http://www.asgisa-ec.co.za/documents/asgisa_annual_report_09_lowres by SMG

2008 / 2009

ANNUAL REPORT

02 Director-General’s foreword

03 Chairperson’s foreword

04 Chief Executive Officer’s foreword

05 Executive team

06 6.1 6.2 6.3 6.4 6.5

High Impact Priority Programmes (HIPPs) Agriculture and agro-processing Forestry and timber development Human settlement and planning Tourism development Water resource development

11 13 21 27 31 35

07 Partnerships and corporate social investment

08 Governance

09 Board of directors

10 Financial statements

List of abbreviations

ASGISA EASTERN CAPE

2008/2009

01 Mandate, vision and mission

01 MANDATE, VISION & MISSION

MANDATE : Facilitate, co-ordinate and implement high impact priority projects (HIPPs) which are aligned with the Eastern Cape’s Provincial Growth and Development Plan (PDGP) and located within rural economic development zones. VISION : The organisation visualises “a vibrant and sustainable rural economy that improves livelihoods and unlocks the dormant potential of the land and the people of the Eastern Cape”. MISSION : Through partnerships, high level and focused integration and coordination, AsgiSA Eastern Cape plays a direct and catalytic role in building a sustainable and modern, ruralbased economy, primarily through agrarian reform.

MANDATE, VISION & MISSION

02 DIRECTOR-GENERALâ&#x20AC;&#x2122;S FOREWORD

In the last fifteen months, AsgiSA EC has played a pivotal role in the provincial governmentâ&#x20AC;&#x2122;s goal to address the pressing challenges of poverty alleviation, food security and building sustainable livelihoods. AsgiSA EC was established by the Eastern Cape Provincial Government against this backdrop, to accelerate agrarian transformation through six high impact priority projects (HIPPs), with the initial focus on the three million inhabitants of the Mzimvubu Development Zone. The provincial government recognises the challenges the organisation has faced during its establishment phase and acknowledges that despite this, it has made significant progress. The provincial government recognizes the enthusiasm with which AsgiSA EC has set out to fulfill its developmental mandate. In the year under review, AsgiSA EC has succeeded to initiate and fast-track programmes on agriculture, agro-processing and forestry. Its impact in reconciling the rural-urban divide, characterised by a sophisticated first world economy and the under-developed second economy, is already being felt in the beneficiary communities. Already over 6 700 hectares (ha) of dry-land cropping has been planted, supporting about 2 200 households and 11 000 beneficiaries in villages stretching from the Amathole to the Alfred Nzo district municipalities. These are villages in the Butterworth, Willowvale, Matatiele, Qumbu, Mount Frere and Mzimvubu areas. To this end, AsgiSA EC has injected R60 million into the pilot integrated cropping programme starting with maize, beans and canola. Food security and the creation of sustainable livelihoods are at the core of the governmentâ&#x20AC;&#x2122;s developmental mandate, and we are excited that land owners will benefit by receiving an average of 10,50kgs of maize per hectare, if a yield of 5,5 tons per hectare is achieved. We are also pleased that AsgiSA EC has aggressively undertaken market support initiatives in the form of securing off-take agreements with 03

large retail chains as well as other services and materials, ranging from finance, agricultural services such as milling and packaging to sourcing agricultural materials such as fertilisers and livestock supplies. We believe that AsgiSA EC will reach its target of setting up 300 cooperatives in these communities to lock in further investments in the former Transkei by 2011. Progress has also been made in livestock development where 650 farmers on 86 farms have benefited. The provincial government is equally excited with the significant progress that has been made in creating ways of streamlining the forestry permit processes such as class environment assessments. The Department of Agriculture, Fisheries and Forestry has already identified the development of 100 000ha as one of the key catalytic programmes that will ensure the rejuvenation of the rural economy. We are confident that, based upon the foundation laid by AsgiSA EC, provincial government will build upon this and continue to work with municipalities and other stakeholders to navigate the journey that lies ahead. In the light of special focus on rural development and the need to streamline all rural development initiatives in the Province, the lessons flowing from the implementation of projects under the AsgiSA EC umbrella will be invaluable. As provincial government, we extend our sincere gratitude to the various stakeholders who have been part of this process and to the AsgiSA EC board and staff for their hard work and dedication in taking this important work to this level.

Dr Sibongile Muthwa, DIRECTOR-GENERAL

DIRECTOR-GENERAL’S FOREWORD

03 CHAIRPERSON’S FOREWORD

Although in its infancy, AsgiSA EC has already played a significant role in addressing the numerous developmental challenges facing the rural Eastern Cape. Highlights in 2008/2009 • • • •

6 700ha of dry-land cropping were planted, mainly maize in the former Transkei, supporting about 2 500 families. R43 million was spent in 2008/2009 on implementation and R53 million has been allocated for harvesting including the purchase of storage facilities & other infrastructure. AsgiSA EC planted 800ha of canola seeds to evaluate the potential of bio-fuel production in Nqadu, Willowvale, in the former Transkei. AsgiSA EC and the Department of Water and Environmental Affairs is conducting a water resources study for the development of the Mzimvubu water catchment area. The initial report indicates only 5% of the 2 600 million m3 of water is currently used.

Although in its infancy, AsgiSA EC has already played a significant role in addressing the numerous developmental challenges facing the rural Eastern Cape. Given the context of underdevelopment, poverty, and high unemployment, especially in the eastern part of the province, the Eastern Cape government has identified rural development and agrarian reform as an instrument with which to address the broader development challenge. During the period under review, AsgiSA EC embarked on a process of building an agile, lean and project implementation focused organisational structure to counter these developmental challenges.

The board The board which was appointed in 2007 has established three committees – the Audit Committee, Project Finance and Investment Committee, and the Human Resources and Remuneration Committee. 05

These committees have strengthened corporate governance and provided management with support in the critical phase of institutional development. The board appointed a competent chief executive officer in January 2008 to give effect to the organisation’s projects and programmes. The chief executive officer strengthened the operational capacity of AsgiSA EC by sharpening the focus of AsgiSA EC, appointing key senior staff who are well-equipped to tackle the developmental challenges of the province.

