monitor the steps being taken by Management to address each of the issues raised.

Pamela bosmanChairperson of the Audit, Risk and Compliance Committee

90

dIReCtoR’sRePoRtThe Directors are pleased to present their report as part of the audited financial statements of ECDC for the year ended 31 March 2015.

ECDC is established by the Eastern Cape Development Corporation Act, 1997 (Act No. 2 of 1997) (ECDC Act). It is listed asaProvincialGovernmentBusinessEnterpriseinSchedule3DofthePublicFinanceManagementAct(PFMA),(No.1of 1999), as amended.

Shareholding

The Provincial Government of the Eastern Cape is the sole shareholder represented by the Member of the Executive Council of the Department of Economic Affairs and Tourism.

Directors

ThecompositionoftheBoardissetoutintheCorporateGovernanceReport.

Chief Executive Officer and Chief Financial Officer

In the year under review, ECDC did not have a permanent Chief Executive Officer following Mr Mase’s termination ofemploymentcontractinApril2014.Asaresult,MrReggieNaidoo,anon-executivedirector,wasappointedactingwhilst the Chief Executive Officer was on suspension from 18 March 2014, was also appointed to act as Chief Executive Officer pending the appointment of the new Chief Executive Officer; however Mr Naidoo resigned on 31 December 2014.

Asof1January2015,MrNdzondeleloDlulane,ExecutiveManager:DevelopmentInvestments,wasappointedactingChief Executive Officer pending the appointment of the new Chief Executive Officer.

Inconsultationwith theshareholder, theBoarddecided tohold theappointmentofnewchiefexecutiveofficer inabeyance pending the review by national and provincial treasury of all public entities in the province.

Mr Sandile Sentwa, Chief Financial Officer, was involved in the State Funeral’s disbursements that resulted indisciplinaryprocessbeingtakenagainsthimandwasrelinquishedofhisChiefFinancialOfficerpositioneffectivefrom1September2014.Intheinterim,MsNelisiavanDykwasappointedactingChiefFinancialOfficer.Followingfinalisationofthesaiddisciplinaryprocess,theBoardtookaconsidereddecisiontoreinstateMrSandileSentwaasChiefFinancialOfficer,withafinalwrittenwarning,effectivefrom20February2015.

Accounting policies

The accounting policies used in the preparation of the annual financial statements for the year ended 31 March 2015 are in accordance with South African Statements of Generally Accepted Accounting Practice prescribed by the AccountingStandardsBoard(SAStatementsofGAAP)andconsistentwiththoseappliedintheprioryear.

Critical judgments and estimations made in applying theaccounting policies

Judgementsmadebymanagement and supportedby theBoard in theapplicationof IFRIS thathavea significantimpact on the annual financial statements are disclosed in the accounting policies.

Authorised and issued share capital

TheauthorisedsharecapitalofECDCremainedunchangedatR1billionrandworthofOrdinaryShares.OfthisECDCissuedR427589674millionworthofordinarysharestotheProvincialGovernmentoftheEasternCape(Departmentof Economic Development and Environmental Affairs). The issued share capital is made up of 213 794 837 million “A” sharesofR1eachand213794837million“B”sharesofR1each.

Divisions, subsidiaries and associate companiesA detailed list of subsidiaries and associate companies is contained in the supplementary information to the annual financial statements.


Dividends

No dividends were declared or paid to shareholders during the year under review.

Judicial proceedings

The annual financial statements include a best estimate of expected settlement costs for judicial proceedings entered into by ECDC, as either defendant or plaintiff, where the outcome can be assessed with reasonable certainty. These estimates take into account the legal opinions obtained for ECDC and the group. The contingent liabilities of the group have been disclosed in note 28 of the annual financial statements.

Post balance sheet events review

ECDC is not aware of any matter or circumstance which may have arisen since the end of the financial year, not otherwise dealt with in the annual financial statements, which significantly affects the position of ECDC or the results of its operations.

Going Concern

Having reviewed ECDC ’s cash flow forecast for the year to 31 March 2015 and, in the light of this review and current financial position, the Directors are satisfied that ECDC has, or has access to, adequate resources to continue its operational existence for the future.

Executive Remuneration

ECDCcontinuestoregarditsemployeesasthemostvaluedassetofthebusinessandtheHumanResourcesstrategyremainsoneofthepillarsofECDCstrategyandprovidestheframeworkforaddressingHRchallenges.

TheHumanResourcesstrategyremains focusedonprovidingtherightskills in therightplaceat theright timetosupport delivery of business objectives.

ECDC recognises that remuneration is a business issue, not purely a human resources issue, as it has a direct impact on operational expenditure, organisational culture, employee behaviour and ultimately the financial sustainability of the ECDC. As such the ECDCs approach to reward is consistent with its objectives and strategic value drivers.

AccordinglytheobjectiveofECDCremunerationphilosophyisto:

• Toincreaseproductivitybyensuringthatindividuals,teamsarerecognisedandrewardedforsustainedsuperior performance, whilst managing the total cost of employment;• RemunerationsstrategyallowsECDCtocompeteeffectivelyinthelabourmarketandtorecruitandretainhigh calibre staff;• ECDC has established reward as a strategic driver of performance, to encourage and promote continuous improvement both at a personal, corporate and unit level;• ECDCsremunerationstrategyallowsittoattract,motivateandretainskilledpersonneltoenableECDCtoretaina competitive edge over its competitors;• FinallyECDCsremunerationstrategyallowscommensuratepaytoperformance.

Executive remuneration – guaranteed

The remuneration levels of ECDC executives are largely determined by the market. It is generally accepted that state-owned enterprises require people with exceptional skills to lead them competently and create employment. State-owned companies often manage businesses of the same magnitude as, or larger than, public listed companies. They also have the added responsibility of managing key national resources.

ECDC aims to remunerate employees at the market median and the guaranteed remuneration of executives at ECDC compares well with the market median. The aim is to pay fairly for responsibility exercised and results achieved.

ECDC annually conducts an executive remuneration benchmark exercise to compare the remuneration of the executive teams with the external market.

TheexecutiveremunerationbenchmarksurveyisconductedbasedontheDeloitte“SAGuidetoExecutiveRemunerationandReward”,anationalremunerationsurveypublishedannuallybyDeloitteConsulting.

The outcome of the current remuneration study by the Presidential Review Committee into the remuneration ofexecutives at state-owned companies will, in future, also impact on the increases of Executives.

92

Executive remuneration - non-guaranteed

Short Term Incentive (STI) SchemeThe STI was designed with the specific objective to drive the achievement of stretch business targets.

The STI must drive employee behaviour toward the achievement of ECDC strategic objectives; andIt must further ensure more equitable reward for the achievement of results.

ThefollowingprinciplesapplytotheSTI:

• TheachievementofcorporateobjectivesisgivenaweightedscoreofachievementfromAuditorGeneralwhich indicates corporate performance. • Individualstrategicobjectivesofmanagementemployeeswerederivedfromandalignedwithkeyperformance indicators as stated in the Shareholder’s Compact and Corporate Plan.

Performance Reward Parameters

Executives and general staff qualify for an annual STI payment provided that the strategic objectives, as agreed with the Shareholder, have been achieved. Incentive eligibility percentages have been extensively benchmarked and are aligned

Theeligibilityrangeofpercentageslinkedtoindividualperformanceratingsisasfollows:

Employee Level At Expectation Bonus Cap 13th ChequeChief Executive Officer 30% 50% No

Executive Management 24% 40% No

Non-executive directors’ remuneration

Non-executivedirectorsareappointedby theShareholderRepresentative for a three-year termsubject toannualconfirmation and re-election at every annual general meeting of the Company. Among the issues considered by the ShareholderRepresentativepriortore-election,istheindividualnon-executivedirector’sperformanceandtheBoard’sskills requirements.

TheShareholderRepresentativeapproves, inadvance, the feespayable tonon-executivedirectors in linewith theNationalTreasuryRemunerationGuidelines.Feespaidtonon-executivedirectorsvarybasedontheirappointmentstothevariousCommitteesoftheBoard.

The fees of the non-executive directors were not increased during the reporting period in line with the directives issuedinrespectofDirectors’feesbytheShareholderRepresentative.

Financial Results

The results of ECDC and the group are disclosed in the annual financial statements.

Policy Directives

During the year under review, ECDC received no new policy directives from the Member of the Executive Council responsible for the Department of Economic Development and Environmental Affairs.

Interest bearing borrowings

There were no new borrowings incurred during the year. ECDC continued to reduce its existing borrowings with the DevelopmentBankofSouthernAfricaLimited.

Subsidiaries

ECDChasinterestsinvarioussubsidiariesandassociates.FinancialinformationinrespectofinterestsofECDCinsuchsubsidiaries and associates is set out in Annexure 1.

Corporate Governance matters

A detailed account on the Corporate Governance Matters of ECDC is reflected in the Corporate Governance section ofthisAnnualReport.


Director’s fees

FeeswerepaidtodirectorsfortheBoard,sub-committeeandspecialmeetings’attendanceduringthefinancial year under review.

Committee /Member

Board Audit, Risk &Compliance

HumanResources &

Remuneration


Social &Ethics

Governance&

Nominations

Specialmeetings

TOTALFEES

(R) (R) (R) (R) (R) (R) (R) (R)Magwentshu, N 12 500 0 0 0 0 o 12 500 25 000

Mazibuko, M 37 500 0 15 000 5 000 0 7 500 27 500 92 500

Fikizolo,T 12 500 0 5 000 0 0 0 22 500 40 000

Maliza, N 7 500 0 22 500 0 0 5 000 25 000 60 000

Jiya, L 55 500 10 000 0 30 000 0 0 30 000 125 500

Medupe, N 22 500 15 000 0 0 0 5 000 12 500 55 000

Naidoo,R 15 000 0 5 000 5 000 0 0 0 25 000

Maqethuka, M 57 500 5 000 32 500 5 000 7 500 5 000 75 000 187 500

Nicholls,R 0 22 500 0 0 0 0 7 500 30 000

Dladla, N 50 000 0 0 0 0 7 500 107 500 165 000

Thobela, S 30 000 0 0 10 000 10 000 0 52 500 102 500

Sishuba, MH 15 000 15 000 10 000 0 0 0 7 500 47 500

Madiba, N 30 000 22 500 22 500 0 12 500 5 000 100 000 192 500

Bosman,P 30 000 35 000 10 000 0 0 5 000 147 500 227 500

Damane, M 30 000 0 15 000 5 000 0 5 000 95 000 150 000

TOTAL FEES 405 500 125 000 137 500 60 000 30 000 45 000 722 500 1 525 500

94

RePoRt of the AudItoR-GeneRALto the eAsteRn CAPe PRovInCIAL LeGIsLAtuRe on theeAsteRn CAPe deveLoPment CoRPoRAtIon

Report on the Consolidated and Separate Financial Statements

Introduction

1. I have audited the consolidated and separate financial statements of the Eastern Cape Development Corporation and its subsidiaries set out on pages 102 to 151, which comprise the consolidated and separate statement of financial position as at 31 March 2015, the consolidated and separate statement of financial performance and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.

Accounting authority’s responsibility for the consolidated and separate financial statements

2. The accounting authority is responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with the South African Statements of Generally Accepted Accounting Practice (SAStatementsofGAAP)prescribedby theAccountingStandardsBoardand the requirementsof the PublicFinanceof1999)(PFMA),andforsuchinternalcontrolastheaccountingauthoritydeterminesisnecessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

Auditor-general’s responsibility

3. My responsibility is to express an opinion on these consolidated and separate financial statements based on my audit. I conducted my audit in accordance with International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement.

4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and separate financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated and separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and separate financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my qualified audit opinion.

Basis for qualified opinion

Trade and other receivables

6. I was unable to obtain sufficient appropriate audit evidence for the consolidated and separate trade receivables of R349.99millionandR347.50million, respectively,and theconsolidatedandseparate impairmentallowanceof R343.63millionandR341.89million,respectively,asdisclosedinnote10totheconsolidatedandseparatefinancial statements. This was due to inadequate contract management with respect to rental agreements. I was unable to confirm the consolidated and separate amount of trade receivables and the impairment allowance by alternative means. Consequently, I was unable to determine whether any further adjustments were necessary to trade receivables and the impairment allowance as disclosed in note 10 to the consolidated and separate financial statements.


Aggregation of immaterial uncorrected misstatements

7. The consolidated and separate financial statements are materially misstated due to the cumulative effect of numerous individually immaterial uncorrected misstatements in the following elements, making up and as disclosedontheconsolidateandseparatestatementoffinancialposition:

•InvestmentpropertyisoverstatedbyR8.21million •TradeandotherreceivablesisunderstatedbyR7.64million •RetainedincomeisoverstatedbyR2.31million

8. In addition, I was unable to obtain sufficient appropriate audit evidence due to individually immaterial amounts that were unsubstantiated, and I was unable to confirm by alternative means, or determine if adjustments were required to trade and other payables, as disclosed in the consolidated and separate statement of financial position.

Aggregation of immaterial uncorrected misstatements in corresponding figures

9. The separate financial statements are materially misstated due to the cumulative effect of numerous individually immaterial uncorrected misstatements in the following corresponding elements, making up and as disclosed on theseparatestatementoffinancialperformance:

•FinancecostsareoverstatedbyR377781 •FairvalueadjustmentsisoverstatedbyR301811 •RevenueisunderstatedbyR301165 •OperatingexpenditureisoverstatedbyR275306

10. In addition, I was unable to obtain sufficient appropriate audit evidence due to individually immaterial corresponding amounts that were unsubstantiated, and I was unable to confirm by alternative means, or determine if adjustments were required to operating expenses, including the preparations for state funeral expenses as per note 20, as disclosed in the separate statement of financial performance.

Qualified opinion

11. In my opinion, except for the possible effects of the matters described in the basis for qualified opinion paragraphs, the consolidated and separate financial statements present fairly, in all material respects, the financial position of the Eastern Cape Development Corporation and its subsidiaries as at 31 March 2015 and their financial performance and cash flows for the year then ended, in accordance with the SA Statements of GAAP and the requirements of thePFMA.

Emphasis of matters

12. I draw attention to the matters below. My opinion is not modified in respect of these matters.

Irregular expenditure

13. As disclosed in note 37 to the consolidated and separate financial statements, the entity incurred irregular expenditureofR33.39millioninthecurrentyear.Inaddition,irregularexpenditureofR8.08millionwasincurred bytheentityintheprioryearbutonlyidentifiedinthecurrentyear.Bothwereasaresultofnon-compliancewith theprescribedprocurementprocessesandprescriptsgoverningtheentity.Oftheseamounts,onlyR33.39million had been condoned as at 31 March 2015.

Material impairments

14. Included in note 20 to the consolidated and separate financial statements are material write-offs relating to loans advancedamountingtoR39.71million.

Decoupling

15. TheEastLondonIndustrialDevelopmentZonewasdecoupledwitheffectfrom1April2014andasaresulthas not been consolidated in the current year, as disclosed in notes 43 and 45 to the consolidated and separate financial statements.

Additional matter

16. I draw attention to the matter below. My opinion is not modified in respect of this matter.

96

Other reports required by the Companies Act

17. As part of my audit of the financial statements for the year ended 31 March 2015, I have read the directors’ report, the audit committee’s report and the company secretary’s certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports aretheresponsibilityoftherespectivepreparers.Basedonreadingthesereports,Ihavenotidentifiedmaterial inconsistencies between the reports and the audited financial statements in respect of which I have expressed a qualified opinion. I have not audited the reports and accordingly do not express an opinion on them.

Report on Other Legal and Regulatory Requirements18. In accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA) and the general notice issued in terms thereof, I have a responsibility to report findings on the reported performance information against predetermined objectives for selected strategic goals presented in the annual performance report, non-compliance with legislation and internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.

Predetermined obJectives

19. I performed procedures to obtain evidence about the usefulness and reliability of the reported performance informationforstrategicgoal2:stimulateeconomicdevelopmentthroughfocusedinvestmentinvitalsectorsof the provincial economy, on pages 73 to 76 as presented in the annual performance report of the entity for the year ended 31 March 2015.

20. I evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury’s annual reporting principles and whether the reported performance was consistent with the planned strategic goals. I further performed tests to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury’s Frameworkformanagingprogrammeperformanceinformation.

21. I assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete.

22. I did not identify any material findings on the usefulness and reliability of the reported performance information for strategicgoal2:stimulateeconomicdevelopmentthroughfocusedinvestmentinvitalsectorsoftheprovincialeconomy.

Additional matter

23. Although I identified no material findings on the usefulness and reliability of the reported performance information fortheselectedstrategicgoal,Idrawattentiontothefollowingmatter:

Achievement of planned targets

24.Refertotheannualperformancereportonpages73to76forinformationontheachievementoftheplannedtargets for the year.

Compliance with legislation

25. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. My findings on material non-compliance with specificmattersinkeylegislation,assetoutinthegeneralnoticeissuedintermsofthePAA,areasfollows:


Consolidated and separate financial statements and reporting

26. The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and supported by full and proper records, as required by section 55(1)(a) and (b) of thePFMA.Materialmisstatementsofnon-currentassets,currentassets,currentliabilities,revenue,expenditure and disclosure items identified by the auditors in the submitted financial statements were subsequently corrected and the supporting records provided, but the uncorrected material misstatements and supporting records that could not be provided resulted in the financial statements receiving a qualified audit opinion.

27. The annual performance report of the group did not include a report on the performance against predetermined objectivesforeachsubsidiaryinthegroup,asrequiredbysection55(2)(a)ofthePFMA.

Expenditure management

28. The accounting authority did not take effective steps to prevent irregular expenditure, as required by section 51(1) (b)(ii)ofthePFMA.

Revenue management

29. Effective and appropriate steps were not taken to collect all money due, as required by section 51(1)(b)(i) of the PFMAandtreasuryregulation31.1.2(a)and(e).

Procurement and contract management

30. Goods, works and services were not procured through a procurement process that was fair, equitable, transparent andcompetitive,asrequiredbysection51(1)(a)(iii)ofthePFMA.

31. The procurement system did not comply with the requirements of a fair supply chain management (SCM) system, aspersection51(1)(a)(iii)ofthePFMA,inthatawardsweremadetosuppliersbasedonpreferencepointsthathad not been calculated in accordance with the requirements of the SCM policy.

32. Contracts and quotations were awarded to bidders based on preference points that had not been allocated and calculatedinaccordancewiththerequirementsofthePreferentialProcurementPolicyFrameworkActofSouth Africa, 2000 (Act No. 5 of 2000) and its regulations.

33. A proper evaluation of major capital projects was not done prior to a final decision on projects, as per the requirementsofsection51(1)(a)(iv)ofthePFMA.

Consequence management

34. Effective and appropriate disciplinary steps were not taken against officials who incurred or permitted irregular expenditure,asrequiredbysection51(1)(e)(iii)ofthePFMA.

Internal control

35. I considered internal control relevant to my audit of the consolidated and separate financial statements, the annual performance report and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted in the basis for the qualified opinion and the findings on non- compliance with legislation included in this report.

Leadership

36. The entity experienced changes in leadership during the current year. Periodic changes to the composition of the accounting authority took place, and key senior management positions were affected by vacancies and temporary placements. Although the accounting authority implemented change management interventions, these did not adequately address the instability in leadership, while the oversight provided was ineffective. This resulted in the inadequate implementation and monitoring of action plans and non-compliance with policies and procedures in the current year. In addition, leadership did not address issues that have remained unresolved at the entity for numerous years, namely the collection or write-off of long-outstanding debt and the weak contract management system over rentals. This slow response, as well as inadequate consequence management practices, resulted in numerous material misstatements in financial reporting as well as material non-compliance with laws and regulations.

98

East London31 July 2015

Financial and performance management

37. Senior management did not adequately oversee the operations of the entity, as the financial statements contained material misstatements not detected by the entity’s own system of internal control. The entity did not maintain adequate records pertaining to its routine and non-routine transactions with respect to financial information. SCM and revenue contract management processes were inadequate, resulting in irregular expenditure and material misstatements of revenue and trade receivables. There was an increase in the number of internal control issues from the prior year, with repeat and new issues being identified with respect to the daily and monthly control activities within the entity, indicating the inadequate implementation of action plans. Deviations from policies and procedures were not identified by management and there was a lack of consequence management to address material non-compliance with laws and regulations. Instability in key management positions resulted in inadequate monitoring and ultimately a regression of internal controls within the entity.

Governance

38. Although risk management activities took place within the entity and the necessary policies and procedures were formulated and documented, the regression in the entity’s control environment due to the instability of leadership indicates that there were inadequate mitigating processes to address the entity’s reliance on key individuals and to get the entity through periods of change and unpredictability.

39. The internal audit unit performed its duties well within the current year, under the direction of the audit committee. However, these activities did not lead to the entity obtaining an improved audit outcome, with a regression in internal controls. The inadequate responsiveness of management to these activities undermined the effectiveness of the internal audit unit and the audit committee.

Other ReportsInvestigations

40. At the time of the 2014/15 audit report, the Public Protector South Africa had undertaken an investigation into the expenditure incurred by the entity, in terms of the mandate assigned to them, on the funeral of the late state president in the 2013/14 year. The results of this investigation have not yet been issued.


eAsteRn CAPe fRom ABoveBAthuRst, the BIG PIneAPPLe

Promoting Zero-Waste Agro-Processing in the Pineapple Industry

100

12AnnuALfInAnCIALstAtements

Eastern Cape Development Corporation

ConsoLIdAted AnnuAL fInAnCIAL stAtements foR the yeAR ended 31 mARCh 2015

General InformationCountry of incorporation and domicileSouth Africa

Legal FormGovernmentBusinessEnterprise

Registered officeOcean Terrace ParkMoore StreetQuigneyEast London

Postal addressPOBox11197SouthernwoodEast London5213

Index Page 102

Statement of Financial Position 103

Statement of Financial Performance 104

Statement of Comprehensive Income 104

Statement of Changes in Equity 105

Statement of Cash Flows 107

Accounting Policies 108

Notes to the Consolidated

Annual Financial Statements 118

The consolidated annual financial statements set out on pages 102 to 151 which have been prepared on the going concern basis, were approved by the Board of Directors on 31 July 2015 and were signed on its behalf by:


Ndzondelelo dlulane Acting Chief Executive Officer

102

Statement of Financial Position as at 31 March 2015Group Company

Note(s) 2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Assets

Non-Current Assets

Biologicalassets 39 24 240 - - - - -

Investment property 2 958 535 2 051 831 1 713 981 903 435 730 371 658 123

Property, plant and equipment 3 84 895 532 225 494 406 24 768 24 888 25 663

Intangible assets 40 5 418 3 448 2 504 98 158 77

Investments in subsidiaries 4 - - - 23 012 23 006 23 006

Investments in associates 5 23 919 21 613 18 176 - - -

Loans to group companies 6 - - - 22 141 20 385 20 904

Investments 7 35 394 34 727 35 782 31 857 32 454 33 399

Deferred tax 8 - 800 582 - - -

Loans advanced 9 14 848 70 476 58 861 14 848 70 476 58 372

1 147 249 2 715 120 2 324 292 1 020 159 901 738 819 544

Current Assets

Inventories 42 1 040 - - - - -

Current tax receivable 85 173 4 - - -

Trade and other receivables 10 23 951 54 443 47 229 20 062 19 632 15 568

Loans advanced 9 87 112 68 704 76 643 87 112 68 704 76 643

Cash and cash equivalents 11 301 270 606 486 391 147 279 077 470 407 228 542

413 458 729 806 515 023 386 251 558 743 320 753

Non-current assets held for sale 43 4 245 14 095 16 479 4 245 14 095 16 479

Total Assets 1 564 952 3 459 021 2 855 794 1 410 655 1 474 576 1 156 776

Equity and Liabilities

Equity

Equity Attributable to Equity Holders of Parent

Share capital 12 427 590 427 590 427 590 427 590 427 590 427 590

Reserves 13 424 812 415 709 415 251 407 403 407 403 406 945

Retainedincome 419 576 426 019 231 997 308 112 203 615 150 698

1 271 978 1 269 318 1 074 838 1 143 105 1 038 608 985 233

Non-controlling interest 4 007 42 651 (23 444) - - -

1 275 985 1 311 969 1 051 394 1 143 105 1 038 608 985 233

Liabilities

Non-Current Liabilities

Loans from group companies 6 - - - 52 720 42 531 36 264

Loans from shareholders 41 28 306 - - - - -

Interest bearing borrowings 14 23 875 898 1 151 198 898 1 151

Financeleaseobligation 44 541 50 47 508 - -

Operating lease liability 80 - - - - -

Retirementbenefitobligation 15 32 389 28 808 27 830 32 389 28 808 27 830

Deferred income 16 504 1 546 683 1 458 158 - - -

Deferred tax 8 16 - - - - -

85 711 1 576 439 1 487 186 85 815 72 237 65 245

Current Liabilities

Loans from shareholders 41 508 - - - - -

Interest bearing borrowings 14 507 273 488 507 273 488

Current tax payable 108 108 375 - - -

Financeleaseobligation 44 553 14 27 508 - -

Operating lease liability 101 - - - - -

Trade and other payables 17 83 648 196 615 102 552 71 746 132 133 70 438

Deferred income 16 117 831 373 603 213 772 108 974 231 325 35 372

203 256 570 613 317 214 181 735 363 731 106 298

Total Liabilities 288 967 2 147 052 1 804 400 267 550 435 968 171 543

Total Equity and Liabilities 1 564 952 3 459 021 2 855 794 1 410 655 1 474 576 1 156 776


Statement of Financial PerformanceGroup Company

Note(s) 2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Continuing operations

Revenue 19 129 327 116 398 117 325 106 594

Other income 25 644 2 709 23 839 3 836

Government grants 18 216 203 223 903 164 749 202 720

Operating expenses (444 223) (372 299) (394 119) (347 286)

Operating (loss) profit 20 (73 049) (29 289) (88 206) (34 136)

Investment revenue 22 10 142 8 589 10 949 9 496

Fairvalueadjustments 23 190 398 78 451 175 434 75 067

Income from equity accounted investments 2 305 3 438 - -

Financecosts 24 (738) (637) (74) (624)

Profit before taxation 129 058 60 552 98 103 49 803

Taxation 25 (824) 215 - -

Profit from continuing operations 128 234 60 767 98 103 49 803

Discontinued operations

Profit from discontinued operations 43 - 186 735 - -

Profit for the year 128 234 247 502 98 103 49 803

Statement of Comprehensive IncomeGroup Company

Note(s) 2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Profit for the year 128 234 247 502 98 103 49 803

Other comprehensive income for the year net of taxation - - - -

Other comprehensive income - - - -

Total comprehensive income 128 234 247 502 98 103 49 803

Net profit attributable to:

Owners of the parent:

Profit (loss) for the year from continuing operations 135 186 (5 328) 98 103 49 803

Profit for the year from discontinuing operations - 186 735 - -

Profit for the year attributable to owners of the parent 135 186 181 407 98 103 49 803

Non-controllinginterest:

(Loss) profit for the year from continuing operations (6 952) 66 095 - -

Total comprehensive income attributable to: 135 186 181 407 98 103 49 803

Owners of the parent

Non-controlling interest (6 952) 66 095 - -

128 234 247 502 98 103 49 803

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Statement of Cash FlowsGroup Company

Note(s) 2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Cash flows from operating activities

Cash from/ (used) in operations 26 (227 305) 227 632 (247 411) 223 593

Interest income 10 051 10 007 9 251 7 979

Dividends received 91 81 - -

Financecosts (738) (637) (74) (624)

Tax paid 27 (124) (112) - -

Net cash from/(used) in operating activities (218 025) 236 971 (238 234) 230 948

Cash flows from investing activities

Purchase of property, plant and equipment 3 (651) (4 706) (470) (1 229)

Sale of investment property 2 16 651 9 525 16 651 9 517

Purchase of intangible assets 40 (108) - - -

Sale of intangible assets 40 - 2 558 - -

Loans from group companies repaid - - 13 188 3 064

Loans advanced to group companies (664) - - -

Purchase of financial assets (467) (428) (472) (428)

Loans disbursed (96 419) (122 378) (96 419) (122 378)

Loans collected 115 400 123 328 115 400 122 839

Net cash (from)/generated from investing activities 33 742 7 899 47 878 11 385

Cash flows from financing activities

Repaymentofinterestbearingborrowings (466) (468) (466) (468)

Financeleasepayments (521) (10) (508) -

Net cash flows of discontinued operations - (29 053) - -

Net cash from financing activities (987) (29 531) (974) (468)

Total cash movement for the year (185 270) 215 339 (191 330) 241 865

Cash and cash equivalents at the beginning of the year 606 486 391 147 470 407 228 542

DecouplingofELIDZ (119 946) - - -

Cash and cash equivalents at the end of the year 11 301 270 606 486 279 077 470 407


Accounting Policies

1. Presentation of Consolidated Annual Financial StatementsThe consolidated annual financial statements of the Eastern Cape Development Corporation have been prepared in accordance with South AfricanStatementsofGenerallyAcceptedAccountingPracticeasprescribedbytheAccountingStandardsBoardandinthemannerrequiredbythePublicFinanceManagementAct(ActNo.1of1999,asamended)andtheEasternCapeDevelopmentCorporationAct.Theconsolidatedannual financial statements have been prepared on the historical cost basis as modified by the revaluations of certain land and buildings, investment properties, available for sale financial assets and financial assets and financial liabilities at fair value through profit or loss.

The preparation of consolidated annual financial statements in conformity with South African Statements of Generally Accepted Accounting Practice requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated annual financial statements are disclosed in note 1.14.

TheconsolidatedannualfinancialstatementshavebeenpreparedintheCorporation’sfunctionalcurrency,theSouthAfricanRand.

These accounting policies are consistent with the previous financial year.

Underlying assumptions

The consolidated annual financial statements are prepared on the going concern basis, which assumes that the Corporation will continue in operation for the foreseeable future. The consolidated annual financial statements are prepared using accrual accounting whereby the effects of transactions and other events are recognised when they occur rather than when the cash is received or paid. The owners of the group or others do not have the power to amend the audited financial statements after they have been published.

Assetsand liabilitiesand incomeandexpensesarenotoffsetunlessspecificallypermittedbyanaccountingstandard.Financialassetsandfinancial liabilities are offset and the net amount reported only when a current legally enforceable right to set off the amounts exists and the intention is either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Changes in accounting policies are accounted for in accordance with the transitional provisions in the applicable standard. If no such guidance is given, they are applied retrospectively unless it is impracticable to do so, in which case the change is applied prospectively. Changes in accounting estimates are recognised in profit or loss in the period they occur. Prior period errors are retrospectively restated unless it is impracticable to do so, in which case they are applied prospectively.

Recognition of assets and liabilities

An asset, being a resource controlled by the corporation as a result of a past event from which future economic benefits are expected to flow, is recognised when it is probable that the future economic benefits associated with it will flow to the Group and its cost or fair value can be measured reliably. A liability, being a present obligation of the Group arising from a past event the settlement of which is expected to result in an outflow of resources embodying economic resources from the Group, is recognised when it is probable that future economic benefits associated with it will flow from the Group and its cost or fair value can be measured reliably.

Derecognition of assets and liabilities

Financialassetsorpartsthereofarederecognised,i.e.removedfromthebalancesheet,whenthecontractualrightstoreceivethecashflowshave been transferred or have expired or if substantially all the risks and rewards of ownership have passed. Where substantially all the risks and rewards of ownership have not been transferred or retained, the financial assets are derecognised if they are no longer controlled by the Group. However, if control is retained, financial assets are recognised only to the extent of the Group’s continuing involvement in those assets.

All other assets are derecognised on disposal or when no future economic benefits are expected to flow to the Group from their use or disposal. Financialliabilitiesarederecognisedwhentherelevantobligationhaseitherbeendischargedorcancelledorhasexpired.

Post-balance sheet events

Recognisedamountsintheconsolidatedannualfinancialstatementsareadjustedtoreflecteventsarisingafterthebalancesheetdatethatprovide evidence of conditions that existed at the balance sheet date. Events after the balance sheet date that are indicative of conditions that arose after the balance sheet date are dealt with by way of a note.

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

Fair value

Subsequenttoinitialmeasurementinvestmentpropertyismeasuredatfairvalue.Fairvaluegainsandlossesarerecognisedintheprofitorlossfor the period.

1.2 Property, plant and equipmentThecostofanitemofproperty,plantandequipmentisrecognisedasanassetwhen:• itisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtothecorporation;and• thecostoftheitemcanbemeasuredreliably.

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Property, plant and equipment is initially measured at cost.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised.

Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses except for land and buildings which is carried at fair value, determined by a sworn appraiser, every third year. Subsequent to initial measurement, land and buildings are carried at fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.

The revaluation surplus in equity related to a specific item of property, plant and equipment is transferred directly to retained earnings when the asset is derecognised.

Property, plant and equipment are depreciated over their expected useful lives to their estimated residual value.

Theusefullivesofitemsofproperty,plantandequipmenthavebeenassessedasfollows:

Item Average useful lifeLand Indefinite

Buildingsandinfrastructure 25 - 50 years

Financeleaseassets 5 years

Plant and machinery 4 - 20 years

Furnitureandfixtures 6 - 10 years

Motor vehicles 4 - 5 years

Office equipment 4 - 6 years

IT equipment 3 years

Computer software 2 - 3 years

Leasehold improvements 5 - 20 years

Other Property, plant and equipment 5 - 6 years

The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting period. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate.

The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

1.3 Investments in subsidiariesSubsidiaries are entities, including unincorporated partnerships and companies without a share capital, that are controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Consolidated annual financial statements

The consolidated annual financial statements incorporate the assets, liabilities, income, expenses and cash flows of the corporation and its subsidiaries. The results of the subsidiaries acquired or disposed during the year are included from the date of acquisition or up to the date of disposal. Inter-company transactions and balances are eliminated on consolidation.

Corporation annual financial statements

In the Corporation’s separate annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment.

Thecostofaninvestmentinasubsidiaryistheaggregateof:• thefairvalue,atthedateofexchange,ofassetsgiven,liabilitiesincurredorassumed,andequityinstrumentsissuedbythecorporation;plus• anycostsdirectlyattributabletothepurchaseofthesubsidiary.

An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably.

1.4 Investments in associatesAssociates are entities, including unincorporated partnerships and companies without a share capital, over which the Group exercises significant influence.