Strategic plan AsgiSA EC thus embarked on a programmatic response to the province’s rural development challenges with the adoption of a strategic plan. The plan, focusing initially on the Mzimvubu Basin, identified six high impact priority projects (HIPPs). These are agriculture and agro-processing, forestry development, water resource development, hydro-power and alternative energy, tourism development and addressing sustainable human settlements. In the year under review, AsgiSA EC planted 6 700ha of dry-land cropping, mainly maize in the former Transkei, supporting about 2 500 households to address food security. Over the next five years, we aim to assist 86 Land Redistribution and Agricultural Development beneficiary farmers in the Elliot area who manage 6 000 livestock units. In the implementation of this programme, R43 million has been spent during the period under review and R53 million has been allocated for harvesting including the purchase of storage facilities and other infrastructure requirements to ensure participation in the whole marketing chain. A pilot study of canola seeds is underway and AsgiSA EC has planted 800ha of canola seeds in order to support the evaluation of the potential of bio-fuel production within the former Transkei. AsgiSA EC

became an integral part of various forums and task groups due to the consistent contribution of its valuable inputs and expertise. In particular licensing for new forestry initiatives remains a challenge which AsgiSA EC is committed to resolving so that this commercial activity can play its part in the initiatives aimed at reducing poverty in communities in the targeted areas. In the process of project implementation, 700 people were employed and R1 million spent on wages. A water-resources study managed for AsgiSA EC by the Department of Water and Environmental Affairs is underway for the development of the Mzimvubu water catchment area. The initial report indicates only 5% of the 2 600 million m3 of water is currently used. This is key to the development of multi-purpose facilities. A business case for this project is underway. It is appropriate that we flag, in this overview, the challenges that we have faced in the implementation of projects discussed above. In the crop production projects, the cost of preparing the virgin lands has been far above the national average per hectare.

We have also been plagued by infrastructure challenges ranging from lack of fencing, poor road infrastructure, lack of crop storage facilities and many others. We are working with the relevant provincial departments and local municipalities to address these challenges. We consider the investment we have made necessary if the circle of poverty is to be broken in these areas. I would like to acknowledge the partnerships with key stakeholders that have been the key driver behind the successes of AsgiSA EC. We are particularly indebted to the Development Bank of Southern Africa (DBSA) for the support demonstrated during the establishment phase of the organisation. I would also like to thank the CEO, Simpiwe Somdyala, and his team for their hard work during this period. I also thank the visionary leadership of the board which has ensured that AsgiSA EC adheres to the highest standards of corporate governance. Finally, I thank the former Premier Mbulelo Sogoni, now MEC for Agriculture and Rural Development and the Director General Dr Sibongile Mutwa for the leadership and support in ensuring sound organisational establishment. I thank the former MECs for Agriculture and Economic Development and Environmental Affairs Gugile Nkwinti and Phumulo Masualle for their steadfast support, dedication and guidance.

CHAIRPERSONâ&#x20AC;&#x2122;S FOREWORD

Infrastructure challenges addressed

On behalf of the board, I wish Mr Nkwinti success in his new role as Minister of Rural Development where he will continue to provide leadership in agriculture and rural development.

Saki Macozoma, CHAIRMAN 06

04 CHIEF EXECUTIVE OFFICERâ&#x20AC;&#x2122;S FOREWORD

The global economic downturn has forced all of us to find innovative ways of addressing issues around food security, poverty alleviation and building sustainable livelihoods. The South African economy is officially in recession and the Eastern Cape has not been spared. The establishment of AsgiSA Eastern Cape (Pty) LTD., as a Special Purpose Vehicle (SPV) of the Eastern Cape provincial government, aimed at unlocking the dormant potential of the rural Eastern Cape, ushered in a renewed sense of urgency and focus. Operations of the organisation started in earnest in January 2008. The 15 month period under review was characterised mainly by three phases namely: establishment, programme pilot implementation and stakeholder engagement.

Establishment phase Our focus has been on building viable infrastructure which enables AsgiSA EC to implement its programmatic approach to rural development. Central to this task has been the process of appointing a skilled team of specialists who are mindful of the challenges that lie ahead. Initial support for the establishment of the organisation was provided by a dedicated team from the Office of the Premier, led by the Director General. This support enabled us to focus on critical establishment issues such as office infrastructure, policy development and recruitment of critical staff. I am glad to report that by the end of the financial year, we have filled the senior posts that have enabled us to edge closer to our stated objectives. However, we are filling some key vacancies. Our intention is to build a strong, lean, work machine of highly skilled professionals.

Stakeholder engagement To ensure buy-in and support, the first six months of operations was predominantly spent meeting and engaging stakeholders in the focus areas of AsgiSA EC which include the following district municipal areas: Alfred Nzo, OR Tambo, Chris Hani and Ukhahlamba. One of our extensive engagements was led by the Office of the Premier as part of the White Paper consultation. It is pleasing to note that during this process, we received overwhelming support from various communities on the steps and focus that the provincial government is placing on rural development. We have also signed memoranda of understanding with the district municipalities in the key operational areas. We are also aware of the need to strengthen these relationships and ensure that they are cascaded to local municipal levels. The period under review has also 07

illustrated that rural development is not for the faint hearted. We see consultation and stakeholder engagement as a permanent feature of all our initiatives given the multitudes of community, provincial, national and international stakeholders with whom we engage.

Programme implementation If we are to make a real difference in rural development, and in particular, in areas such as the Mzimvubu Development Zone or the former Transkei, then we will need to look at how we can leverage off current agricultural skills in order to create a cadre of farmers who produce crops that cater for farmersâ&#x20AC;&#x2122; families as well as provide additional income. Rural development is unashamedly about creating a better life for its citizens and one of the main conduits for this change is agrarian transformation. This is a journey that requires all role players to act with passion and shared goals. This assertion is clearly demonstrated by the programmes that are being put in place by the new government. Consistent with this renewed focus and also informed by past experiences, our programmes have sought to pilot the implementation of high impact rural commercial projects in four main areas: crop production, livestock, forestry development and fruit production. We have invested heavily in areas like Butterworth and the rural areas of Theko, Banjwaludaka and Zingqayi, Willowvale, Ongeluksnek in Matatiele, Qumbu in Balasi, Etwa, Tsilitwa, Kamastone, Gqwesa, Caba, Shukunxa and Qhangqu, Mount Frere and Mzimvubu, injecting R60 million into a pilot integrated cropping programme, initially starting with maize and canola. We have planted about 6 000ha of dry land cropping in mainly underutilised lands, supporting about 3 000 families. Because of the nature of the lands we expect yields to average between 2.5 and 6 tons. Linked to this are the market support activities in the form of storage, logistics and off-take agreements. Food security has been the primary driver of this initiative and to achieve this, land owners receive, on average, ten 50kg bags of maize per hectare, assuming a yield of 5,5 tons per hectare. The establishment of silo storage facilities this year (2009/10) will improve market access. This should enable emerging farmers to migrate from subsistence to sustainable commercial farming. Progress has been made in scoping the establishment of fruit belts linked to off-take agreements and identified local and export markets. Initially, the focus of AsgiSA EC will be on citrus, banana and peach. Fruit belts identified include citrus for Port St

Johns and the Wild Coast area, banana and peach for Cofimvaba in the Chris Hani District Municipality and Cala, Mount Ayliff and Mount Fletcher in Alfred Nzo District Municipality. The Department of Water and Environmental Affairs (DWEA) has identified the development of 100 000ha as one of the key catalytic programmes that will rejuvenate the rural economy. The focus has been on addressing the key bottlenecks in forestry development such as licensing and models for sustained community beneficiation and ownership. In partnership with DWEA, strides have been made in creating ways of streamlining the forestry permit processes through efforts such as class environmental assessments. We believe these will help realise the implementation of this initiative. Community interest in forestry development has been overwhelming. However, doubts in funding and the models to be used including the nature of private community partnerships has contributed to delays in issuing licences. These issues continue to be addressed with industry players as well as communities. It is our view that the forestry charter provides useful guidelines on empowerment and participation by the previously disadvantaged.