Consolidated annual financial statements

An investment in an associate is accounted for using the equity method, except when the asset is classified as held-for-sale in accordance with IFRS5:Non-currentassetsheldforsaleanddiscontinuedoperations.Undertheequitymethod,theinvestmentisinitiallyrecognisedatcostandthe carrying amount is increased or decreased to recognise the group’s share of the profits or losses of the investee after acquisition date. The use of the equity method is discontinued from the date the group ceases to have significant influence over an associate.

Any impairment losses are deducted from the carrying amount of the investment in associate.

Distributions received from the associate reduce the carrying amount of the investment.

Profits and losses resulting from transactions with associates are recognised only to the extent of unrelated investors’ interests in the associate.

The excess of cost of acquisition over the group’s interest in the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill, and is included in the carrying amount of the associate.

The excess of the group’s share of the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities over the cost is excluded from the carrying amount of the investment and is instead included as income in the period in which the investment is acquired.

Corporation annual financial statements

Associate companies are those companies in which the Corporation holds a long-term equity interest and over which it exercises a significant influence over its financial and operating policies, other than investments in companies acquired to protect advances or as a conduit for advances.

The investments in associate companies are initially recorded at cost. Subsequent to initial recognition, the investment in the associate is carried at fair value as an available for sale financial asset in accordance with the accounting policy on financial assets. If fair value cannot be measured reliably, the investment is carried at cost. An appropriate provision is made where there is considered to be a permanent diminution in the value of the investment.

1.5 Impairment of assetsAn impairment loss on an asset or cash-generating unit is the amount by which the carrying amount, i.e. the amount recognised on the balance sheet after deducting any accumulated depreciation and accumulated impairment losses, exceeds its recoverable amount. The recoverable amountisthehigherofanasset’sorcash-generatingunit’sfairvaluelesscoststosellanditsvalueinuse.Valueinuseisthepresentvalueoffuture cash flows expected to be derived from an asset or cash-generating unit.

At each reporting date the carrying amount of the tangible and intangible assets are assessed to determine whether there is any indication that those assets may have suffered an impairment loss. If any such indication exists, the recoverable amount of the cash-generating unit to which theassetbelongsisestimated.Valueinuseisestimatedtakingintoaccountfuturecashflows,forecastmarketconditionsandtheexpecteduseful lives of the assets.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in profit or loss. The loss is first allocated to reduce the carrying amount of goodwill and then to the other assets of the cash-generating unit.

Subsequent to the recognition of an impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life.

If an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, limited to the carrying amount that would have been recognised had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. Impairments to goodwill are not reversed in subsequent accounting periods.

1.6 Financial instrumentsClassification

Thegroupclassifiesfinancialassetsandfinancialliabilitiesintothefollowingcategories:• Financialassetsatfairvaluethroughprofitorloss-designated• Held-to-maturityinvestment• Loansandreceivables• Available-for-salefinancialassets

Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial recognition. Classification is re-assessed on an annual basis, except financial assets designated as at fair value through profit or loss, which shall not be classified out of the fair value through profit or loss category.

Initial recognition and measurement

Financialinstrumentsarerecognisedinitiallywhenthegroupbecomesapartytothecontractualprovisionsoftheinstruments.

The group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.

Financialinstrumentsaremeasuredinitiallyatfairvalue,exceptforequityinvestmentsforwhichafairvalueisnotdeterminable,whicharemeasured at cost and are classified as available for sale financial assets.

110

Forfinancial instrumentswhicharenotat fairvaluethroughprofitor loss, transactioncostsare included in the initialmeasurementof the instrument.

Transaction costs on financial instruments at fair value through profit or loss are recognised in profit or loss.

Subsequent measurement

Financialinstrumentsatfairvaluethroughprofitorlossaresubsequentlymeasuredatfairvalue,withgainsandlossesarisingfromchangesinfair value being included in profit or loss for the period.

Net gains or losses on the financial instruments at fair value through profit or loss include interest.

Dividend income is recognised in profit or loss as part of other income when the group’s right to receive payment is established.

Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses.

Held-to-maturity investments are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses.

Available for sale financial assets are subsequently measured at fair value. This excludes equity investments for which a fair value is not determinable, which are measured at cost less accumulated impairment losses.

Gains and losses arising from changes in fair value are recognised directly in equity until the asset is disposed of or determined to be impaired. Interest on available for sale financial assets calculated using the effective interest method is recognised in profit or loss as part of other income. Dividends received on available for sale equity instruments are recognised in profit or loss as part of other income when the group’s right to receive payment is established.

Commitments

Loans approved and not yet disbursed are dislcosed as commitments in note 29.

Impairment of financial assets

At each statement of financial position date the group assesses all financial assets, other than those at fair value through profit or loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired.

Foramountsduetothegroup,significantfinancialdifficultiesofthedebtor,probabilitythatthedebtorwillenterbankruptcyanddefaultofpayments are all considered indicators of impairment.

Impairment losses are recognised in profit or loss, except for available-for-sale equity investments .

Impairment losses are reversed when an increase in the financial asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been recognised.

Reversalsofimpairmentlossesarerecognisedinprofitorlossexceptforequityinvestmentsclassifiedasavailableforsale.

Impairment losses are also not subsequently reversed for available-for-sale equity investments which are held at cost because fair value was not determinable.

Loans to (from) group companies

These include loans to and from holding companies, fellow subsidiaries, subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs.

Loans to group companies are classified as loans and receivables.

Loans from group companies are classified as financial liabilities measured at amortised cost.

Investments

All investments are initially recognised at cost. After initial recognition, investments are measured at their fair values, without any deduction for transaction costs that may be incurred on sale or disposal.

Unlistedinvestmentsarestatedatcost,lessamountswrittenofftogiverecognitiontoapermanentdeclineinvalue,andprofitsandlossesarerecognised on realisation. The classification as investment is determined by the intention to keep the investment on a long term basis.

Trade and other receivables

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.


The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within operating expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in the income statement.

Trade and other receivables are classified as loans and receivables.

Trade and other payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value.

Bank overdraft and borrowings

Bankoverdraftsandborrowingsareinitiallymeasuredatfairvalue,andaresubsequentlymeasuredatamortisedcost,usingtheeffectiveinterestrate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the group’s accounting policy for borrowing costs.

Derivatives

Derivative financial instruments, which are not designated as hedging instruments, consisting of foreign exchange contracts and interest rate swaps, are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates.

Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss.

Changes in the fair value of derivative financial instruments are recognised in profit or loss as they arise.

Derivatives are classified as financial assets at fair value through profit or loss - held for trading.

1.7 Share capital and equityOrdinarysharecapital,preferencesharecapitaloranyfinancialinstrumentissuedbythegroupisclassifiedasequitywhen:

• Paymentofcash,intheformofadividendorredemption,isatthediscretionofthegroup;• Theinstrumentdoesnotprovidefortheexchangeoffinancialinstrumentsunderconditionsthatarepotentiallyunfavourabletothegroup;• Settlementinthegroup’sownequityinstrumentsisforafixednumberofequityinstrumentsatafixedprice;and• Theinstrumentrepresentsaresidualinterestintheassetsofthegroupafterdeductingallofitsliabilities.

The group’s ordinary share capital is classified as equity.

Consideration paid or received for equity instruments is recognized directly in equity. Equity instruments are initially measured at the proceeds received less incremental directly attributable issue costs. No gain is recognised in profit or loss on the purchase, sale, issue or cancellation of the group’s equity instruments.

When the group issues a compound instrument, i.e. an instrument that contains both a liability and equity component, the equity component is initially measured at the residual amount after deducting from the fair value of the compound instrument the amount separately determined for the liability component. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds.

Distributions to holders of equity instruments are recognised as dividends within equity in the period in which they are payable. Dividends for the year that are declared after the balance sheet date are disclosed in the notes.

1.8 Government grants and deferred incomeGovernment includes government agencies and similar bodies whether local, national or international. Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. A government grant is assistance by government in the form of transfers of resources.

When the conditions attaching to government grants have been met and the grants have been received, they are recognised in profit or loss on a systematic basis over the periods necessary to match them with the related costs. When they are for expenses or losses already incurred, they are recognised in profit or loss immediately. The unrecognised portion of project spend at the balance sheet date is presented as deferred income. No value is recognised for other government assistance.

Governmentgrantsarerecognisedwhenthereisreasonableassurancethat:• thegroupwillcomplywiththeconditionsattachingtothem;and• thegrantswillbereceived.

112

Government grants are recognised as income over the periods necessary to match them with the related costs that they are intended to compensate.

A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs is recognised as income of the period in which it becomes receivable.

Government grants related to assets, including non- monetary grants at fair value, are presented in the statement of financial position by setting up the grant as deferred income.

Deferred government grants are disclosed as commitments in note 29.

1.9 ProvisionsProvisionsarerecognisedwhen:

• thegrouphasapresentobligationasaresultofapastevent;• itisprobablethatanoutflowofresourcesembodyingeconomicbenefitswillberequiredtosettletheobligation;and• areliableestimatecanbemadeoftheobligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.

Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision.

Provisions are not recognised for future operating losses.

When the Group has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision.

Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note 28.

1.10 RevenueRevenueismeasuredatthefairvalueoftheconsiderationreceivedorreceivableandrepresentstheamountsreceivableforgoods,servicesandoperating lease income provided in the normal course of business, net of value added tax.

Interest is recognised, in profit or loss, using the effective interest rate method.

Operating lease income is recognised as income on a straight-line basis over the lease term or another systematic basis, if more representative of the time pattern of the user’s benefit.

Dividends are recognised, in profit or loss, when the Group’s right to receive payment has been established.

1.11 Employee benefitsShort-term employee benefits

Employee benefits cost include all forms of consideration given in exchange for services rendered by employees. The cost of providing employee benefits is recognised in profit or loss in the period they are earned by employees. The cost of short-term employee benefits is recognised in the period in which the service is rendered and is not discounted.

The expected cost of short-term accumulating compensated absences is recognised as an expense as the employees render service that increases their entitlement or, in the case of non-accumulating absences, when the absences occur. The expected cost of performance bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.

Post-employment benefit obligations

Thecostofprovidingdefinedbenefitsisdeterminedusingtheprojectedunitcreditmethod.Valuationsareconductedannually.Theamountrecognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses.

Defined contribution plans

Payments to defined contribution retirement benefit plans are charged as an expense as they fall due.

Payments made to industry-managed (or state plans) retirement benefit schemes are dealt with as defined contribution plans where the group’s obligation under the schemes is equivalent to those arising in a defined contribution retirement benefit plan.

Defined benefit plans

Fordefinedbenefitplansthecostofprovidingthebenefitsisdeterminedusingtheprojectedunitcreditmethod.

Actuarial valuations are conducted on an annual basis by independent actuaries separately for each plan.


Consideration is given to any event that could impact the funds up to the end of the reporting period where the interim valuation is performed at an earlier date.

Past service costs are recognised immediately to the extent that the benefits are already vested, and are otherwise amortised on a straight line basis over the average period until the amended benefits become vested.

To the extent that, at the beginning of the financial year, any cumulative unrecognised actuarial gain or loss exceeds ten percent of the greater of the present value of the projected benefit obligation and the fair value of the plan assets (the corridor), that portion is recognised in profit or loss over the expected average remaining service lives of participating employees. Actuarial gains or losses within the corridor are not recognised.

Actuarial gains and losses are recognised in the year in which they arise, in other comprehensive income.

Gains or losses on the curtailment or settlement of a defined benefit plan is recognised when the group is demonstrably committed to curtailment or settlement.

When it is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, the right to reimbursement is recognised as a separate asset. The asset is measured at fair value. In all other respects, the asset is treated in the same way as plan assets. In profit or loss, the expense relating to a defined benefit plan is presented as the net of the amount recognised for a reimbursement.

The amount recognised in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service costs, and reduces by the fair value of plan assets.

Any asset is limited to unrecognised actuarial losses and past service costs, plus the present value of available refunds and reduction in future contributions to the plan.

1.12 LeasesA lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Finance leases – lessee

Financeleasesarerecognisedasassetsandliabilitiesinthebalancesheetatamountsequaltothefairvalueoftheleasedpropertyor,iflower,the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

The discount rate used in calculating the present value of the minimum lease payments is the company’s incremental borrowing rate.

The lease payments are apportioned between the finance charge and reduction of the outstanding liability.The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of on the remaining balance of the liability.

Operating leases - lessor

Operating lease income is recognised as an income on a straight-line basis over the lease term.

Initial direct costs incurred in negotiating and arranging operating leases are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income.

Income for leases is disclosed under revenue in the income statement.

Operating leases – lessee

Rentalspayableunderoperatingleasesarerecognisedinprofitorlossonastraight-linebasisoverthetermoftherelevantlease,oranotherbasisif more representative of the time pattern of the Group’s benefit. Any contingent rents are expensed in the period they are incurred.

Minimum lease payments due in the next 12 months to five years are dislcosed as commitments in note 29.

1.13 TaxCurrent tax

The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income.

Deferred tax

A deferred tax asset is the amount of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits.

A deferred tax asset is only recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised, unless specifically exempt. It is measured at the tax rates that have been enacted or substantially enacted at the statement of financial position and is not discounted.

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A deferred tax liability is recognised for taxable temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at thestatement of financial position date and is not discounted. A deferred tax liability is the amount of income taxes payable in future periods in respect of taxable temporary differences. Temporary differences are differences between the carrying amount of an asset or liability and its tax base.

Deferred tax arising on investments in subsidiaries, associates and joint ventures is recognised except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the forseeable future.

A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the statement of financial position date.

1.14 Key assumptions concerning the future and key sources of estimation

The consolidated annual financial statements are prepared in accordance with and comply with SA GAAP and its interpretations adopted by the AccountingPracticesBoard.Inthepreparationoftheconsolidatedannualfinancialstatementsthecorporationhasassumedcertainkeysourcesof estimation in recording various assets and liabilities, as set out below.

Credit impairment of loans and advances

The Group adopted an incurred-loss approach to impairment in accordance with accounting policy 1.5. Impairment losses are incurred only if there is objective evidence of impairment as a result of one or more past events that has occurred since initial recognition. This necessitates the establishment of ‘impairment triggers’ on the occurrence of which an impairment loss may be recognised.

Credit impairment is based on discounted estimated future cashflows on an asset or group of assets, where such objective evidence of impairment exists. The discount rates used to calculate the recoverable amount exclude consideration of any anticipated future credit losses.

Thegrouphascreatedaportfolioprovisionforincurredbutnotreported(IBNR)losses.ThepurposeoftheIBNRprovisionistoallowforlatentlosses on a portfolio of loans and advances that have not yet been individually evidenced. Generally, a period of time will elapse between the occurrence of an impairment event and objective evidence of the impairment becoming evident, which is known as the ‘emergence period’. The IBNRprovisionisbasedontheprobabilitythatloansthatareostensiblyperformingatthecalculationdateareimpaired,andobjectiveevidenceof that impairment becomes evident during the emergence period.

The implementation of these principles is at a corporation level and will be specific to the nature of their individual loan portfolios and the loan loss data available to the lending division.

Provisions, contingent liabilities and contingent assets

Thegroup,intheordinarycourseofbusiness,entersintotransactionsthatexposethegrouptotax,legalandbusinessrisks.Refertonote28forfurther information on provisions, contingent liabilities and contingent assets.

Fair value of Investment Properties

Forvaluationmethodologiesutilisedtofairvalueinvestmentproperties,refertonote2.

Unlisted investment valuations

The valuation of unlisted investments is based on the discounted free cash flows of the investments taking into account the projected future activities of the entity. These values are established either by independent valuers or management and are reviewed by the Development Investment Committee.

1.15 Interest bearing borrowing and borrowing costsInterest bearing borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Borrowingcoststhataredirectlyattributabletotheacquisition,constructionorproductionofaqualifyingassetarecapitalisedaspartofthecostof that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows

• Actualborrowingcostsonfundsspecificallyborrowedforthepurposeofobtainingaqualifyingassetlessanytemporaryinvestmentofthose borrowings.• Weightedaverageoftheborrowingcostsapplicabletotheentityonfundsgenerallyborrowedforthepurposeofobtainingaqualifyingasset.

The borrowing costs capitalised do not exceed the total borrowing costs incurred.

Thecapitalisationofborrowingcostscommenceswhen:

• expendituresfortheassethaveoccurred;• borrowingcostshavebeenincurred,and• activitiesthatarenecessarytopreparetheassetforitsintendeduseorsaleareinprogress.


Capitalisation is suspended during extended periods in which active development is interrupted.

Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

1.16 Biological assetsBiologicalassetsaremeasuredattheirfairvalueestimatedpoint-of-salecosts.Thefairvalueisdeterminedbasedonthemarketpricesof similar age, breed and genetic merit. A gain or loss arising on initial recognition of agricultural produce at fair value less estimated point-of-sale costs is included in profit or loss for the period in which it arises.

1.17 Intangible assetsComputer software

Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bring to use the specific software. The cost of minorsoftwareandlicencesarerecognisedintheStatementofFinancialPerformanceasanexpensewhenincurred.

Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specificassettowhichitrelates.AllotherexpenditureisrecognisedintheStatementofFinancialPerformanceasanexpensewhenincurred.

Amortisation

AmortisationischargedtotheStatementofFinancialPerformanceonastraight-linebasisovertheestimatedusefullivesofintangibleassetsunless such lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for sale.

Theestimatedusefullivesareasfollows:Computer software 1 - 5 years

1.18 InventoriesInventories are measured at the lower of cost and net realisable value.Inventories are measured at the lower of cost and net realisable value on the first-in-first-out basis.

1.19 Non-current assets held for saleNon-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets held for sale (or disposal group) are measured at the lower of its carrying amount and fair value less costs to sell.

A non -current asset is not depreciated (or amortised) while it is classified as held for sale, or while it is part of a disposal group classified as held for sale.

1.20 Fruitless and wasteful expenditureFruitlessexpendituremeansexpenditurewhichwasmadeinvainandwouldhavebeenavoidedhadreasonablecarebeenexercised.

All expenditure relating to fruitless and wasteful expenditure is recognised as an expense in the statement of financial performance in the year that the expenditure was incurred. The expenditure is classified in accordance with the nature of the expense, and where recovered, it is subsequently accounted for as revenue in the statement of financial performance.

1.21 Irregular expenditureIrregularexpenditureasdefinedinsection1ofthePFMAisexpenditureotherthanunauthorisedexpenditure,incurredincontraventionoforthatis not in accordance with a requirement of any applicable legislation, including

a) PFMA,orb) theStateTenderBoardAct,1968(ActNo.86of1968),oranyregulationsmadeintermsoftheAct;orc) any provincial legislation providing for procurement procedures in that provincial government.

116

NationalTreasurypracticenoteno.4of2008/2009whichwasissuedintermsofsections76(1)to76(4)ofthePFMArequiresthefollowing(effectivefrom1April2008):

Irregular expenditure that was incurred and identified during the current financial and which was condoned before year end and/or before finalisation of the financial statements must also be recorded appropriately in the irregular expenditure register. In such an instance, no further action is also required with the exception of updating the note to the financial statements.

Irregular expenditure that was incurred and identified during the current financial year and for which condonement is being awaited at year end must be recorded in the irregular expenditure register. No further action is required with the exception of updating the note to the financial statements. Where irregular expenditure was incurred in the previous financial year and is only condoned in the following financial year, the register and the disclosure note to the financial statements must be updated with the amount condoned.

Irregular expenditure that was incurred and identified during the current financial year and which was not condoned by the National Treasury or the relevant authority must be recorded appropriately in the irregular expenditure register. If liability for the irregular expenditure can be attributed to a person, a debt account must be created if such a person is liable in law. Immediate steps must thereafter be taken to recover the amount from the person concerned. If recovery is not possible, the accounting authority may write off the amount and disclose such in the relevant note to the financial statements. The irregular expenditure register must also be updated accordingly. If the irregular expenditure has not been condoned and no person is liable in law, the expenditure related thereto must remain against the relevant expenditure item, be disclosed as such in the note to the financial statements and updated accordingly in the irregular expenditure register. Irregular expenditure is expenditure that is contrary to the Act or is in contravention of the economic entity’s supply chain management policy. Irregular expenditure excludes unauthorisedexpenditure.IrregularexpenditureisaccountedforasexpenditureintheStatementofFinancialPerformanceandwhererecovered.

1.22 Related partiesThe ECDC operates in an economic environment together with other entities directly or indirectly owned by the Eastern Cape government. Onlypartieswithintheprovincialsphereofgovernmentwillbeconsideredtoberelatedparties.Keymanagement isdefinedas individualswith the authority and responsibility for planning, directing and controlling the activities of the entity. All individuals from the level of executive managementuptotheBoardofDirectorsareregardedaskeymanagementperthedefinitionofthestandard.

Other related party transactions are also disclosed in terms of the requirements of IAS 24.


2. Investment property 2015 2014 2013

Group Cost / Valuation

Accumulated depreciation

Carrying value

Cost / Valuation


Carrying value

Cost / Valuation


Carrying value

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000Investment property

958 535 - 958 535 2 051 831 - 2 051 831 1 713 981 - 1 713 981

2015 2014 2013Company Cost /

ValuationAccumulated depreciation

Carrying value

Cost / Valuation


Carrying value

Cost / Valuation


Carrying value

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000Investment property

903 435 - 903 435 730 371 - 730 371 658 123 - 658 123

Notes to the Consolidated Annual Financial Statements

Reconciliation of investment property

Company - 2013 Openingbalance

Disposals Classified as held for sale adjustments

Fair value Total

(R’000) (R’000) (R’000) (R’000) (R’000)Investment property 604 602 (6 569) (5 286) 65 376 658 123


Company - 2014 Opening balance

Disposals Transfers Reclassified from non

current assets held for sale

Fair value adjustments

Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Investment property 658 123 (10 653) 2 384 5 450 75 067 730 371


Company - 2015 Opening balance

Disposals Reclassified from non



Total

(R’000) (R’000) (R’000) (R’000) (R’000)Investment property 730 371 (9 240) 6 554 175 750 903 435


Group - 2013 Opening balance

Additions Disposals Classified as held for sale

Transfers Fair value adjustments

Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Investment property 1 421 236 236 462 (6 569) (5 986) (790) 69 628 1 713 981



Additions Disposals Reclassified from non



Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Investment property 1 713 981 122 985 (22 109) 2 384 234 590 2 051 831



Disposals Reclassified from non


Transfersof ELIDZ

Equity


Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Investment property 2 051 831 (9 240) 6 554 (1 280 060) 189 450 958 535

118

ThesepropertiesaresituatedthroughouttheEasternCape,withthemajorityofpropertiesconcentratedintheareasinandsurroundingKingSabathaDalindyebo,Mnquma,BuffaloCityandChrisHanimunicipalities.Theportfolioconsistsmainlyofindustrial,residentialandcommercialproperties.

Corporation - 2015 Percentage Value Number(%) (R’000)

Type of properties

Residential 33 300 611 444

Commercial 48 432 069 362

Vacantland 3 27 037 951

Industrial 12 110 874 12

Other 4 32 844 62

100 903 435 1 831


Type of properties

Residential 36 251 722 440

Commercial 49 360 454 362

Vacantland 11 79 492 951

Industrial 3 25 374 12

Other 1 7 879 62

100 724 921 1 827

The fair values of the Investment Properties are based on valuations by independent valuers who hold the relevant professional qualifications and haverecentexperienceinthelocationandcategoryofthepropertybeingvalued.Valuationsarenormallybasedoncomparablesalesintheareaor on the income earning potential of the building.

Investment properties are subject to operating leases with tenants. No rental was charged on certain properties, mainly because the properties are vacant or undeveloped land or unoccupied buildings.

FreeholdtitleisheldbytheCorporationforthemajorityofproperties,butnotforall.Propertiesforwhichfreeholdtitleisnotheldareincludedin investment property when they are managed by the Corporation and result in the receipt of economic benefits and rewards and when the Corporation incurs the risks incidental to ownership.

Freeholdtitleisheldasfollows:


Corporation 79 711 243 1 726

Government 10 89 476 63

Tribal land 7 62 282 14

Municipality 4 40 434 28

100 903 435 1 831


Corporation 78 564 586 1 726

Government 9 63 285 63

Tribal land 8 59 316 10

Municipality 5 37 734 28

100 724 921 1 827

Thecategoriesoffreeholdtitlearefurtherdescribedasfollows:

Corporation

FreeholdtitleisregisteredtotheCorporationoroneoftheformercorporationsconsolidatedundertheCorporationintermsoftheEasternCapeDevelopment Corporation Act, No 2 of 1997, read with Proclamation 1 of 2001.

Government

The title over land is registered to government. The Corporation is in the process of analysing the properties within this group, which comprise mainly entitlement in terms of Proclamation 1 of 2001 by the Premier of the Eastern Cape.


Tribal land

This group comprises mainly of properties where the Corporation has assumed “Permission to Occupy”. The majority of these properties are situated on forestry estates and hotels on the Wild Coast.

TheCorporation’srighttooccupypropertiestothevalueofR62.2million(2014:R59.3million)includedintheabove,hasnotbeenreducedtowriting. However, the Corporation has occupied these properties for a number of years and derives economic benefits from their use and carries the risks that are incidental to ownership.

The valuation method used to value these properties assumes that the Corporation has the right to occupy these properties and will receive economic benefits in perpetuity. In the event that the right of occupation is disputed or expires, the valuation of these properties may be overstated. In terms of the accounting policy these rights are assessed on an annual basis and adjustments may be effected to the valuation of these properties if necessary.

Municipality

The title is registered to different municipalities within the Eastern Cape, but improvements have been made by the Corporation.

3. Property, plant and equipment2015 2014 2013

Group Cost / Valuation


Carryingvalue

Cost / Valuation


Carryingvalue

Cost / Valuation


Carryingvalue

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Land 4 315 - 4 315 8 136 - 8 136 8 085 - 8 085

Buildingsandinfrastructure

57 074 (7 823) 49 251 604 193 (104 916) 499 277 559 951 (85 417) 474 534

Financeleaseasset

1 603 (549) 1 054 80 (25) 55 80 (9) 71

Plant and machinery

25 454 (10 755) 14 699 1 871 (1 839) 32 1 841 (1 757) 84

Furnitureandfixtures

2 971 (2 194) 777 7 451 (3 682) 3 769 6 680 (3 119) 3 561

Motor vehicles 707 (695) 12 1 703 (1 009) 694 1 703 (790) 913

Office equipment 796 (658) 138 1 239 (936) 303 1 295 (853) 442

IT equipment 10 298 (9 614) 684 33 231 (15 453) 17 778 30 712 (22 714) 7 998

Leasehold improvements

20 737 (6 960) 13 777 - - - - - -

Other property, plant and equipment

2 360 (2 172) 188 5 678 (3 497) 2 181 1 366 (2 648) (1 282)

Total 126 315 (41 420) 84 895 663 582 (131 357) 532 225 611 713 (117 307) 494 406

2015 2014 2013Company Cost /


Carryingvalue

Cost / Valuation


Carryingvalue

Cost / Valuation


Carryingvalue

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Land 3 265 - 3 265 3 265 - 3 265 3 265 - 3 265

Buildingsandinfrastructure

24 054 (4 774) 19 280 24 054 (4 277) 19 777 23 284 (3 809) 19 475

Leasehold property

1 523 (508) 1 015 - - - - - -

Furnitureandfixtures

2 719 (2 017) 702 2 688 (1 832) 856 2 194 (1 675) 519

Motor vehicles 184 (184) - 184 (165) 19 184 (119) 65

Office equipment 623 (526) 97 554 (486) 68 546 (446) 100

IT equipment 9 211 (8 806) 405 9 262 (8 366) 896 9 801 (7 679) 2 122


1 766 (1 762) 4 1 766 (1 759) 7 1 766 (1 649) 117

Total 43 345 (18 577) 24 768 41 773 (16 885) 24 888 41 040 (15 377) 25 663

120

Reconciliation of property, plant and equipment


Additions Additionsthrough

acquisitionof a

subsidiary

Transfersand

disposals

Otherchanges

movements

Depreciation AccummulatedDepreciation

at Acquisition

Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Land 8 136 - - (3 821) - - - 4 315

Buildingsandinfrastructure 499 277 - - (449 529) - (497) - 49 251

Financeleaseasset 55 - - - 1 523 (524) - 1 054

Plant and machinery 32 125 24 091 (32) - - (9 517) 14 699

Furnitureandfixtures 3 769 57 66 (2 852) (12) (205) (46) 777

Motor vehicles 694 - 521 (669) - (27) (507) 12

Office equipment 303 72 87 (190) - (56) (78) 138

IT equipment 17 778 369 182 (16 420) - (1 066) (159) 684

Leasehold improvements - - 20 737 - - (640) (6 320) 13 777


2 181 28 262 (2 148) - (83) (52) 188

532 225 651 45 946 (475 661) 1 511 (3 098) (16 679) 84 895



Additions Transfers and disposals

RevaluationsDepreciation and Impairment

Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Land 8 085 1 - 50 - 8 136

Buildingsandinfrastructure 474 534 36 925 (18) 7 335 (19 499) 499 277

Financeleaseasset 71 - - - (16) 55

Plant and machinery 84 30 - - (82) 32

Furnitureandfixtures 3 561 936 (53) - (675) 3 769

Motor vehicles 913 - - - (219) 694

Office equipment 442 61 (19) - (181) 303

IT equipment 7 998 15 584 (2 490) - (3 314) 17 778


(1 282) 2 094 2 303 - (934) 2 181

494 406 55 631 (277) 7 385 (24 920) 532 225


Group - 2013 Openingbalance

Additions Transfers andDisposals

Revaluations Other changes movements

Depreciation Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Land 8 085 - - - - - 8 085

Buildingsandinfrastructure 443 655 45 092 580 1 280 1 236 (17 309) 474 534

Financeleaseasset 16 80 (9) - - (16) 71

Plant and machinery 133 - - - - (49) 84

Furnitureandfixtures 3 551 520 - - - (510) 3 561

Motor vehicles 701 427 (8) - - (207) 913

Office equipment 479 118 - - - (155) 442

IT equipment 11 134 1 981 (4) - - (5 113) 7 998


(3 181) 55 - - - 1 844 (1 282)

464 573 48 273 559 1 280 1 236 (21 515) 494 406




Additions Disposals Other changes movements

Depreciation Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Land 3 265 - - - - 3 265

Buildingsandinfrastructure 19 777 - - - (497) 19 280

Financeleaseasset - - - 1 523 (508) 1 015

Furnitureandfixtures 856 43 - (12) (185) 702

Motor vehicles 19 - - - (19) -

Office equipment 68 69 - - (40) 97

IT equipment 896 337 (10) - (818) 405

Other property, plant and equipment 7 - - - (3) 4

24 888 449 (10) 1 511 (2 070) 24 768



Additions Disposals Revaluations Depreciation Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Land 3 265 - - - - 3 265

Buildingsandinfrastructure 19 475 312 - 458 (468) 19 777

Furnitureandfixtures 519 528 - - (191) 856

Motor vehicles 65 - - - (46) 19

Office equipment 100 32 - - (64) 68

IT equipment 2 122 209 (4) - (1 431) 896

Other property, plant and equipment 117 - - - (110) 7

25 663 1 081 (4) 458 (2 310) 24 888



Additions Disposals Revaluations Depreciation Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Land 3 265 - - - 3 265

Buildingsandinfrastructure 19 386 542 - (453) 19 475

Furnitureandfixtures 271 408 - (160) 519

Motor vehicles 111 - - (46) 65

Office equipment 145 26 - (71) 100

IT equipment 3 430 242 (2) (1 548) 2 122

Other property, plant and equipment 239 8 (1) (129) 117

26 847 1 226 (3) (2 407) 25 663

122

4. Investments in subsidiariesCarrying Amount

2015Carrying Amount

2014Carrying Amount

2013(R’000) (R’000) (R’000)

Investments at cost 24 342 24 336 24 336

24 342 24 336 24 336

Impairment of investment in subsidiaries (1 330) (1 330) (1 330)

23 012 23 006 23 006

Aquisition of a subsidiary

During the 2014/15 financial year, the ECDC acquired 69.25% shareholding in Oceanwise (Pty) Ltd. This transaction was part of restructuring a loan that was granted by the ECDC and the shares are held in a warehouse until a suitable buyer is identifed. Oceanwise (Pty) Ltd’s main operations are fishfarmingandisbasedintheEasternCape.Theresultsofitsoperationshavebeenconsolidatedwitheffectfrom1February2015.

5. Investments in associatesCarrying Amount

2015Carrying Amount

2014Carrying Amount

2013(R’000) (R’000) (R’000)

Investment at fair value 23 919 21 613 18 176

Change in estimate

Duringthe2013/14financialyeartheELIDZreviseditsaccountingestimatesoftheresidualvaluesofcertaincomponentsofPPEwitheffectfrom1April2013.Thisresultedinanimpairmentofcertaincomponentsassetoutbelow:ITequipment(2014)-R1000

Pledged as security

Registerscontainingdetailsoffinanceleaseassetsandproperty,plantandequipment,includingdetailsofanyencumbrances,arekeptattheregistered offices of the companies concerned.

2013(R’000) (R’000) (R’000)

Financeleaseasset 39 55 71

Property, plant and equipmentTerms and conditions

49 794 27 075 17 603

Revaluations

The effective date of the revaluations was 31 March 2015. The fair values of the office buidlings are based on valuations by independent valuers who hold the relevant professional qualifications and have recent experience in the location and category of the property being valued. The valuers are not connected to the group.

The office buildings are re-valued independently every 3 years.

Thecarryingvalueoftherevaluedassetsunderthecostmodelwouldhavebeen: 2015 2014 2013 2015 2014 2013

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)OfficeBuildings 24 582 25 301 26 210 13 787 14 217 14 597


6. Loans to (from) group companiesGroup Company

Subsidiaries 2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Windsor Hotel (Pty) LTDThe loan is interest free and has no fixed terms of repayment.

- - - 1 028 1 027 1 022

Automotive Industrial Development Centre (AIDC)The loan is interest free and has no fixed terms of repayment.

- - - 2 000 2 000 2 000

Magwa Enterprise Tea (Pty) LTDThe loan is interest free and has no fixed terms of repayment.

5 584 4 920 4 920 5 584 4 920 4 920

Oceanwise (Pty) LtdThe loan is repayable at 8.25% over a period of seven years and details of security are contained in the loan agreement.

- - - 9 348 - -

Eastern Cape Marketing Authority (Pty) LTD (ECMA)The loan is interest free and has no fixed terms of repayment.