We are confident that we will reach our target of setting up 300 cooperatives in the former Transkei area by 2010. Each community will set up this legal entity to lock in further investments. Our programmes have also been boosted by the introduction of our agribusiness model and institutional structures which prioritise community public-private partnerships. It consolidates relationships with key partners along the value chain such as co-operatives, outgrowers (emerging farmers) and strategic partners like businesses and banks who have an interest in agribusiness and who may be involved in off-take agreements like large retail chains. Significant progress has been made towards achieving the objectives laid out in the model with several strategic partners having responded positively by committing considerable finance. Part of our challenge has been establishing relationships with key stakeholders such as provincial and municipal government. Our programmes, by their very nature, have a strong community bias and thus partnerships with local chiefs and councillors have also been key to proper working relations with communities. We are aware that rural development is a contested terrain where there are divergent views on how to address the most pressing of our immediate social and economic challenges. I am thankful for the valuable inputs from our various stakeholders who are keen to become part of the solution. I also extend my gratitude to the Development Bank of Southern Africa who have been instrumental in helping us draft a social charter and fast-moving consumable goods manufacturer Unilever for helping us secure off-take agreements for our produce. Last, but not least, to the AsgiSA EC team who go beyond the call of duty every day, thanks for your contribution.

CHIEF EXECUTIVE OFFICERâ&#x20AC;&#x2122;S FOREWORD

We have dedicated much attention to the development of the Mzimvubu Water Catchment as a key catalyst to sustainable rural development and agrarian transformation. We are pleased with the progress and support DWEA has provided to AsgiSA EC. As part of this initiative, we will commission a business case development for each of the 19 dams identified. This will assist government in making an informed decision about the next phase in the implementation of the Mzimvubu development initiative.

Simpiwe Somdyala, CHIEF EXECUTIVE OFFICER 08

05 EXECUTIVE TEAM

Janine Baxter

Luvuyo Thomas

Thukela Mashalogu

Simpiwe Somdyala

CHIEF FINANCIAL OFFICER

MANAGER, LEGAL SERVICES AND COMPANY SECRETARIAT

PROJECT MANAGER, AGRICULTURE & AGRO PROCESSING

CHIEF EXECUTIVE OFFICER

A LLB graduate from the University of KwaZulu-Natal, Luvuyo has extensive legal background as a practising attorney and advocate. His past roles also involved industrial relations, bargaining, market research, training and development. Luvuyo is a former member of the KwaZulu-Natal Law Society and a current member of the Institute of Personnel Management, as well as the South African Society of Training and Development.

Thukela is a Bachelor of Science graduate of the University of Fort Hare who majored in agricultural economics. He has extensive experience in the agriculture and economic development arena having been employed as local economic development manager at the Chris Hani District Municipality before joining AsgiSA EC in September 2008. As an agriculturalist at Nestlé SA (Mossel Bay), he worked closely with emerging farmers in the dairy industry. He was also seconded to Chicory SA (a chicory processing company based in Alexandria) to assist in the development of chicory along the Peddie coast. His experience at the Fort Cox College of Agriculture and Forestry involved planning and leading various farm divisions including livestock, cropping and mechanisation.

A charted accountant by profession, Janine was part of the Auditor-General’s management team before she joined AsgiSA EC in September 2008. While in the employ of the Auditor General, she has managed and executed audits for provincial and national government departments, district and local municipalities, and parastatals.

Luvuyo is currently pursuing his Masters degree in Business Leadership with the University of South Africa.

Thukela is currently at work on his Masters in Business Administration Degree (MBA) with the Nelson Mandela Metropolitan University. 09

An MBA graduate from the University of KwaZulu-Natal, Simpiwe brings a wealth of experience earned in his 17 years working in economic development business support, development finance, project management and project facilitation roles. Before his appointment as CEO in January 2008, he was head of the African Management Services Company’s capacity development unit, a United Nations and International Finance organisation. A founder of consulting company Kenako Development and Business, and a former team leader of the Presidential Project Team’s economic development unit, Simpiwe has also served in a number of boards for the private and public sectors, as well as nongovernmental organisations.

Stephen Keet

INVESTMENT PROMOTION & STAKEHOLDER MANAGEMENT

FORESTRY SPECIALIST

Chuma completed his BA Honours at the University of the Western Cape and has since built a reputable skills base which includes community mediation, conflict management, transformation and change management. He calls the former Transkei his home having matriculated in Idutywa and spent most of his working life in that area. He joined AsgiSA EC after four years as the strategic investment manager at the Ntinga OR Tambo Development Agency, a role which saw him formulating operational strategies for agency’s key sectors, forestry, tourism and mariculture.

Stephen is a Bachelor of Science (Forestry) graduate with wide-ranging experience in the forestry sector in the Eastern Cape. He has fulfilled senior roles at Shell South Africa’s minerals, corporate and oil divisions; as well as being a consultant in the North East Forests Cape project in Ugie.

EXECUTIVE TEAM

Chuma Sangqu

His passion and active involvement in the province’s forestry sector for the past 25 years has been the bedrock of his life’s work. Dedicated to promoting forestry as a legitimate rural land use and his endorsement of appropriate forestry models for the Eastern Cape’s unique land tenure forms, Stephen believes that AsgiSA EC is a useful vehicle for unlocking the development potential of the sector.

06 HIGH IMPACT PRIORITY PROGRAMMES (HIPPs)

Defining the AsgiSA EC mandate: The establishment of AsgiSA EC was in response to the provincial government’s need to fast-track the implementation of high impact projects with a particular focus on the Transkei region. It is in this region where the concentration of poverty and unemployment is most prevalent and where almost two thirds of the population lives in the rural hinterlands. While it is home to huge resources, the region remains the most under-developed and it is characterised by poor infrastructure and access to health, lack of piped clean water and a low skills base. The special purpose vehicle’s mandate rests on six pillars, namely: • Agriculture and agro-processing • Forestry timber development • Human settlement and planning • Tourism development • Water and resource development • Hydro and alternate energy For the period under review, planning and implementation has not sufficiently progressed for the formal reporting of hydro and alternate energy.

programmes

HIGH IMPACT PRIORITY PROGRAMMES (HIPPs)

agriculture

AGRICULTURE & AGRO-PROCESSING

6.1

06 HIGH IMPACT PRIORITY PROGRAMMES (HIPPs) 6.1 AGRICULTURE & AGRO-PROCESSING

During the period under review, AsgiSA EC prioritised three subprogrammes which aimed to unlock the potential of the Eastern Cape agricultural sector. The key priorities are integrated cropping, driven by the need to ensure food security and the national bio-fuels development strategy, intensive irrigation targeting underutilised water resources and commercial development of livestock.

Integrated cropping, food security and bio-fuels Target: Establish 100 000ha of various dry-land crops over the next five years. This project entails intercropping maize, soya beans, canola, sunflower and ensuring appropriate infrastructure is in place including fencing, storage, logistics and basic local processing.

Highlights and achievements in 2008/2009 • • • •

6 700ha of commercial maize, beans and canola planted in the Alfred Nzo, Amathole, Chris Hani, OR Tambo District Municipalities. Included in the number of hectares is 2 500ha initially scoped by the Alfred Nzo District Municipality and jointly funded with AsgiSA EC. 14 000 – 24 000 tons yield expected in July 2009. About 2 500 families are beneficiaries of this project which impacts on 12 500 individuals. A 800ha canola trial funded by AsgiSA EC at Nqadu near Willowvale commenced in February and will be harvested in August.

• • • •

The final report on the Mzimvubu Water Catchment’s irrigation potential as part of the Department of Water and Environmental Affairs water study, in support of AsgiSA EC, has been completed. Citrus and peach production in Cala and Port St Johns scoped. Potential market linkages for all maize produce established. In the process of implementation, 700 people were employed and R1,1 million was spent on wages.

Process followed to identify projects A list of 102 projects with an estimated 55 000ha was received from various sources including the provincial Department of Agriculture, municipalities and communities. Given the limited funding, a criteria for short-listing and prioritising projects was developed. For dry-land cropping, this criteria entailed prioritising areas with: • deep soils over 600mm, where rainfall is higher than 500mm, • community readiness • the availability of fencing budgeted by the provincial agricultural department, and • completed soil tests. Business plans for identified project areas were developed and in most areas, it was believed projects were not ready for implementation. The main deterrents were community readiness, soil analysis, fencing and access roads to fields. The target for the period under review was 5 000ha and this was achieved through a partnership with the Alfred Nzo District Municipality in a co-funding arrangement.

Areas under production

PROJECT NAME

LOCATION

Tsilitwa, Etwa, Gqwesa, Sulenkama, Kamastone, Bhalasi

Qumbu, Mhlontlo LM

PLANNED AREA PLOUGHED

2000

PLANNED AREA PLANTED

2000

ACTUAL AREA PLANTED

ESTIMATED YIELD

1910.28

1.5

Ongeluksnek

Matatiele

850

771

751

5.2

Mzimvubu

Mzimvubu River Basin

300

Theko

Butterworth Mnquma LM

320

400

314 maize 90 beans

4.5 maize 2 beans

Zingqayi

Butterworth Mnquma LM

250

255

4.5

Banjwuladaka

Butterworth Mnquma LM

250

300

4.5

Caba and Shukunxa

Qumbu Mhlontlo LM

200

153

2.6

Alfred Nzo DM (Toleni, Dangwane, Epiphany)

Matatiele & Mzimvubu LM

2498

3.5

Canola

Nqadu, Tabase, Bhiodini

800

2.2

The linked approach is informed by lessons learned from the Massive Food Project (MFP) and entails AsgiSA ECâ&#x20AC;&#x2122;s involvement in the entire value chain which ensures ongoing support for rural communities.

Working towards sustainability and enhanced risk management

The model’s long-term focus is linked to production or yield targets, whilst ensuring that communities benefit even when yields are low. At a minimum, communities receive four 50kg bags of maize for their own use, which increases to ten 50kg bags as the yield per hectare improves.

The project implementation, started towards the end of the financial year, has provided useful lessons for AsgiSA EC in its implementation during the next financial year. Amongst others, the new focus includes: • Implementation of the agribusiness model which includes the establishment and training of co-operatives, community trusts and other relevant governance systems, in all the projects in which AsgiSA EC is involved • Focused community mobilisation and developing social charters • Involvement in the entire value chain including logistics support, marketing, storage and basic processing initiatives • Enhancing funding mobilisation for the training and capacity development of the 60 co-operatives which are to be established.

In addition, communities share in the profits and all the costs are recovered for the next harvest. The linked approach is informed by lessons learned from the Massive Food Project (MFP) and entails AsgiSA EC’s involvement in the entire value chain which ensures ongoing support for rural communities. The table below reflects the current model.

Crop marketing In the past, government assisted farmers with production but left the marketing of the maize to farmers. Since rural farmers are not linked to formal markets and do not have adequate storage to benefit from price fluctuations, farmers were forced to dispose of their surplus maize in unfavourable market conditions. In some cases, farmers resorted to selling their maize below market prices to retailers and other speculators for fear that their crops would be damaged.

Agribusiness model The AsgiSA EC agribusiness model is an innovative and effective tool for addressing several key challenges which impact negatively on commercial production in rural areas. These challenges include: • Logistical challenges such as storage, processing facilities and supplier outlets which are lacking in rural villages - consequently, rural farmers are exposed to high costs and are unable to sell maize when prices are high • The importance of scale under dry-land conditions, hence the average 300ha per production block • High production costs for virgin land, especially in the first three production cycles • Limited land rights and communal land ownership • Lack of high-quality high-volume production skills in the value chain process • Inability of rural farmers to get sufficient returns to reinvest.

AsgiSA EC has responded by assisting farmers with the marketing of their produce and the positive consequences are reflected in the production model. The crop market has two dynamics which are being addressed by the following: • The process of marketing maize through existing marketing channels such as farm co-operatives and feed manufacturing companies. • AsgiSA EC is working towards investing in storage facilities from where produce will be released to the rural market at intervals and which will ensure that rural communities have maize until the next harvest. • The development of a maize mill plant will be evaluated and guided by the scale of the maize operation.