- - - 62 51 38

Centre for Investment and Marketingin the Eastern Cape (CIMEC)The loan is interest free and has no fixed terms of repayment.

- - - 13 363 11 609 10 266

Transido (Pty) LTDThe loan is interest free and has no fixed terms of repayment.

- - - 78 113 78 095 78 078

Umtata Small IndustriesComplex(Pty)LTD(USICO)The loan is interest free and has no fixed terms of repayment.

- - - 403 400 398

Transkei Share Investment Company Limited(INTRASHARE)The loan is interest free and has no fixed terms of repayment.

- - - (15 662) (15 680) (15 697)

TDC Property Investments (Pty) LTD - - - (1 890) (1 914) 3 514

Transdev Properties (Pty) LTDThe loan is interest free and has no fixed terms of repayment.

- - - (35 168) (24 937) (20 567)

Impairment of loans to subsidiaries 5 584 4 920 4 920 57 181 55 571 63 972

(5 584) (4 920) (4 920) (87 760) (77 717) (79 332)

- - - (30 579) (22 146) (15 360)

Included in the balances owed to / (from) group companies above is a loan owed by Magwa Enterprise Tea (Pty) Ltd. The Eastern Cape Development Corporation (ECDC) has 100% shareholding in this company, which it holds on behalf of the Eastern Cape Provincial Government. However, the ECDC has no control over this company, as such it has not been consolidated.

Group CompanyAssociates 2015 2014 2013 2015 2014 2013

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Worthytrade 93 (Pty) LTDThe loan is interest free and has no fixed terms of repayment.

4 333 4 333 4 333 4 333 4 333 4 333

Impairment of loans to associates 4 333 4 333 4 333 4 333 4 333 4 333

(4 333) (4 333) (4 333) (4 333) (4 333) (4 333)

- - - - - -

The ECDC granted a loan to Worthytrade (Pty) Ltd to invest in a new venture. However, the venture could not raise adequate capital to commence with operations. Therefore Worthytrade (Pty) Ltd did not realise the envisaged return from its investment. Therefore there is no revenue nor assets that can be consolidated in the ECDC Group financial statements.

- - - (52 720) (42 531) (36 264)

Non-current assets - - - 22 141 20 385 20 904

Non-current liabilities - - - (52 720) (42 531) (36 264)

- - - (30 579) (22 146) (15 360)

124

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


Gains orlosses in

profit or loss

Purchases Advances,Rentals andcollections

Closingbalance

(R’000) (R’000) (R’000) (R’000) (R’000)Investment securities 9 899 (1 373) 428 - 8 954

Loans and receivables 182 737 (44 303) - 55 362 193 954

Investments in associates 18 176 3 437 - - 21 954

210 812 (42 239) 428 55 362 224 363



Gains orlosses in

profit or loss


Disposal of subsidiary

Closingbalance

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Investment securities 8 954 (1 063) 466 - - 8 357

Loans and receivables 193 796 1 488 - (41 790) (27 498) 125 996

Investments in associates 21 613 2 305 1 - - 23 919

224 363 2 730 467 (41 790) (27 498) 158 272

7 . InvestmentsGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

At fair value through profit or loss - designatedListed shares 3 537 2 273 2 383 - - -

Available for sale

Unlistedshares 23 500 23 500 23 500 23 500 23 500 23 500

Held to maturity

Fixedterminvestments 48 902 48 902 48 902 48 902 48 902 48 902

/Other financial assets 20 864 22 798 22 370 20 864 22 798 22 370

69 766 71 700 71 272 69 766 71 700 71 272

Held to maturity (impairments) (61 409) (62 746) (61 373) (61 409) (62 746) (61 373)

8 357 8 954 9 899 8 357 8 954 9 899

Total other financial assets 35 394 34 727 35 782 31 857 32 454 33 399

TheimpairmentofR61millionagainstinvestmentsincludesR49millionthatrelatestoanongoingfraudinvestigationagainstathirdparty.ThishasbeenreportedtotheFinancialServicesBoard.

Non-current assets

At fair value through profit or loss - designated 3 537 2 273 2 383 - - -

Available-for-sale 23 500 23 500 23 500 23 500 23 500 23 500

Held to maturity 8 357 8 954 9 899 8 357 8 954 9 899

35 394 34 727 35 782 31 857 32 454 33 399

Fair value hierarchy of financial assets at fair value through profit or loss

Forfinancialassetsrecognisedatfairvalue,disclosureisrequiredofafairvaluehierarchywhichreflectsthesignificanceoftheinputsusedtomake the measurements.

Level 1

Listed shares 3 537 2 273 2 383 - - -

Cash and cash equivalents 301 270 606 486 391 147 279 077 470 407 228 542

304 807 608 759 393 530 279 077 470 407 228 542

Level 3

Investment securities 8 357 8 954 9 899 8 357 8 954 9 899

Loans and receivables 125 996 193 796 182 737 122 022 158 812 150 583

Investments in subsidiaries - - - 23 012 23 006 23 006

Investments in associates 23 919 21 613 18 176 - - -

158 272 224 363 210 812 153 391 190 772 183 488




Gains orlosses in

profit or loss


Closing balance

(R’000) (R’000) (R’000) (R’000) (R’000)Investment securities 8 954 (1 063) 466 - 8 357


Investments in subsidiaries 23 006 - 6 - 23 012

190 772 (42 182) 472 4 329 153 391



Gains orlosses in

profit or loss


Closingbalance

(R’000) (R’000) (R’000) (R’000) (R’000)Investment securities 8 693 (2 711) 3 917 - 9 899


Investments in subsidiaries 23 006 - - - 23 006

272 333 (100 168) 3 917 7 406 183 488



Gains orlosses in

profit or loss

Advances,Rentals andcollections

Closingbalance

(R’000) (R’000) (R’000) (R’000)Investment securities 9 899 (945) - 8 954

Loans and receivables 150 583 (41 405) 49 634 158 812

Investments in subsidiaries 23 006 - - 23 006

183 488 (42 350) 49 634 190 772



Gains orlosses in

profit or loss


Closingbalance

(R’000) (R’000) (R’000) (R’000) (R’000)Investment securities 8 693 (2 711) 3 917 - 9 899


Investments in associates 15 434 2 742 - - 18 176

269 900 (94 449) 3 917 31 444 210 812

Group CompanyFigures in Rand thousand 2015 2014 2013 2015 2014 2013

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Fair value hierarchy of available-for-sale financial assets

Forfinancialassetsrecognisedatfairvalue,disclosureisrequiredofafairvaluehierarchywhichreflectsthesignificanceoftheinputsused to make the measurements.

Level 3

Unlisted shares 23 500 23 500 23 500 23 500 23 500 23 500

126

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

Company - 2013 Opening balance Closing balance(R’000) (R’000)

Investment in securities 25 000 25 000



Investment in securities 23 500 23 500



Investment securities 23 500 23 500


Group - 2013 Opening balance Closing balance(R’000) (R’000)








8. Deferred taxGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Deferred tax (liability) asset

Deferred tax (16) 800 582 - - -

Reconciliation of deferred tax asset (liability)

At beginning of the year 800 582 - - - -

Accelerated capital allowances 7 - - - - -

for tax purposes

Operating lease liability (18) - - - - -

Financeleaseliability (18) 218 582 - - -

Provision for leave pay (94) - - - - -

Provision for bonuses (152) - - - - -

Provision for doubtful debts (19) - - - - -

Prepayments 36 - - - - -

Advance receipts (558) - - - - -

(16) 800 582 - - -


9. Loans advancedGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Loans advanced 319 304 362 485 341246 319 362 485 340 757

Impairment allowance (217 344) (223 305) (205 742) (217 344) (223 305) (205 742)

101 960 139 180 135504 101 960 139 180 135 015

Loans advanced 14 848 70 476 58861 14 848 70 476 58 372

Non-current assets

Current assets 87 112 68 704 76643 87 112 68 704 76 643

101 960 139 180 135504 101 960 139 180 135 015

Loans advanced are impaired based on the value of the collateral that is available as guided by the Loans Impairment Policy. The collateral is usuallyintheformofPersonalSurities,MortgageBonds,GeneralandSpecialNotarialBonds,CessionofProgresspayments,Cessionoverloanaccounts, shares, business rights and any other factors depending on the loan product and items that are being financed.

10. Trade and other receivablesGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Trade receivables 6 359 14 635 12 793 5 609 4 519 3 091

Employee costs in advance 2 - - - - -

Prepayments 1 008 5 324 3 033 888 752 1 685

Deposits 95 54 14 - - -

VAT 27 186 12 823 - 186 1 420

Other receivables 16 460 34 244 18 566 13 565 14 175 9 372

23 951 54 443 47 229 20 062 19 632 15 568

Trade receivables 349 988 343 681 307 559 347 502 309 375 282 397

Trade receivables

Impairment allowance (343 629) (329 046) (294 766) (341 893) (304 856) (279 306)

6 359 14 635 12 793 5 609 4 519 3 091

The trade receivables relate to rental owed by the tenants of the Investment property owned by the Eastern Cape Development Corporation and itssubsidiaries.TheimpairmentiscalculatedbasedontheageingofeachtenantaccountasguidedbytheRentalImpairmentPolicy.

11. Cash and cash equivalents

Cash and cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Cash andcashequivalentsincludecashonhand,bankdeposits,investmentsinmoneymarketinstrumentsandcomprise:

Group Company2015 2014 2013 2015 2014 2013

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Cash on hand 12 - 1 - - -

Bankbalances 82 973 218 519 178 875 75 234 90 524 26 237

Short-term deposits 218 285 387 967 212 271 203 843 379 883 202 305

301 270 606 486 391 147 279 077 470 407 228 542

128

13. Reserves Pre-incorporation reserves

Pre-incorporation reserves represent the net book value of asset and liabilities transferred from previous corporations, adjusted for any changes in the value of these assets due to information which has been established during the current and prior years that refer to the value of assets taken over.

Property, Plant and Equipment Revaluation ReserveThese reserves relate to all fair value adjusments on office buildings that are directly recognised in equity.

Fair value adjustment available-for-sale-assets reserveFairvaluereservescompriseallfairvalueadjustmentsthatarerecogniseddirectlyinequityand/ortransfersfromretainedearnings.

Group Company2015 2014 2013 2015 2014 2013

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Pre-incorporation reserve 384 265 392 571 392 571 384 265 384 265 384 265

Property revaluation reserve (PPE) 458 10 211 - 458 458 -

Fairvalueadjustmenton 22 680 22 680 22 680 22 680 22 680 22 680

available-for-sale reserve

Reversalofreserves(refertonote36) - (9 753) - - - -

Acquisition of a subsidiary (Oceanwise (Pty) Ltd 17 409 - - - - -

424 812 415 709 415 251 407 403 407 403 406 945

14. Interest bearing borrowingsGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Held at amortised cost

DevelopmentBankofSouthernAfrica 705 1 171 1 639 705 1 171 1 639

Industrial Development Corporation of South Africa Ltd

23 664 - - - - -

Motor vehicle finance 13 - - - - -

Interest rate swaps - - - - - -

Terms and conditions

24 382 1 171 1 639 705 1 171 1 639

Non-current liabilities

At amortised cost 23 875 898 1 151 198 898 1 151

Current liabilities

At amortisation cost 507 273 488 507 273 488

12. Share capitalGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Authorised

50 billion "A" shares of 1 cent each 500 000 500 000 500 000 500 000 500 000 500 000

50billion"B"sharesof1centeach 500 000 500 000 500 000 500 000 500 000 500 000

1 000 000 1 000 000 1 000 000 1 000 000 1 000 000 1 000 000

Issued

"A" shares of 1 cent each 213 795 213 795 213 795 213 795 213 795 213 795

"B"sharesof1centeach 213 795 213 795 213 795 213 795 213 795 213 795

427 590 427 590 427 590 427 590 427 590 427 590

All shares issued are not transferable otherwise than by an Act of Provincial Parliament. The shares held by the State shall entitle it to a majority vote.

Issued

Reportedasat1April2014 427 590 427 590 421 375 427 590 427 590 421 375

Share capital issued - - 6 215 - - 6 215

427 590 427 590 427 590 427 590 427 590 427 590


15. Retirement benefit obligationGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Balanceatbeginningoftheperiod (28 808) (27 830) (27 620) (28 808) (27 830) (27 620)

Current service cost (702) (794) (873) (702) (794) (873)

Interest (2 729) (2 079) (2 355) (2 729) (2 079) (2 355)

Contributions 398 290 355 398 290 355

Actuarial (loss) gain (548) 1 605 2 663 (548) 1 605 2 663

(32 389) (28 808) (27 830) (32 389) (28 808) (27 830)

Changes in present value

Opening balance (28 808) (27 830) (27 620) (28 808) (27 830) (27 620)

Contributions by members 398 290 355 398 290 355

Net expense recognised in profit or loss (3 979) (1 268) (565) (3 979) (1 268) (565)

(32 389) (28 808) (27 830) (32 389) (28 808) (27 830)

Net expense recognised in the income statement

Current service cost (702) (794) (873) (702) (794) (873)

Interest (2 729) (2 079) (2 355) (2 729) (2 079) (2 355)

Actuarial gains (losses) (548) 1 605 2 663 (548) 1 605 2 663

(3 979) (1 268) (565) (3 979) (1 268) (565)

Past (accrued) and future service liability

Health care cost inflation 7.87 % 8.16 % 7.13 % 7.87 % 8.16% 7.13 %

Discount rate used 8.73 % 9.36 % 7.51 % 8.73 % 9.36% 7.51 %

Present value of accrued liability

Active members 23 266 22 329 21 295 23 266 22 329 21 295

CAWMs liability 9 123 6 479 6 535 9 123 6 479 6 535

32 389 28 808 27 830 32 389 28 808 27 830

Expected future expenditure

Service cost 3 017 702 794 3 017 702 794

Interest 3 238 2 729 2 079 3 238 2 729 2 079

6 255 3 431 2 873 6 255 3 431 2 873

Effect of 1% change in assumed medical cost trend rates

ItisthepolicyoftheCorporationtoprovideretirementmedicalbenefitstoallitsemployees.Basedontheactuarialvaluationperformedat31March2015,assumptionsusedinthesensitivityanalysisareonepercentagevariationin:• Healthcarecostinflation• Mortality• Resignationrate

Group Company2015 2014 2013 2015 2014 2013

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)1% increase- effectoncurrentservicecost&interestcost

586 607 607 586 607 607

1% increase- effect on accumulated benefit obligation

5301 5 460 5 259 5 301 5 460 5 259

1% decrease- effectoncurrentservicecost&interestcost

(465) (471) (471) (465) (471) (471)

1% decrease- effect on accumulated benefit obligation

(4264) (4 366) (4 158) (4 264) (4 366) (4 158)

130

17. Trade and other payablesGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Trade payables 13 287 38 161 19 697 3 067 3 116 2 205

Amounts received in advance 310 - - - - -

VAT 7 027 6 593 900 6 538 - -

Government funds 3 661 18 707 24 132 3 661 18 745 22 530

Accrued leave pay 8 016 14 513 13 123 7 792 9 133 8 545

Accrued bonus 1 536 2 194 2 600 1 536 1 546 1 643

Accrued expenses - - - - - 17 960

Deposits received - 2 006 1 828 - - -

Other payables 49 811 114 441 40 272 49 152 99 593 17 555

83 648 196 615 102 552 71 746 132 133 70 438

18. Government grants

The Eastern Cape Development Corporation receives grant funding from the Provincial Government of the Eastern Cape to achieve the mandate and its objectives and targets set per the Corporate Plan. The extent to which the set targets are met, the grants received are recognised in the StatementofFinancialPerformance.

There are no unfulfilled conditions or contingencies attached to these grants.Group Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Government grants 216 203 223 903 164 749 202 720

16. Deferred incomeGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Non-current liabilities 504 1 546 683 1 458 158 - - -

Current liabilities 117831 373 603 213 772 108 974 231 325 35 372

118 335 1 920 286 1 671 930 108 974 231 325 35 372

Analysis per group company

Eastern Cape Development Corporation 108 974 231 325 35 372 108 974 231 325 35 372

Automotive Industrial 9 361 2 278 1 839 - - -

Development Centre

EastLondonIDZ - 1 686 683 1 634 719 - - -

118 335 1 920 286 1 671 930 108 974 231 325 35 372

Government grants are deferred to the extent that they are un-spent. The Eastern Cape Development Corporation is responsible for the implementationofvariousprojectsonbehalfofothergovernmententities.Fundsthathavebeenreceivedfortheseprojectsbutnotyetspentas at 31 March are classified as deferred income. There were no unfulfilled conditions relating to the conditional government grants at year end.


19. RevenueGroup Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Sale of goods 1 003 - - -

Renderingofservices 8 042 38 157 2 830 3 334

Rentalincome 77 345 103 845 71 558 65 761

Interest received on loans 22 458 22 189 22 458 22 189

Interest on rent 20 479 15 310 20 479 15 310

TransferofELIDZ - (63 103) - -

129 327 116 398 117 325 106 594

Comparative figures

Revenue relating toEastLondon IDZhasbeen reclassifiedand included in thesingleamountofprofit fromdiscontinuedoperations in thestatementofcomprehensiveincome.Refertonote43.