Food security and reinvestment Given the risky nature of the projects, coupled with the need to ensure food security, a basic reinvestment model was developed and agreed to by communities with whom AsgiSA EC operates.

Current food security and reinvestment model YIELD

5,5 tons

PRICE IN RANDS

110

10450

120

130

140

13300

8835

100

9500

950

9500

-47

-33

-11

665

2850

570

2,5 tons

3,5 tons

Total yield in bags

Production costs

Rental/community Profit Profit sharing/community share

4,5 tons

6 tons

6,5 tons

PRICE IN RANDS

7 tons

Administration

380

Contractor and management

380

AsgiSA EC expansion and reinvestment

380

16 18

Intensive irrigation Target: 10 790ha of irrigation potential within the Mzimvubu Development Zone are earmarked over the next five years.

Highlights and achievements 2008/2009 • • • •

A 20ha vegetable project with the potential for an additional 120ha at Highbury is currently being implemented. A R400 million 1 000ha citrus fruit production is being scoped and designed in Port St Johns. The first 250ha will cost R98 million and will be done in partnership with the Industrial Development Corporation (IDC) and the Port St Johns Municipality. The 4,5ha Cala peach fruit production, including expansion to ensure a viable commercial operation is being revived. 100ha of identified and tested land in Cofimvaba for the development of a peach corridor, is being scoped. It will incorporate the Chris Hani heritage route and Cala. Other areas being considered for the peach corridor include Matatiele, Mount Fletcher and Mount Ayliff.

Livestock production Target: Introduce and implement livestock commercial farming practices linked to value chain processing. The ten-year plan is to facilitate the management of about one million livestock units. In the medium term, the goal is to manage about 400 000 livestock units. The key interventions for livestock production include: • Assisting farmers to acquire more productive beef stock • Improving nutrition (grazing management and pasture development) • Feedlot development and beneficiation and improving stock through a genus exchange programme, introducing bulls and heifers • Developing infrastructure for livestock marketing, proper grazing management, veterinary services and breeding management • Linking rural farmer co-operatives with abattoirs, feedlots, meal processing facilities and facilitating ownership arrangements.

Highlights and achievements 2008/2009 • •

Four co-operatives, covering 86 farms and 650 farmers in the Sakhisizwe Local Municipality, are the first beneficiaries of the livestock commercialisation project. These farmers belong to the Tsomo Valley, Umthombo, Cicira, Ntungela and Ithemba Farmers Co-operatives.

•

A project management team in Elliot has been appointed to coordinate the purchase of the initial 1 000 livestock units.

In order to achieve these goals, AsgiSA EC has forged partnerships with the National Development Agency (NDA), provincial and national departments of agriculture and the Chris Hani District Municipality. The Sakhisizwe livestock commercialisation pilot project, which will assist farmers to manage 6 000 heifers and bulls, will kickstart the livestock development programme in 2009/2010. This initiative has drawn interest from private partners like BKB and Karan Beef, which will allocate resources for the project’s success. Farmers are expected to pay the initial investment back to AsgiSA EC. This approach will assist AsgiSA EC to increase the number of areas under commercial livestock production and increase the number of beneficiaries.

Marketing and logistics infrastructure For the effective marketing of animals, each farm needs handling infrastructure that costs approximately R20 000. Apart from farm infrastructure, sale pens are needed so that farmers can have organised sales. Currently, the Chris Hani District Municipality and the national Department of Agriculture are building the sale pens.

Livestock production value chain The value chain includes: • Financial support for farmers to acquire and manage productive stock • Programme management delivered by a project management office • Production of weaners, tollies and culled animals by farmers • Establishment of marketing channels • Operating abattoirs at strategic points • Abattoirs to supply processing facilities like the Transkei Meat Industries (TMI), local tanneries, other small processing facilities and the retail market.

Partnerships Current partners in the implementation of the project include the Chris Hani District Municipality, provincial and national departments of agriculture and the National Development Agency (NDA). Additional partnerships from financial institutions such as Land Bank are being sought to help farmers access operational capital and other developments for their farms.

“The work done by AsgiSA EC is changing our lives and our children are also benefiting. Some community members got small jobs when AsgiSA EC was planting maize. With the money earned from this, they were able to pay school fees and buy uniforms for our children. We hope to see more positive changes in our communities, especially with those dying of hunger and living in poverty.” Chief Mzwamandla Njikelana, Balasi village, Qumbu 20

forestry

FORESTRY & TIMBER DEVELOPMENT

6.2

06 HIGH IMPACT PRIORITY PROGRAMMES (HIPPs) 6.2 FORESTRY & TIMBER DEVELOPMENT

AsgiSA EC has made significant progress in the year under review in dealing with key obstacles hampering the development of existing and new forestry plantations. The identified blockages include private sector and community interface, water licensing process and the integration of existing state plantations. Target: Establish 100 000ha of new forestry plantations and ensure rehabilitation of existing ones to yield an additional 1,8 million m3 of timber a year, creating 80% more wood for processing.

Highlights/achievements in 2008/2009 Water licensing process • •

In conjunction with consulting group Teba Development and the Department of Water and Environmental Affairs (DWEA), AsgiSA EC initiated a screening of the hydrological capacity of the water catchment areas most likely to be affected by planting permit applications. AsgiSA EC initiated and co-funded a SA National Biodiversity assessment of the biodiversity value of these areas, to ensure that forestry development targets are not within areas of high biodiversity.

Integration of existing plantations • •

AsgiSA EC and Teba Development have been supporting DWAE with the formulation of a plan to integrate existing plantations into community forestry projects while addressing legal, treasury and employee issues AsgiSA EC and PG Bison are jointly funding an assessment of existing informal plantations within a 150km radius of Ugie.

Private sector/community interface Historically, forestry plantations have been developed on land where the forestry enterprise holds tenure rights. In the case of the Eastern Cape, most of the existing plantations and areas with forestry potential are found on land held by communal tenure. With the key risks to forestry being stock damage and fire, attention is required to matters such as: 23

• Use of appropriate models that empower communities and result in the plantation being seen as assets in the long term; • Ensuring widespread awareness and consent to afforestation within communities • Ensuring technical, managerial and administrative support for projects, while building capacity at local level • Striving for economies of scale and cost effectiveness despite location and extent of projects, and • Securing long-term funding for projects to maximise community ownership One of the key concerns has been the short-term approach used by some within the private sector seeking to secure timber supplies. In cases where communities or local government have expressed concern, AsgiSA EC has decided to provide support against the following set of principles: • Application of best practice to generate optimal returns from investments • Transparency of engagements with a wide range of community interested parties and groups where projects are on land held by communal tenure • Maximising the benefit flows to communities whose land is subject to development • Maximising the independence of growers • Recognising and mitigating against gaps that may exist in communities in respect of financial, technical, managerial and administrative capacity • Involving the private sector and service providers to ensure capacity to apply best practice in ways that: - Empower local people to operate independently as far as possible; - Enable the recovery of costs (financially or in kind) by those who have contributed (financially, technically, managerially, administratively) - Are by formal agreement, based on terms that are acceptable to the communities.