20. Operating (loss) profitGroup Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Operating loss for the year is stated afteraccountingforthefollowing:

Operating lease charges

Premises

•Contractualamounts 5 229 4 144 4 052 3 209

Equipment

•Contractualamounts 299 705 288 674

5 528 4 849 4 340 3 883

Loss on sale of property, plant and equipment 10 4 10 4

Loss on sale of investment property - 344 - 1 136

Loss on sale of investments (7 000) - (7 000) -

Baddebtswrittenoff 39 710 149 39 710 -

Preparations for state funeral - 35 963 - 35 963

Baddebtsrecovered - (2 382) - (2382)

Impairment on property, plant and equipment - 320 - -

Reversalofimpairmentoninvestments (1 337) - (1 337) -

Impairment on investments - 1 373 - 1 373

Impairment on loans to group companies 663 - 695 -

Reversalofimpairmentonloanstogroupcompanies - - - (1615)

Impairment of loans advanced 47 261 17 562 47 261 17 562

Impairment on rent debtors 14 482 34 303 37 037 25 473

Amortisation on intangible assets 189 2 256 81 68

Depreciation on property, plant and equipment 3 181 3 190 2 071 2 308

Employee costs 120 636 184 812 105 503 99 952

Direct property operating expenditure 73 698 103 566 73 698 72 648

21. Auditors’ remuneration FeesGroup Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Fees 4 011 5 318 3 840 2 464

132

23. Fair value adjustments through profit or lossGroup Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Investment property 189 134 234 590 175 434 75 067

DisposalofELIDZ - (156 173) - -

Other financial assets 1 264 34 - -

190 398 78 451 175 434 75 067

Comparative figures

FairvalueadjustmentsonInvestmentpropertiesrelatingtoEastLondonIDZhasbeenreclassifiedandincludedinthesingleamountofprofitfromdiscontinuedoperationsinthestatementofcomprehensiveincome.Refertonote43.

22. Investment revenueGroup Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Dividend income

Listed financial assets - Local 91 81 - -

Interest revenue

Subsidiaries - - 1 698 1 517

Current accounts 10 051 8 508 9 251 7 979

10 051 8 508 10 949 9 496

10 142 8 589 10 949 9 496

25. TaxationGroup Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Major components of the tax expense (income)

Current

Local income tax - recognised in current taxfor prior periods

8 (12) - -

Deferred

Deferred tax 816 (203) - -

824 (215) - -

Reconciliation of the tax expense Reconciliationbetweenaccountingprofitandtaxexpense

Accounting profit 129 058 60 552 98 103 49 803

Taxattheapplicabletaxrateof28%(2014:28%) 216 3 - -

Tax effect of adjustments on taxable income

Dereconition of deferred tax 599 - - -

Prior year's under-provision 9 (12) - -

824 (9) - -

24. Finance costsGroup Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Non-current borrowings 88 637 74 624

Bank 3 - - -

Interest on interest bearing borrowings 647 - - -

738 637 74 624


26. Cash (used in) generated from operationsGroup Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Profit before taxation 129 058 60 552 98 103 49 803

Adjustments for:

Depreciationofproperty,plant&equipment 3 098 3 190 2 070 2 377

(Profit) loss on sale of assets (4 431) 1 025 (4 431) 1 136

Lossonsaleofproperty,plant&equipment 10 4 10 4

Amortisation of intangible assets 273 472 81 -

Income from equity accounted investments (2 305) (3 437) - -

Dividends received (91) (81) - -

Interest income (32 509) (32 196) (31 709) (30 168)

Financecosts 738 637 74 624

Fairvalueadjustments (190 398) (78 451) (175 434) (75 067)

Impairments 23 591 52 918 46 177 42 793

Movements in retirement benefit assets and liabilities 3 581 978 3 581 978

Loans written off 37 310 - 37 310 -

Other investments written off 2 400 - 2 400 -

Changes in working capital:

Trade and other receivables (19 289) (39 206) (39 904) (29 536)

Trade and other payables (63 074) 69 836 (68 388) 69 696

Deferred income (115 267) 191 391 (117 351) 190 953

(227 305) 227 632 (247 411) 223 593

27. Tax paidGroup Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Balanceatbeginningoftheyear 65 (371) - -

Closing balance 23 (65) - -

Charge to income statement (824) 215 - -

Reversaloftaxprovision(exemptiongranted) 612 109 - -

(124) (112) - -

28. ContingenciesContingent liabilitiesTheGrouphasexposuretolitigationofR10.4million(2014:R9.8million)againstit,astabulatedbelow.

Matters under consideration:

2015


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

Approximate potential liability: R508478 Status of matter: The matter was argued before Court on 28 January 2015 and judgement was reserved untill further notice.

2 Claim for cancellation of lease – 171 Cape Road Trust.

Approximate potential liability: R661088 Status of matter: ECDC received summons on 8 May 2013. ECDC will be defending the matter. This matter is set down for trial on 20 November 2015.

3. Claim for damages - Madodebhinga Nkubungu

Approximate liability: R371855 Status of matter: Summons issued against ECDC on 4 April 2014. This claim is for damages to a property allegedly caused by the ECDC appointed Sheriff during an execution of an eviction order.

134

29. CommitmentsGroup Company

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Authorised capital expenditure

Operating leases – as lessee (expense)

Minimum lease payments due

- within one year 5 426 6 082 4 237 3 952

- in second to fifth year inclusive 7 234 11 838 6 215 10 894

12 660 17 920 10 452 14 846

Operating leases – as lessor (income)


- within one year 27 933 61 958 27 933 32 392

- in second to fifth year inclusive 32 221 123 198 32 221 36 259

- later than five years 8 030 56 075 8 030 9 940

68 184 241 231 68 184 78 591

4. Claim for professional fees - Dr Mnyande and consultants

Approximate liability: R325395 Status of the matter: The ECDC is engaging the claimant to pursue an out of court settlement.

5. Claim for damages - Tabile Jodwana

Approximate liability: R5890 Status of matter: Summons issued against ECDC on 9 September 2014, the matter is still pending.

6. Claim for replacement of property - Butterworth Bakery CC

Approximate liability: R5512975 Status of matter: This matter emanates from alleged damage and theft of property during an execution of an eviction order. Summons issued against ECDC on 18 November 2014, the matter is still pending.

7. Claim for wrongfull eviction and damages - Mbona Business Trust

Approximate liability: R452037 Status of matter. This matter emanates from alleged wrongful eviction and damages suffered during an execution of an eviction order. The matter is still pending.

8. Claim for damages

Approximate liability: R2565037 Status of the matter. Summons have been issued against the ECDC and a Notice of intention to defend has been served and filed on 15 April 2015.

2014


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

Approximate potential liability: R1500000 Status of matter: Summons were issued against ECDC on 8 December 2010. ECDC is ready for trial and is awaiting a trialdatetobeallocatedbytheRegistraroftheHighCourt..

2. Claim for cancellation of lease – 171 Cape Road Trust.

Approximate potential liability: R561088 Status of matter: ECDC received summons on 16 May 2013. ECDC will be defending the matter. This matter is set down for trial on 3 June 2014.

East London IDZ

3. Performance Bonus for employees

TheELIDZenteredintoperformance-basedcontractswithemployeesintermsofwhichperformancebonusesmaybepaidoutwhenthe boardhasapprovedthepaymentnormallyaftertheauditresults.TheperformancebonusesliabilityisestimatedatR7766313.


30. Related parties

RelationshipsShareholder Department of Economic Development, Environmental Affairs and Tourism (DEDEAT)

Directors RefertotheDirector’sreport

Key management and other senior managers Eastern Cape Development Corporation

D.Mandell(ActingExecutiveManager:DevelopmentInvestments)

M. Lindie (Chief Economist)

N.Ngewu(Executive:CorporateServices)

S.Sentwa(ChiefFinancialOfficer)

N. Dlulane (Acting Chief Executive Officer)

AIDC Development Centre Eastern Cape (Proprietary) Limited

L. Schultz (Managing Director)

Related party balances

Subsidiaries and associatesRelatedpartybalanceswithsubsidiariesandassociatesaredisclosedinNote6:Loansto/(from)subsidiariesandassociates.

Other related partiesThe Corporation acquires equity investments in certain entities to which it has advanced loan funds as security for these loans or as part of its investmentstrategy.Outstandingbalanceswiththeseentitieswereasfollows:

Related party: 2015 Preference/ ordinary shares

Loan balance Accumulated impairment

(R’000) (R’000)BorderCopiers 676 4 232 4 232

Automotive Industry Development Centre - Eatern Cape 100 2 000 2 000

Magwa Tea Enterprise (Proprietory) Ltd 100 5 584 5 584

BioCoalManufaturersanddistributers(Pty)Ltd 30 4 958 4 958

Digitisation&RemanufacturingInstituteofSouthAfrica - 3 762 -

(DRISA)

Oceanwise (Pty) Ltd 1 108 9 348 9 348

Crossmed Health Care (Pty) Ltd 22 3 503 -

Silver Moon Investments 183 CC 300 3 245 3 245

SingisiForestProducts 820 - -

Ndlambe Natural Industrial Products (Proprietory) Ltd 100 5 319 5 319

3 256 41 951 34 686

Related party : 2014 Preference/ ordinary shares


(R’000) (R’000)BorderCopiers - 3 807 761

Automotive Industry Development Centre 100 2 000 -

Magwa Tea Enterprise (Pty) Ltd - 4 920 4 920

BioCoalManufaturersanddistributers(Pty)Ltd 30 4 351 218

Digitisation&RemanufacturingInstituteofSouthAfrica(DRISA) - 3 750 -

Crossmed Health Care (Pty) Ltd 22 3 503 -

SingisiForestProducts 820 - -

Ndlambe Natural Industrial Products (Proprietory) Ltd 952 4 958 -

1 924 27 289 5 899

136

Related party transactions Preference/ ordinary shares


(R’000) (R’000)Subsidiaries and associates

Interest from subsidiaries - 1 698 1 514

Government grants paid to Automotive Industry Development Centre (AIDC) - 19 504 21 367

Rentpaidtosubsidiaries - 2 275 1 931

Management fees - 1 187 1 231

Interest received from related parties

BorderCopiers(Proprietory)Ltd - 367 315

Ndlambe Natural Industrial Products (Proprietory) Ltd - 368 383

Silvermoon Investments 183 CC - 262 -

Oceanwise (Pty) Ltd - 598 -

Operational expenditure paid on behalf of

Eastern Cape Information Technology Initiative - 2 632 3 000

Rent received from related parties

Eastern Cape Appropriate Technology unit - 46 -

EasternCapeLiquorBoard - 308 -

31. Director’s and prescribed officer’s emoluments

Non-executive Director's fees Total(R’000) (R’000)

2015 1 526 1 526

2014 1 000 1 000

Compensation to executive management

2015 Basic Salary Allowances Employercontribution

to funds

Leave pay Terminationpay

Total

Mr S. Mase(CEO)terminated 02/05/2014

172 450 7 646 20 977 233 034 2 199 360 2 633 467

Mr R. Naidoo(Acting CEO)started 03/05/2014,terminated 19/12/2014

788 806 468 659 102 545 91 521 - 1 451 531

Mr S. Sentwa(Chief financial officer)

824 161 475 422 122 966 - - 1 422 549

Mr N. Dlulane(ExecutiveManager:InvestmentsandFunding)appointed Acting CEO on 01/01/2015

804 232 528 009 169 473 - - 1 501 714

Mr J. Cerff(ExecutiveManager:InfrastructureDevelopment)

947 347 709 817 - - - 1 657 164

Mrs N. Ngewu(ExecutiveManager:CorporateServices)

705 660 572 113 170 647 - - 1 448 420

Mrs N. van Dyk(ActingCFO)appointed 05/09/2014 andterminated 31/01/2015

155 446 312 999 15 399 - - 483 844

Mr M. Lindie(Chief Economist)

693 041 561 046 155 902 - - 1 409 989

Mr G. Cowley(ExecutiveManager:IntergratedSocial Infrastructure Programme)terminated 31/01/2015

547 555 214 437 68 248 23 620 - 853 860

5 638 698 3 850 148 826 157 348 175 2 199 360 12 862 538


2014 Basic Salary Allowances Employer contribution

to Funds

Total

Mr S. Mase(CEO)

905 328 654 496 173 533 1 733 357

Mr S. Sentwa(ChiefFinancialOfficer)

849 017 365 845 120 916 1 335 778

Mr N. Dlulane(ExecutiveManager:InvestmentsandFunding)

832 606 416 919 160 535 1 410 060

Mr J. Cerff(ExecutiveManager:InfrastructureDevelopment)

979 857 576 166 - 1 556 023

Mrs N. Ngewu(ExecutiveManager:CorporateServices)

897 976 327 105 173 519 1 398 600

Mr M. Lindie(Chief Economist)

709 777 465 778 148 378 1 323 933

Mr G. Cowley(ExecutiveManager:IntergratedSocial

253 320 62 982 - 316 302

5 427 881 2 869 291 776 881 9 074 053

32. Risk managementIntroduction

TheessentialfunctionofriskmanagementistoidentifymeasureandmonitortheriskprofileofECDC.Riskmanagementunderscoresthefactthat the survival of an organisation depends heavily on its capabilities to anticipate and prepare for the changes rather than waiting for the change and react to it.

Enterprise Risk Management (ERM)

ECDChasestablishedanERMframeworkthatisshareholdervaluebased,organisationallyembedded,supportedandassured,andreviewedona regular basis.

ERMisconsideredfromanenterprisewideportfolioperspectivesatisfyingthreerequirements,namelyintegration(spanningalllinesofbusiness),comprehensive (covering all types of risk) and strategic (aligned with the overall business strategy).

TheobjectiveofERMistocontinuouslyprovideandupdateriskidentification,validation,managementandreviewoftheserisks.

The business model strives to maximise financial and development returns while maintaining and acceptable risk profile.

Risk Appetite

The board of directors has approved a risk appetite and tolerance framework which forms the basis of the extent to which ECDC tolerates risks as described by performance indicators, operational parameters and process controls to increase shareholders value.

Risktolerance levelsassistsmanagementtomakebetter informedbusinessdecisions, focusonrisksthatexceedstheriskappetiteandtodevelop a culture where management is aware of the risks taken.

Thekeyriskshavebeenclassifiedaccordingtothefivebroadriskcategoriesnamely,Strategic,Financial,Operational,ComplianceandInformationTechnology Governance.

Risk Management Department

TheriskdepartmentactivelymonitorsandoverseekeyrisksoftheCorporation.Thekeyrolesandresponsibilitiesoftheunitareto:

1. PlayanactiveroleininstitutingandpromotingasustainableandrobustERMprocess;2. Developing corporate-wide monitoring, assurance and reporting processes for risk management;3. RegularlyreportingtotheChiefRiskOfficer,ExecutiveManagementandtheBoardAuditandRiskCommitteeandtheBoardoncriticalissues identified, on the progress in mitigating the risks and on any fundamental breaches of approved risk management policy guidelines.4. Assisting in refining the risk appetite and aligning it to the ECDC mandate, corporate and operational targets5. AdvisingStrategicBusinessunitsonmitigatingcontrols,processesandprocedures;6. Providing independent investment analysis for all investments proposals formally and informally;7. Concentration identification and analysis;8. Benchmarkingofbestpracticeriskmanagementactivitiesandapplicationthereofwhereapplicable.

138

Strategic Risk

Strategic risks include the failure of ECDC to fulfil on its development role in terms of shareholders expectation, macro economic conditions, reputational risks and the availability of capital.

ECDCs manages strategic risks by the annual review of the risk appetite and tolerance framework, establishing whether risks should be accepted, mitigated or avoided, prioritising risk identification, evaluating the efficiency of risk policies, procedures, practises and controls applied within ECDC on a day to day basis and by determining and reviewing of the maximum mandate levels for the various committees and staff who approves credit and assets liability decisions.

Financial Risk

Financialrisksincludescredit,interestandmarketrisk.TheseriskstrytominimiselosseswhichmayresultduetoECDCsownfundingstructureand as a result of its external investment and financing activities

Financial Risk: Credit Risk

Credit risk is the potential that a borrower or counter party fails to meet their obligations as per agreed terms. Credit risk is inherent to the business of lending funds and rental collections and is closely linked to market risk variables. Credit risk is a dominant risk within ECDC as the providing of loans, equity capital and rental accommodation is the core business of ECDC.

Credit risk consists of two components namely the quantity of risk measured as outstanding accounts receivable balances at the date of default and the quality of risk measured as the severity of loss defined by both the probability of default as reduced by the recoveries that could be made in the event of default.

ECDCs approach to Credit Risk management is to:

1. Establish exposure ceilings (limits) in certain categories of loans within a certain amount range;2. Perform due diligence and investment screening on all new loan and rental applications to establish if the applications meets the basic criteria for funding / occupation;3. Operate a multi-tier credit approving authority based on the loan amount;4. Test the use of a risk rating model for small and medium businesses for implementation during 2013;5. Price loans according to the severity of perceived credit risk;6. Maximise portfolio management which emanates from the necessity to optimise benefits associated with diversification and to reduce the impact of concentration of exposures to a certain individual, sector or industry.7. Provide a loan review mechanism to identify loans with credit weaknesses and determine the adequacy of loan impairment provisions, adherence to lending policies and procedures and to propose mitigation actions where weaknesses in systems and procedures have been established.8. Regularlyreporttomanagementontherisksidentified

Financial: Market Risk

MarketRiskisdefinedasthepossibilityoflosstoECDCcausedbythechangesinmarketvariablesofbothonandoffbalancesheetpositionswhich will be adversely affected by movements in equity and interest rate markets.