Engagement with the district and local municipalities within the areas of high forestry potential indicates that AsgiSA EC’s support to local government and communities is much needed. Representatives of community leadership in the Mhlontlo Local Municipality visited a successful community-owned, independentlyoperated project near Kokstad.

Water licensing process New forestry plantations are subject to a licensing process, which is controlled by DWEA. AsgiSA EC is participating actively in the Eastern Cape Forestry Licensing Committee and in a DWEA initiated water study which has the objective of influencing and initiating measures that will result in the streamlining of the licensing process. The licensing process requires an evaluation by DWEA of the hydrological impact of the planned forestry project on the particular water catchment. Once this has been determined the project is subject to a Record of Decision by the provincial environmental and agricultural authorities. A Record of Decision requires an Environmental Impact Assessment (EIA). The screening of water catchment areas represents a shift from DWEA’s normal approach and will determine possible additional forestry areas, given current water uses and the residual capacity of the catchment. The project will be completed in July 2009.

Integration of existing plantations With forestry being a long-rotation crop, the challenge is for projects to generate benefits in the short to medium-term. In addition to mixedfarming concepts, the integration of existing plantations presents such an opportunity. The benefit of such an approach is to bring forward cash-flows, increase the scale of the project as well as create an opportunity for immediate engagement in management while focusing on rehabilitation. Within the province, there are more than 90 state plantations (30 000ha), many of which are in areas with forestry potential, and adjacent to possible new afforestation projects. The management of these plantations remain a challenge for the state, which decided, more than a decade ago, to withdraw from active plantation management. The opportunity exists for the transfer of these plantations (mostly situated on land on which communities have informal tenure rights) to rightful beneficiary communities. In addition, there are large areas of wattle “jungle” infestation within the province. These “jungles” represent opportunities for the formalisation of plantations, in the short-term, for the production of timber. Integration with new afforestation projects could also provide sources of short to medium-term cash flow. An assessment of existing informal plantations, in conjunction with PG Bison in the Ugie area is expected to be complete in July 2009. A similar assessment will be done within the economic range of East London.

The assessment of the biodiversity of these areas was necessitated by the lack of environmental screening information in the province. The project is being carried out by the South African National Biodiversity Institute and has the support of the provincial authority. The first phase of the project has now been completed.

With forestry being a long-rotation crop, the challenge is for projects to generate benefits in the short to medium-term. The integration of existing plantations together with mixed-farming concepts presents such an opportunity.

human settlement

HUMAN SETTLEMENT & PLANNING

6.3

06 HIGH IMPACT PRIORITY PROGRAMMES (HIPPs) 6.3 HUMAN SETTLEMENT & PLANNING

A key challenge facing the rural Eastern Cape is improved and co-ordinated planning and information sharing, particularly in accessing existing research and studies. Target: Provide planning support for the implementation of high impact priority projects.

Planning support A key challenge facing the rural Eastern Cape is improved and coordinated planning and information sharing, particularly in accessing existing research and studies. Hence, AsgiSA EC has invested significant time resources into sourcing existing information and where appropriate, funding for new research for projects with potential. This work has been conducted largely, in collaboration with district and local municipalities, as pilot planning projects: • • • •

Tsitsa River Basin Land Use and Environmental Management Plan Mhlontlo Municipal Infrastructure Atlas Ingquza Hill Municipal Infrastructure Assessment OR Tambo District Municipality Spatial Development Plan review and update

Fundamental to AsgiSA EC mobilising resources and attracting investment for current and future projects is the conducting of due diligence, feasibility studies and business planning.

Cluster and nodal development If meaningful development is to occur, then rural community life has to be integrated. Rural development is not only about agriculture, roads and buildings. It is about creating dialogue, beneficial networks, education, sharing and innovation, amongst others. While AsgiSA EC is currently focused on food security and increased agricultural production, it is critical that these anchor levers are developed in an integrated manner for maximum effect. Hence, AsgiSA EC also looks at the development of clusters and nodes in the areas in which it is active. This includes local area planning which captures community visions and aspirations while building on existing assets and resources. Social charters, developed in partnership with the Development Bank of Southern Africa, are being developed in order to achieve this goal. Lastly, human settlement, in a rural context, is part of a larger rural development agenda and is not an isolated process. Consequently, AsgiSA EC has developed a cluster and nodal development concept, which should stimulate debate and provide a framework for implementation.

tourism development

TOURISM DEVELOPMENT

6.4

06 HIGH IMPACT PRIORITY PROGRAMMES (HIPPs) 6.4 TOURISM DEVELOPMENT

Tourism development will be influenced mainly by research, market opportunities and partnerships. The provincial tourism masterplan will inform the AsgiSA EC tourism initiatives. Target: Identify and scope tourism development opportunities.

Highlights A partnership was established with the King Sabatha Dalindyebo Municipality, Ntinga OR Tambo Development Agency and the Nelson Mandela Museum to develop the Nelson Mandela Cultural Precinct. Professional service providers have been appointed by AsgiSA EC to undertake a detailed feasibility study for the precinct. The Nelson Mandela Cultural Precinct is proposed as a keystone economic development project, aimed at spearheading a proposed turnaround strategy for the region. It will connect to other projects, including other Nelson Mandela Museum facilities, historical trails, Wild Coast adventure and tourism developments, game parks as well as to related Mthatha urban renewal and development projects and to the Walter Sisulu University. The proposed study will investigate and contextualise the proposed Nelson Mandela Cultural Precinct, focusing on these underlying issues. • A comparative evaluation of existing and functioning cultural heritage precincts (like the Constitution Court, Newtown and Freedom Park in South Africa and some international comparative scenarios such as Bilbao in Australia) and of cultural heritage in relation to the proposed project developments

• • • • •

An evidence-led evaluation and assessment of the proposed precinct as - a “people-magnet” - in its prospective cultural vitality - its emblematic status and composition - as a “living” precinct - in its connections and wider networks An informed evaluation of the form, nature and potential impact of cultural tourism in relation to tourism in general and its development potential and limitations for the proposed precinct in the district and province An evaluation of the potential of the project to achieve its proposed integrative development and economic outcomes (revival, employment, investment and sustainability) and the outlining of various constraints and new possibilities and proposals in actual terms (which will also link these issues around local economic development, local government, Integrated Development Planning , tourism initiatives and planning) A conceptual design of the cultural precinct, integrating the existing infrastructure The generation of a set of concrete proposals for structuring, marketing and developing the project in different but inter-connected ways in relation to the existing project definitions and proposals.

water resource

WATER RESOURCE DEVELOPMENT

6.5

06 HIGH IMPACT PRIORITY PROGRAMMES (HIPPs) 6.5 WATER RESOURCE DEVELOPMENT

The Department of Water and Forestry has, during the year under review, funded and overseen a R9 million Mzimvubu Water Resource Study in support of the AsgiSA EC initiative. Target: Development of the Mzimvubu Water Resource including dams and hydro power in identified areas.