Financial: Interest Rate Risk

Interest rate risk is the potential negative impact on Net Interest Income and it refers to the vulnerability of ECDCs financial condition to the movement in interest rates. Changes in interest rates affects earnings, value of assets, liability off-balance sheet items and cash flow.

The objective of interest rate risk management is to maintain earnings, improve the capability and ability to absorb potential loss and to ensure the adequacy of the compensation received for the risk taken and effect risk return trade-off.

ECDC and the group are exposed to interest rate risk arising mainly from exposure to the Investment in Development Loans. The cash resources of the group are invested mainly with large money market funds and South African banks. Development investments are alsomadeinlinewithBoardpolicyandwouldbelessprofitableasinterestratesdrop.Atyearend,financialinstrumentsexposedtointerestrate risk were interest-bearing borrowings, held to maturity investments and loans advanced. A 1% decrease in the interest rate applicable to thesefinancialinstrumentswouldresultinaR2.44million(2014:R2.41million)decreaseinnetinterestincomewithanequivalentdecreaseinretained earnings.

Liquidity Risk

Liquidity risk is defined as the risk of failure to meet all financial obligations on a timely basis, without incurring above normal costs. This risks specifically arises from the inability to honour obligations with respect to commitments to borrowers, lenders and investors and operational expenditure.

The ECDC Investment Policy governs the liquidity requirements per investment type. Liquidity is held primarily in the form of money market instruments such as call deposits and bonds. The monthly management of the required liquidity levels is reported to Executive Management on a monthly basis.

Operational Risk

Operational risks, though defined as any risk that is not categorised as market or credit risk, is the risk of loss arising from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk but excludes systemic and reputational risk.

In order to mitigate the above, an operational risk framework and risks registers have been developed per business unit to ensure that operational risksareconsistentlyandcomprehensivelyidentified,assessed,mitigated,controlled,monitoredandreportedbyeachBusinessUnitManager.


Operational risk is also mitigated through:

• Theperformanceofregularinternalaudits• BusinessContinuityanddisasterrecoveryplanswhicharebeingmanagedthroughVMWAREvirtualizationplatform• Recruitmentpolicies• Insurancethroughpublicliabilityandinsuranceoffixedassets• Commitmentofemployeestoacodeofconductthatencouragesintegrity,professionalism,accountabilityandteamwork• Performingfraudawarenesstrainingandtheavailabilityofafraudreportinghotline

Compliance Risk

ECDC is regulated through the Eastern Cape Development Corporation Act 2 of 1997 as amended. ECDC is accountable to its sole shareholder the Department of Economic Development, Environmental Affairs and Tourism.

A shareholders compact entered into between the parties manages the performance as well as ECDC capital management. ECDC is not required toholdanycapitalintermsoftheBankAct94of1990andmaygearupto100%oftheavailablecapital.

Information Technology Risk

Technology is core to ECDCs business. Technology governance is vital to striking the right balance between holding on to our technology lead and managing our costs. It is also fully integrated into our strategic and business processes. All IT decisions are benchmarked against best practice andaccordingtoCOBITstandardwhereapplicable.

IT risk is managed by keeping up to date with the latest advances in technology and in terms of an approved IT Charter which aligns the technical strategy and business needs in by delivering value, managing performance; caters for security management, information management and business continuity management. This Charter is further strengthened by an Information Security, Internet and E-mail Policy which governs all access to information. Disaster recovery has been identified as having the highest impact on ECDC business operations and is being managed.

Liquidity risk exposure

As at 31 March 2015On demand and

less than one month

1 to 12 months More than 12 months

Total

(R’000) (R’000) (R’000) (R’000)Assets

Investments - - 31 857 31 857

Trade and other receivables - 20 062 - 20 857

Loans advanced - 87 112 14 848 101 960

Cash and cash equivalents 279 077 - - 279 077

279 077 107 174 46 705 432 956

Liabilities - 507 198 705

Interest bearing borrowings

Trade and other payables - 71 746 - 71 746

Financeleaseobligation - 508 508 1 016

- 72 761 706 73 467

Liquidity gap 279 077 34 413 45 999 359 489

As at 31 March 2014

Assets - - - -

Investments - - 32 454 32 454

Trade and other receivables - 19 632 - 19 632

Loan advanced - 70 476 68 704 139 180

Cash and cash equivalents 470 407 - - 470 407

470 407 90 108 101 158 661 673

Liabilities

Interest bearing borrowings - 273 898 1 171

Trade and other payables - 132 133 - 132 133

- 132 406 898 133 304

Liquidity gap 470 407 (42 298) 100 260 528 369

Credit risk

Financialassetsexposedtocreditriskatyearendwereasfollows:

Credit risk exposure 2015 2014 2015 2014

Loans advanced 271 196 340 129 271 196 340 129

Impairments (169 236) (200 949) (169 236) (200 949)

Exposure covered by collateral 101 960 139 180 101 960 139 180

140

33. Financial assets by category

Group - 2015 Loans and receivables

Fair valuethrough profit or loss designated

Held to maturity investments

Availablefor sale

Carryingamount

(R’000) (R’000) (R’000) (R’000) (R’000)Investments - 3 537 8 357 23 500 35 394

Loans advanced 101 960 - - - 101 960

Trade and other receivables 24 036 - - - 24 036

Investments in associates - 23 919 - - 23 919

Cash and cash equivalents - 301 270 - - 301 270

125 996 328 726 8 357 23 500 486 579




Availablefor sale

Carryingamount


Loans advanced 139 180 - - - 139 180




193 796 630 372 8 954 23 500 856 622

Company - 2014 Loans and receivables



Availablefor sale

Carryingamount

(R’000) (R’000) (R’000) (R’000) (R’000)Investments - - 8 954 23 500 32 454

Loans advanced 138 180 - - - 138 180


Loans to group companies 23 921 - - - 23 921

Investments in subsidiaries - 23 006 - - 23 006


181 733 493 413 8 954 23 500 707 600




Availablefor sale

Carryingamount


Loans advanced 101 960 - - - 101 960





144 163 302 089 8 357 23 500 478 109




Availablefor sale

Carryingamount


Loans advanced 135 504 - - - 135 504

Trade and other receivable 47 233 - - - 47 233



182 737 411 706 9 899 23 500 627 842





Availablefor sale

Carryingamount


Loans advanced 135 015 - - - 135 015





171 487 251 548 9 899 23 500 456 434

34. Financial liabilities by categoryTheaccountingpoliciesforconsolidatedannualfinancialinstrumentshavebeenappliedtothelineitemsbelow:

Group - 2015 Financial liabilities atamortised cost

Carryingamount

(R’000) (R’000)Interest bearing borrowings 24 382 24 382

Trade and other payables 83 648 83 648

Financeleaseobligation 1 094 1 094

Loans from shareholders 28 814 28 814

Operating lease liabilities 181 181

138 119 138 119


Carryingamount



Financeleaseobligation 64 64

197 850 197 850


Carryingamount



Financeleaseobligation 74 74

104 265 104 265

142

35. New standards and interpretations

New standards

IFRS 9 Financial Instruments

TheIASBhasissuedIFRS9FinancialInstruments,whichisthefirststepinitsprojecttoreplaceIAS39FinancialInstruments:recognitionandmeasurement,initsentirety.Theprojecthasthreemainphases:

• PhaseI:Classificationandmeasurementoffinancialinstruments;• PhaseII:amortisedcostandimpairmentoffinancialassets;and• PhaseIII:Hedgeaccounting.

IFRS 9, as currently issued, includes requirements for the classification andmeasurement of financial assets and liabilities derecognitionrequirementsandadditionaldisclosurerequirements.Themainrequirementsincludethefollowing:

• Financial assets are to be classified andmeasuredbasedon thebusinessmodel formanaging the financial asset and the cash flow characteristics of the financial asset. There are two measurement approaches, namely fair value and amortised cost. The financial asset is carried at amortised cost if it is the business model of the entity to hold that asset for the purpose of collecting contractual cash flows and if those cash flows comprise principal repayments and interest. All other financial assets are carried at fair value.

• Afinancialassetthatwouldotherwisebeatamortisedcostmayonlybedesignatedasatfairvaluethroughprofitorlossifsuchadesignation reduces an accounting mismatch.

• TheclassificationandmeasurementoffinancialliabilitiesincluderequirementssimilartothosecontainedintheexistingstandardIAS39 FinancialInstruments:recognitionandmeasurement.

• Forfinancialliabilitiesdesignatedasatfairvaluethroughprofitorloss,afurtherrequirementisthatallchangesinthefairvalueoffinancial liabilities attributable to credit risk be transferred to other comprehensive income with no recycling through profit or loss on disposal.

• TherequirementsforderecognitionaresimilartothosecontainedintheexistingstandardIAS39FinancialInstruments:recognitionand measurement, with certain additional disclosure requirements. Management does not anticipate these requirements to have a significant impactonthegroup’sconsolidatedannualfinancialstatements.IFRS9iseffectiveforthegroupfortheyearcommencing1April2013. However,theIASBadoptedaphasedapproachforthereleaseofIFRS9,withtherequirementsfortheclassificationandmeasurementof financial assets having been released in 2009 and the requirements for the classification and measurement of financial liabilities and derecognition having been released in 2010. Accordingly, the requirements released in 2010 cannot be early-adopted without the simultaneousadoptionofthe2009requirements.However,therequirementsreleasedin2009maybeseparatelyearlyadopted.TheIASB intendstoexpandIFRS9in2011toaddresstherequirementsfortheoffsettingoffinancialassetsandfinancialliabilities,impairmentof financialassetscarriedatamortisedcostandhedgeaccounting.ThegrouphasnotadoptedtherequirementsofIFRS9releasedin2009.

Company - 2015 Financial liabilities atamortised cost

Carryingamount

(R’000) (R’000)Interest bearing borrowings 705 705


Loans from group companies 52 720 52 720

Financeleaseobligation 1 016 1 016

126 187 126 187


Carryingamount




173 921 173 921


Carryingamount




108 341 108 341


Revised standards

ThefollowingrevisionstoIFRShavenotbeenearly-adoptedbythegroup:

IFRS 7 financial instruments: disclosures

Thefollowingamendmentsweremadetothisstandardduringtheyear:

• Clarificationofcertainqualitativeandquantitativedisclosuresrelatingtothenatureandextentofrisks.Theamendmentiseffectivefortheyear commencing 1 April 2011.• Additional disclosure requirements relating to the transfer of financial assets.This amendment is effective for the group for the year commencing 1 April 2012. These amendments address disclosure in the consolidated annual financial statements and will therefore not affect the financial position of the group.

IFRS 3 Business combinations

The amendment clarifies the measurement of non-controlling interests and provides additional guidance on unreplaced and voluntarily replaced share-based payment awards. The amendment is effective for the year commencing 1 April 2011 and is applicable to the Group.

IAS 12 income taxes

The amendment provides a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair-value model in IAS 40 Investment property. The amendment is effective for the group for the year commencing on or after 1 April 2012 and is not expected to have a significant impact on the group as the holding company is exempt from income tax.

IAS 24 Related parties

The amendment provides exemptions from certain disclosure requirements in respect of government-related entities and clarifies the definition of a related party. The amendment is effective for the group for the year commencing 1 April 2011. This amendment addresses disclosure in the annualfinancialstatementsandwillthereforenotaffectthefinancialpositionofthegroup.Furthermore,therevisionstothedisclosuresarenotexpected to have a significant effect on the group.

IAS 32 Classification of rights issues’ issued in October 2009.

Theamendmentappliestoannualperiodsbeginningonorafter1February2010.Earlierapplicationispermitted.Theamendmentaddressestheaccounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8. Accounting policies, changes in accounting estimates and errors’. The amended standard is not applicable to the Group.

Annual improvement project

AspartofitsthirdannualimprovementprojecttheIASBhasissuedits2010editionofannualimprovements.Theannualimprovementprojectaims to clarify and improve the accounting standards. The improvements include those involving terminology or editorial changes, with minimal effect on recognition and measurement. There are no significant changes in the improvement that will affect the group.

Interpretations

Thefollowinginterpretationsofexistingstandardsarenotyeteffectiveandhavenotbeenearly-adoptedbythegroup:

IFRIC 14 Prepayments of a minimum funding requirement.

TheamendmentscorrectanunintendedconsequenceofIFRIC14,‘IAS19-Thelimitonadefinedbenefitasset,minimumfundingrequirementsand their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum fundingcontributions.ThiswasnotintendedwhenIFRIC14wasissued,andtheamendmentscorrectthis.Theamendmentsareeffectiveforannual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented.This standard is however not applicable to the Group.

Standards and interpretations adopted in the current year

Revised standards

ThefollowingrevisionstoIFRShavebeenadoptedbythegroupastheirapplicationhasbecomemandatoryforthereportingperiod:

Amendments to IFRS 2 group-settled arrangements

The amendment provides additional guidance on the accounting for share-based payment transactions among group entities. The most significant change is that the entity receiving the goods or services will recognise the transaction as an equity-settled share-based payment transaction only if the awards granted are its own equity instruments or if it has no obligation to settle the transaction. In all other circumstances the entity willmeasurethetransactionasacash-settledshare-basedpayment.ThescopeofIFRS2hasalsobeenamendedtoclarifythatthestandardapplies to all share-based payment transactions, irrespective of whether or not the goods or services received under the share-based payment transaction can be individually identified. The adoption of the amendments to the standard did not have an effect on the group’s consolidated annual financial statements as the group is not party to share based payments arrangements.

IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’.

TheamendmentclarifiesthatIFRS5specifiesthedisclosuresrequiredinrespectofnon-currentassets(ordisposalgroups)classifiedasheldfor sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1.

144

36. Fruitless and wasteful expenditure

Fruitless and wasteful expenditure 2014 2013(R’000) (R’000)

624 283

624 283

2014ThecompanyincurredinterestandpenaltiestoSARStotallingtoR624.ThepenaltiesandinterestwereasaresultofVATadjustmentsthatwereprocessedinthegeneralledgeraftertheinitialsubmissionofVATreturns.

2013ThecompanyincurredchargesofinterestandpenaltiestoSARSincometaxesamountingtoR11andR42respectively.ThecompanyalsoincurredpenaltiesandinterestinrespectofVATduringthe2013financialyeartotallingR230.

IAS 1 (amendment), ‘Presentation of financial statements’.

The amendment clarifies that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or noncurrent.Byamendingthedefinitionofcurrentliability,theamendmentpermitsaliabilitytobeclassifiedasnon-current(providedthattheentity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time.

IAS 36 (amendment), ‘Impairment of assets’, effective 1 January 2010.

The amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is anoperating segment, asdefinedbyparagraph5of IFRS8, ‘Operating segments’ (that is, before theaggregationofsegments with similar economic characteristics).

Interpretations

ThefollowingamendedIFRIC’shavebeenadoptedbythegroupastheirapplicationhasbecomemandatoryforthereportingperiod:

IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009)

The interpretation was published in November 2008. This interpretation provides guidance on accounting for arrangements whereby an entity distributesnon-cashassetstoshareholderseitherasadistributionofreservesorasdividends.IFRS5hasalsobeenamendedtorequirethatassets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable.

IFRIC 18, ‘Transfers of assets from customers’

Effectivefortransferofassetsreceivedonorafter1July2009.ThisinterpretationclarifiestherequirementsofIFRSsforagreementsinwhichan entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). In some cases, the entity receives cash from a customer that must be used only to acquire or construct the item of property, plant, and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both). The adoption of this interpretation is not applicable to the group.

IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement’, effective 1 July 2009

Thisamendment to IFRIC9 requiresanentity toassesswhetheranembeddedderivativeshouldbeseparated fromahostcontractwhenthe entity reclassifies a hybrid financial asset out of the ‘fair value through profit or loss’ category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remains classified as at fair value through profit or loss in its entirety. The adoption of this interpretation is not applicable to the group.

37. Irregular expenditure

TheEasternCapeDevelopmentCorporation(ECDC)incurredirregularexpendituretotallingR41.46millionduetonon-compliancewiththeSupplyChainManagementPolicy(SCM)andthePFMA.ThisexpenditurehasbeenrecordedintherelevantexpenditureaccountsandR33.39millionhasbeencondonedbytheBoard.

2015 2014 2015 2014(R’000) (R’000) (R’000) (R’000)

Opening balance - 4 273 - -

Current year Irregular expenditure 33 389 50 879 33 389 44 884

Irregular expenditure indentified in the current year relating to prior year

8 075 - 8 075 -

CondonedbytheBoard (33 388) (55 152) (33 388) (44 884)


38. Prior period errorsThe financial statements have been prepared in accordance with the South African Statements of Generally Accepted Accounting Practice on a basis consistent with the prior year. Where adjustments were done in the current annual financial statements, management considered the impact on the opening balances of the earliest comparative figures and these were adjusted accordingly.

Adjustments to disclosure notes


Property, Plant and Equipment

AnamountofR8.68millionwaserroneouslyincludedinthenoteforProperty,PlantandEquipmentasatransferfromComputersoftwaretoOtherProperty,PlantandEquipment.Thiserrorhasbeencorrected.(Refernote3:ReconcliationofProperty,PlantandEquipmentforGroup2014)

Prescribed Officers’s Emoluments

The total compensation to the Executive Management as disclosed in note 30 was calculated incorrectly in the prior year. The disclosure error whichamountedtoR105.92millionthousandhasbeencorrectedretrospectivelyandhasnoeffectontheexpenditurereported.