2008/2009 Highlight of Achievements The initiative, aimed at unlocking the dormant potential of the areaâ&#x20AC;&#x2122;s resources, rests on the following key pillars: afforestation; irrigation; hydropower; water resource development including transfer and tourism. Even though the study is ongoing, preliminary reports have confirmed the huge magnitude of water resources that remain unused.

Untapped resources The catchment is 20 000km2 in extent with only 5% of the existing 2 500 million m3 mean annual runoff (MAR) being utilised. The Transkei portion of the catchment is the most undeveloped with less than 800ha being used for irrigation compared to 10 000ha outside the Transkei. The report also confirms that the mean annual rainfall in the basin ranges between 600mm to 1 500mm. Generally, rainfall is above 800mm with areas of lower rainfall confined to the deep river valleys and a few isolated rain shadow areas.

Irrigation potential An irrigation study linked to the water resource study, has also revealed that an estimated 340 900ha (17%) of the catchment area consists of arable soils. The remaining non-arable agriculture makes up 68%, while 15% of the basin is unsuitable for agriculture. The net area of irrigable soils is estimated at 102 000ha. Further studies will be undertaken as part of the business planning processes.

Multi purpose dam options The study has revealed 19 possible dam sites that could be developed in the Mzimvubu Water Catchment. The conclusion reached, however, is that a single-use dam option is unlikely to be viable or sustainable in the region mainly because of lack of critical mass or off-take to justify the required investments. Informed by the study findings, AsgiSA EC has initiated a process to commission a study to focus on developing business cases for multipurpose development option where such opportunities exist. Multi-purpose use development options will include, but not limited to, tourism, fishing, forestry, irrigation and hydro power. A consultative approach will be used during this study and the outcome will be a business case to be used for funding and resource mobilisation.

07 PARTNERSHIPS AND CORPORATE SOCIAL INVESTMENT

The AsgiSA EC policy framework is underpinned by the objective to increase economic opportunities for previously disadvantaged communities and individuals through the use of existing resources and assets, land and people. Investment Promotion The AsgiSA EC policy framework is underpinned by the objective to increase economic opportunities for previously disadvantaged communities and individuals through the use of existing resources and assets, land and people. This is informed by the need to establish direct linkages between project beneficiaries, external service providers and markets. The external organisations that are being introduced to various community groups include suppliers of goods, investors, government and parastatal service providers, credit organisations and other support groups and Non-Governmental Organisation’s (NGOs). AsgiSA EC provides ongoing monitoring and support to established and existing projects and continuously looks for new investment opportunities. AsgiSA EC is geared towards realising sustainable partnerships on specific programmes, projects and constituting productive networks of enterprises for economic growth. AsgiSA EC seeks mutual interest with the private sector in order to engage in economic activity so that there is impact on job creation, poverty, enterprise development and improved income levels. AsgiSA EC has identified and engaged several commercial banks and development funding institutions as potential investors in its programmes. These include: • Development Bank of Southern Africa (DBSA) • Standard Bank • ABSA • First National Bank (FNB) • Land Bank • Industrial Development Corporation (IDC) Most of these banks have shown an appetite for AsgiSA EC’s 39

programmes. The risks associated with operating in a rural context with land and tenure constraints remains a challenge. Off-take agreements are under discussion with Sovereign Foods, Unilever, Pick n Pay and VW group of Spars. Other funders and retailers are still being identified.

Stakeholder management A number of stakeholders have been identified as key to Asgisa EC’s programmes. Discussions have already been held with research institutions regarding soil analysis and testing. Discussions are also underway with various state-owned-enterprises and development finance institutions to explore partnership arrangements. Relevant district municipalities have been approached to discuss opportunities for partnerships and joint planning. The following agreements have been concluded: • A memorandum of understanding with the OR Tambo District Municipality. • A memorandum of agreement with Chris Hani District Municipality with areas of co-operation being identified for the coming financial year. • A partnership with Alfred Nzo District Municipality and its municipal entity, the Alfred Nzo Development Agency.

DBSA agreement AsgiSA EC and the DBSA have entered into a R5 million co-operation agreement on key AsgiSA EC activities. In terms of the agreement, DBSA has funded the appointment of social facilitators and the programme manager of AsgiSA EC for three years.

In an area with pervasive poverty, AsgiSA EC believes it can contribute beyond its traditional role as the implementation arm of high impact priority projects. As part of this extended role, AsgiSA EC identified two community groups who would benefit from its corporate social responsibility outreach during December 2008. The first group consisted of 200 orphaned children from Ntabankulu, who live with grandparents, older siblings or alone. Gifts of t-shirts, sling bags and food parcels were donated just in time for Christmas celebrations. The donation also went to families who live on the Mthatha Waste Dump, who also received food parcels, clothes and toys. The group of more than 100 people including 10 babies was addressed by the King Sabata Dalindyebo Municipality mayor who pledged continued support for this community.

PARTNERSHIPS AND CORPORATE SOCIAL INVESTMENT

Corporate social investment

08 GOVERNANCE

AsgiSA EC is a special purpose vehicle, created by the Eastern Cape provincial government in terms of the Companies Act to facilitate the implementation of high impact priority programmes.

In terms of corporate governance, at a technical and operative level, company law and related corporate law provide the necessary framework for running its affairs. However, given the nature of its establishment, AsgiSA EC has sought to comply with the relevant provisions of the Public Finance Management Act No. 1 of 1999 (PFMA). Since starting its operations in 2008, the organisation is gradually shaping its governance systems and protocols within the realm of the Kings II Report on Corporate Governance.

Shareholding The Eastern Cape provincial government, represented by the Office of the Premier, is the sole shareholder. The Board Charter and the Shareholders Compact, governing the relationship between the shareholder, management and the Board is in place. The Board Charter ensures that the mandate given to AsgiSA EC by the shareholder is clearly specified and regulates the fiduciary duties of the Directors of the Board and Board Committees.