Irregular expenditure

AnamountofR2.11millionrelatingtosalaryincreasesthatwerepaidwasincorrectlydisclosedasirregularexpenditureintheprioryear.Thedisclosure has been corrected retrospectively and comparative disclosures have been restated.

Commitments

Thecommitments relating to loans andprojects, totalling toR346.6million,weredisclosedas capital commitments in theprior year.Thisdisclosure was considered to be useful to the readers of the financial statements. However due to the fact that it is not required in terms of the reporting standards, comparative disclosures have been removed.

Cash flow statement and Statement of financial performance

The accounting treatment for a disposed subsidiary has required a re-presentation of the statement of financial performance and cash flow statement . The profit and the net cash movement relating to this subsidiary have been disclosed as single amounts in both the afore-mentioned statements respectively.

Related party transactions

Intheprioryear,grantsamountingtoR21.37millionwerepaidtoAutomotiveIndustryDevelopmentCentre(AIDC),werenotdisclosed.Thishasnow been corrected.

Reclassification adjustments

Deferred income and Trade and other payables

Intheprioryear,unspentprojectfundsamountingtoR5millionwhichwereincludedintheTradeandotherpayables,havenowbeenreclassifiedto Deferred income.

Investments in associates

Intheprioryearsthe loanthatwasadvancedtoBushmanSandsDevelopment (Pty)Ltdwasconvertedfora50%equity investment intheassociate. Due to a pending litigation on the loan conversion agreement, the equity investment has been reclassified to loans advanced. This reclasissificationhasbeeneffectedretrospectivelyasfollows:

31 March 2014 31 March 2013(R’000) (R’000)

Investments in associates 25 752 25 752

Reclassifiedtoloansadvanced (25 752) (25 752)

Current loans advanced as previously reported 49 347 57 286

Reclassificationfrominvestmentsinassociates 25 752 25 752

Additional impairment (6 395) (6 395)

Restated balance 68 704 76 643

East London IDZ

Cashflow: The entity disclosed short term debt that was converted into long term debt for tenants that were under financial distress on the face of the cashflow statement instead of disclosing that as it is non-cash movement.

TheerrorhasbeencorrectedretrospectivelyandtheeffectoftheerrorisadecreaseininvestingactivitiesonthefaceofthecashflowbyR411431andincreaseinthecashflowfromworkingcapitalmovementbyR411431.

Commitments: The entity understated one of the projects under commitments in the prior year due to oversight by management. The errorhasbeencorrectedretrospectivelyandcomparativedisclosurehasbeenrestated.Theeffectoftheerrorisshownbelow:

146

Contract work in progress:

(R)Balancebeforeadjustment-Property,plantandequipment 25 960 539

Adjustment 2 377 628

28 338 167

Contract work in progress:The entity disclosed a commitment for a project in the prior year, whereas the project was completed during the last financial year and no commitment existed for the said project at the financial year end. The error has been corrected retrospectively and comparitive disclosure has beenrestated.Theeffectoftheerrorisshownbelow:

Balancebeforeadjustment-Investmentproperty 50 919 330

Adjustment (573 404)

50 345 926

TaxationThe assesed loss that was disclosed in the prior year annual financial statement and brought forward in the current year was incorrect as it was differentfromwhatSARSassessed.Theerrorhasbeencorrectedretrospectivelyandprioryeardislosurewasappropriatelyrestatedasfollows:

31 March 2014 Adjustment 31 March 2014Restated

(R) (R) (R)Assessed loss brought forward 20 429 638 15 630 664 36 060 302

Current year assessed loss 39 760 649 - 39 760 649

60 190 287 15 630 664 75 820 951

Adjustments to account balances

Theaggregateeffectofthepriorperiodadjustmentonthefinancialstatementsfortheyearended31March2014:

Statement of Financial Position

East London IDZ

Property, Plant and Equipment and Deferred Income (non-current)Property,PlantandEquipment:Theentityomittedtocapitaliseanamountonapaymentcertificatethatwasissuedbyaserviceproviderwhowasmanufacturing transformers for the entity in 2011. The expenditure met the capitalisation criteria. The error has been corrected retrospectively and comparative figures have been appropriately restated.

Deferred Income:In2011deferredincomewasunderstatedbyanoverreleasetothestatementofcomprehensiveincomeofR1236328. The error was corrected retrospectively from 2013 and comparative figures have been appropriately restated.

Eastern Cape Development Corporation (Group)

Reserves and Retained income

The ECDC, as the holding company, previously accounted for fair value adjustments on Investment Properties as non-distributable reserve in equity in the consolidated group financial statements. As a result of this accounting policy, an adjustment was made for the subsidiaries to be consistent with the holding company. This policy was changed in the 2012/13 financial year and the holding company financial statements were adjusted accordingly. However, the change was not effected at group level. This error has been corrected retrospectively and comparative figures havebeenappropriatelyrestated.Theeffectoftheadjustmentwasasfollows:

• IncreaseinretainedincomeandadecreaseinreservesbyR2.28millionin2013.• IncreaseinretainedincomeandadecreaseinreservesbyR9.75millionin2014.

The error relating to the 2013 financial year is in addition to the errors disclosed in note 38 of the 2014 published financial statements.

Investments

An adjustment has been made in investments held by a subsidiary due to a number of shares that were overstated in the prior year. This error has been corrected retrospectively and comparative figures have been appropriately restated. The effect of the adjustment was a decrease in retainedincomeandadecreaseininvestmentsbyR144000.

Investment property and loan to group companies

Intheprioryearerven7457and2532includedinthesubsidiary,TDCPropertyInvestments(Pty)LtdamountingtoR5.45millionweretransferredto the Eastern Cape Development Corporation as per the Proclamation issued by the Premier of the Eastern Cape. As a result, the prior year figures have been restated.

Cash and cash equivalents

Intheprioryear,cashandcashequivalentsrelatingtotheELIDZwereincorrectlydisclosedandhavenowbeencorrectedbyanamountof R222000.


Operating lease liability

Certain comparative figures have been reclassified to present a clearer indication of the line items affected. The effects of the reclassisfication are tabulated hereunder.


ProvisionsAperformanceprovisionofR3millionrandswhichwasestimatedforthe2013/14financialyearhasbeenreversedduetothefactthatnoresolutionhasbeenpassedbytheBoardtopayperformancebonuses.

Statement of financial performanceEffect of adjustments to account balances are tabulated below:

2014 2013 2014 2013(R’000) (R’000) (R’000) (R’000)

Reserves (9 753) (2 278) - -

Retainedincome/loss 12 450 98 310 3 000 (6 394)

Investments 144 - - -

Provisions (3 000) - (3 000)

Loans to group companies - - (5 450)

DisposalofELIDZsubsidiary 159 - - -

Trade and other receivables - 1 226 -

Property, plant and equipment 1 236 14 923 -

Investment properties - (10 861) 5 450

Trade and other payables (5 000) 1 624 (5 000) -

Deferredincome:non-current (1 236) (13 183) -

Deferredincome:current 5 000 87 828 5 000

Operatingleaseliability:current 49 - - -

Operatingleaseliability:non-current (49) - - -

Revenue (1 103) 1 140 - -

Government subsidy - 35 402 -

Financecosts - (158) -

Fairvalueadjustments - 2 338 - -

Income tax expense - (602) -

Interest received - 589 - -

Operating expenses 1 103 - -

Loans advanced 25 752 25 752 25 752 25 752

Investments in associates (25 752) (25 752) (25 752) (25 752)

Impairment of loans - 6 394 - 6 394

39. Biological assets2015 2014 2013

Group Cost /Valuation


Carryingvalue

Cost /Valuation


Carryingvalue

Cost /Valuation


Carryingvalue

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Bearer(Broodstock) 24 240 - 24 240 - - - - - -

Reconciliation of biological assets


Additionsthrough

acquisitionof a

subsidiary

Total

(R’000) (R’000) (R’000)Bearer(Broodstock - 24 240 24 240

148

40. Intangible assets2015 2014 2013

Group Cost /Valuation


Carryingvalue

Cost /Valuation


Carryingvalue

Cost /Valuation


Carryingvalue

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Computer software, internally generated

501 (294) 207 12 260 (8 970) 3 290 2 563 (136) 2 427

Computer software, other

3 976 (3 865) 111 3 737 (3 579) 158 3 589 (3 512) 77

Intellectual property 5 100 - 5 100 - - - - - -

Total 9 577 (4 159) 5 418 15 997 (12 549) 3 448 6 152 (3 648) 2 504

2014 2014 2014Company Cost /


Carryingvalue

Cost /Valuation


Carryingvalue

Cost /Valuation


Carryingvalue

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Computer software, other

3 758 (3 660) 98 3 737 (3 579) 158 3 589 (3 512) 77

Reconciliation of intangible assets


Additions Additions on acquisition of a

subsidiary

Transfers Amortisation and impairment

Accumulated depreciation on acquisition of a

subsidiary

Total

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Computer software, internally generated

3 290 88 - (2 982) (189) - 207

Computer software, other

158 20 218 - (84) (201) 111

Intellectual property - - 5 100 - - - 5 100

3 448 108 5 318 (2 982) (273) (201) 5 418



Additions Disposals Amortisation and impairment

Total

(R’000) (R’000) (R’000) (R’000) (R’000)Computer software, internally generated 2 427 3 132 (13) (2 256) 3 290

Computer software, other 77 148 - (67) 158

2 504 3 280 (13) (2 323) 3 448



Additions Amortisation Total

(R’000) (R’000) (R’000) (R’000)Computer software, internally generated 4 165 326 (2 064) 2 427

Computer software, other 60 45 (28) 77

4 225 371 (2 092) 2 504

Reconciliation of intangible assetsCompany - 2015

Opening balance


(R’000) (R’000) (R’000) (R’000)Computer Software, other 158 21 (81) 98


Opening balance


(R’000) (R’000) (R’000) (R’000)Computer software, other 77 148 (67) 158


Opening balance


(R’000) (R’000) (R’000) (R’000)Computer software, other 60 45 (28) 77

Pledged as securityRegisterscontainingdetailsoftheintangibleassets,includingdetailsofanyencumbrances,arekeptattheregisteredofficesofthecompaniesconcerned.


41. Loans to (from) shareholdersGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

W. P. RyanThe loan is unsecured, bears no interest and is repayable as agreed between the parties from time to time.

(25 921) - - - -

G. A. MussonThe loan is unsecured, bears no interest and is repayable as agreed between the parties from time to time.

(2 893) - - - - -

(28 814) - - -

Non-current liabilities (28 306) - - - -

Current liabilities (508) - - - -

(28 814) - - - - -

42. InventoriesGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)

Production supplies 28 - - - -

Agricultural produce 734 - - - - -

Feed 260 - - - - -

Stationery 18 - - - - -

1 040 - - - - -

43. Discontinued operations or disposal groups or non-current assets held for sale

Decoupling of East London IDZ

On1April 2014, theEast London IDZwasdecoupled from theEasternCapeDevelopmentCorporation, as a result, the74%equity in theEast London IDZhasbeen transferred to theDepartmentof EconomicDevelopment, EnvironmentandTourism.The statementof financialperformance has been re-presented for prior period so that the disclosures relate to all operations that have been discontinued by the end of the reporting period for the latest period presented.

Group Company2015 2014 2013 2015 2014 2013

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Profit and loss

Revenue - 63 103 - - - -

Other income - 1 781 - - - -

Government grants - 168 723 - - - -

Investment income - 863 - - - -

Fairvalueadjustments - 156 173 - - - -

Financecosts - (2 707 ) - - - -

Operating expenses - (201 201 ) - - - -

Net profit before tax - 186 735 - - - -

Net profit after tax - 186 735 - - - -

- 186 735 - - - -

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Non-current assets held for sale

TheBoardoftheEasternCapeDevelopmentCorporationresolvedtodisposeofinvestmentpropertieswhichdonotyieldtheexpectedreturn.The non-current assets held for sale relate to sale agreements that have been signed with various parties.

Group Company2015 2014 2013 2015 2014 2013

(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)Non-current assets held for sale

Investment property 4 245 14 095 16 479 4 245 14 095 16 479

Reconciliation of movement

Opening balance 14 095 16 479 11 192 14 095 16 479 11 192

Disposals (2 980) - - (2 980) - -

Fairvalueadjustments (316) - - (316) - -

Transfers (to) from Investment properties (6 554) (2 384) 5 287 (6 554) (2 384) 5 287

4 245 14 095 16 479 4 245 14 095 16 479

44. Finance lease obligationGroup Company

2015 2014 2013 2015 2014 2013(R’000) (R’000) (R’000) (R’000) (R’000) (R’000)


- within one year 629 14 27 574 - -

- in second to fifth year inclusive 625 - - 573 - -

1 254 14 27 1 147 - -

less:futurefinancecharges (160) - - (131) - -

Present value of minimum lease payments 1 094 14 27 1 016 - -

Present value of minimum lease payments due

- within one year 553 14 27 508 - -

- in second to fifth year inclusive 541 50 47 508 - -

1 094 64 74 1 016 - -

Non-current liabilities 541 50 47 508 - -

Current liabilities 553 14 27 508 - -

1 094 64 74 1 016 - -

It is group policy to lease certain equipment under finance leases.

The lease term is 3 years and the effective borrowing rate was 8% .

The group’s obligations under finance leases are secured by the lessor’s charge over the leased assets.

45. Decoupling of East London IDZ

Net asset value at 1 April 2014 (R’000)

Non-Current assets 1 757 476

Current Assets 147 444

Non-distributable reserves (8 306)

Non-Current liabilities (1 544 862)

Current liabilities (199 521)

Outside shareholders (41 692)

Total net assets sold 110 539

Consideration received -

110 539

On1April2014,theEasternCapeDevelopmentCorporationdisposedofits74%equityintheEastLondonIDZtotheDepartmentofEconomicDevelopment,EnvironmentandTourism.Theeffectivedateofthedisposalis1April2014andthenetassetvalueoftheELIDZatthisdateistabulated above. No consideration has been received for the disposal as at 31 March 2015.


LIst of ABBRevIAtIonsAIDC Automotive Industry Development CentreAGOA Africa Growth and Opportunity ActCEO Chief Executive Officer CIDB ConstructionIndustryDevelopmentBoardCSIR CouncilforScientificandIndustrialResearchDBSA DevelopmentBankofSouthernAfricaDEDEAT Department of Economic Development, Environmental Affairs and Tourism DFI DevelopmentFinanceInstitutionDTI Department of Trade and Industry ECDC Eastern Cape Development CorporationECF EmploymentCreationFundECFA EasternCapeFromAboveECITI Eastern Cape Information Technology InitiativeECPTA Eastern Cape Parks and Tourism AgencyECRDA EasternCapeRuralDevelopmentAgencyECSECC Eastern Cape Socio-Economic Consultative CouncilELIDZ EastLondonIndustrialDevelopmentZoneERM EnterpriseRiskManagementERP EnterpriseResourcePlanEvP EmployeeValuePropositionHR HumanResourcesHS Harmonised System ICT Information and Communication TechnologyIP Investment Promotion MEC Member of the Executive Council NMBMM NelsonMandelaBayMetropolitanMunicipalityPDP Provincial Development PlanPFMA PublicFinanceManagementActPGDP Provincial Growth and Development PlanPIDS Provincial Industrial Development Strategy SAYTC SouthAfricanYouthTravelConfederationSCM Supply Chain ManagementSMMEs Small, Medium and Micro EnterprisesSTI Short Term Incentive TIA Technology Innovation Agency

153

HEAD OFFICE

ECDC HouseOcean Terrace Park, Moore Street

Quigney, East LondonPO Box 11197, Southernwood, 5213

Tel: +27 (0) 43 704 5600 • Fax: +27 (0) 43 704 5700

REgIOnAl OFFICEs

MTHATHA7 Sisson Street, Fort Gale

Private Bag X5028, Mthatha, 5099Tel: +27 (0) 47 501 2200 • Fax: +27 (0) 47 532 3548

PORT ELIZABETH68 Cape Road, Mill Park

PO Box 1331, Port Elizabeth, 6000Tel: +27 (0) 41 373 8260 • Fax: +27 (0) 41 374 4447

QUEENSTOWN22 Cathcart Road

Private Bag X7180, Queenstown, 5320Tel: +27 (0) 45 838 1910 • Fax: +27 (0) 45 839 3014

sAtEllItE OFFICEs

ALIWAL NORTHDEDEA OFFICES, 27 Queens Terrace, Aliwal North, 9750

P O Box 198, Aliwal North, 9750Tel: +27 (0) 51 633 3007

BUTTERWORTH24 High Street

PO Box 117, Butterworth, 4960Tel: +27 (0) 47 401 2700 • Fax: +27 (0) 47 491 0443

KING WILLIAM’S TOWN75 Alexander Road

PO Box 498, King William’s Town, 5600Tel: +27 (0) 43 604 8800 • Fax: +27 (0) 43 642 4199

MOUNT AYLIFFSEDA Building

Nolangeni Street, Mount Ayliff, 4735Tel: +27 (0) 39 254 6501 • Fax: +27 (0) 39 254 0599

EAANNUALstERn CAPE DEVElOPMEnt CORPORAtIOn REPORT · b) Leveraging of resources, strategic...

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