The objective of the PFMA is to ensure transparency, accountability and sound management of the revenue, expenditure, assets and liabilities of the institutions to which the act applies. These institutions include all state owned enterprises such as AsgiSA EC. The reality, however, is that the PFMA only applies to departments, public entities listed in Schedule 2 or 3 of the Act, constitutional institutions, parliament and provincial legislatures. Furthermore, Treasury Regulation 25 further determines that these PFMA regulations apply to all public entities listed in Schedule 2 or 3 of the Act, unless the context indicates otherwise. The PFMA requires public entities to observe and apply a broad range of statutory and regulatory provisions, aimed at promoting financial discipline, transparency and good governance. The Protocol on Corporate Governance, 2002, promotes consistency in governance processes and procedures with the principle aim of ensuring uniformity in the determination and management of financial control and compliance. AsgiSA ECâ&#x20AC;&#x2122;s unlisted status quo entails a voluntary adherence to the plethora of legislation and regulations which have been specifically established to promote consistency. The unlisted status of AsgiSA EC, therefore, implies that it is not required to comply with the PFMA and that compliance and governance will be conducted in terms of the relevant provisions of the Companies Act 61 of 1973.

GOVERNANCE

Legislative Framework and Listing

To ensure that the listing status is resolved, an application for listing was made and received by Provincial Treasury. In addition, a process to establish the legislative framework was pursued. This was done with the support of the Office of the Premier and entailed public hearings and the submission of a White Paper to the Provincial Legislature. By year end, AsgiSA EC was awaiting the outcome of the listing application which would ensure full compliance with the provision of the PFMA. AsgiSA EC receives its funding via a service level agreement (SLA) with the Eastern Cape Development Corporation (ECDC). The SLA was necessitated by the current, unlisted position of AsgiSA EC and fulfills the function of acting as a conduit of funding from the shareholder to AsgiSA EC via ECDC. As these funds are earmarked for multi-year AsgiSA EC projects, the agreement does not specify the repayment of funds at year end by AsgiSA EC. 42

Board of directors and composition of the board AsgiSA EC is governed by a board of directors appointed by the Premier. The board is comprised of 10 non-executive members and three exofficio representatives. The current board of directors was appointed in May 2007. However, delays were encountered with the Companies and Intellectual Property Registration Office (CIPRO) registration. These have since been resolved. The directors have the requisite skills, knowledge and experience to provide strategic leadership to the organisation and this is evidenced in the milestones cited by the chairman of the board of directors in his report. In order to strengthen key relationships, provincial departments with high impact are represented on the board in an effort to accelerate rural development. This included the former provincial MEC for the Department of Agriculture Mr Gugile Nkwinti and former MEC for the Department of Economic Development and Environmental Affairs Mr Phumulo Masualle who served as directors on an ex-officio basis.

Meeting attendance of the board The AsgiSA EC board meets every quarter to deliberate issues before it and which are recorded by way of minutes. A register of attendance and disclosure of interests is kept and maintained. There were five board meetings held during the year under review and the attendance record is reflected below.

Name of Board member

Board meeting (13/02/2009)

Saki Macozoma, Chairman

√

Audit committee meeting (30/01/2009)

HR committee meeting (28/01/2009)

Gloria Serobe

Finance committee meeting (26/01/2009)

√

Pepi Silinga

√

Nico Ferreira

√

Zodwa Manase

Finance committee meeting (10/10/2008)

Board meeting (09/07/2008)

Board meeting (11/04/2008)

√

√ √

Prof. Nompumelelo Jafta

Board meeting (16/10/2008)

√

√ √

√

Andile Nkuhlu

√

Xola Phakathi

√

√ √

√

√ √

Sindy Zilwa √

√

Thandeka Mbassa

√

Dr Archie Nkonyeni

Simpiwe Somdyala, AsgiSA EC CEO

√

The board has three board committees, namely: human resource and remuneration committee, audit committee and projects, finance and investment committee. Initially the audit committee was part of the finance, audit and investment committee with the project committee operating independently. The decision was taken at a board meeting, on 16 October 2008, to establish an independent audit and risk committee. These committees meet at least two weeks before a board sits, to review matters and to take appropriate decisions to be tabled before the board for approval. The deliberations of the committees are recorded and its decisions are implemented once the board has ratified them.

Functioning of board committees and risk management The initiation of the first transactions in September 2008 necessitated the functioning of the board committees. AsgiSA EC endeavours to incorporate the ethos of excellence in corporate governance and in addition to the board charter, audit committee charter and internal audit charter, the following policies were approved as at 31 March 2009: • • • • • • • • • •

Accounts payable and expenditure Budgeting Cash management Fixed asset Human resources Leave Remuneration Revenue and debtors Subsistence and travel Supply chain management

The investment policy and fraud prevention plan have been developed and are currently under review. The approved policies were not in operation for the full year under review as the drafting thereof coincided with the first transactions of the organisation. This, in addition to the learning curve and other challenges

encountered during the organisation’s infancy stages, resulted in some deviations from the supply chain management policy which were reported to the board and ratified. Other challenges that confronted AsgiSA EC were: • Changes in travelling plans of the small management team due to capacity constraints impacting on accommodation bookings (R8,000) • Delayed process of registration with the South African Revenue Services (SARS) due to the process of the finalisation of company secretarial documentation which resulted in estimated interest and penalties (R88,000) • Limited storage capacity for input supplies at project sites due to the poor infrastructure in the rural areas of the former Transkei • Utilisation and specification of input supplies influenced by changing weather patterns • Finalisation of communal contracts and institutional arrangements. The internal auditors, LDSW Incorporated, were appointed during January 2009 and performed reviews of all substantive transactions for the period ending January 2009, as well as project and inventory verification as at 28 February 2009. These reports are to be finalised during August 2009 in terms of the approved internal audit plan. Management is confident that these challenges have been neutralised and that remedial action, including the addressing of capacity constraints, is underway. AsgiSA EC drafted its business plan and strategy for the five-year period (2010 – 2014) which included the drafting of specific, measurable, identifiable, time-bound strategic objectives and performance indicators. The business plan and strategy was approved by the board of directors, and is currently under review. The main strategic focus objectives are in place for 2008/09, and relate to the establishment of the organisation, pilot integrated cropping, forestry and planning. Performance in terms of these strategic objectives has been incorporated in this report.

09 BOARD OF DIRECTORS

Saki Macozoma

Gloria Serobe

Dr Archie Nkonyeni

ASGISA EC CHAIRMAN OF

ASGISA EC DEPUTY CHAIRPERSON OF

ASGISA EC PROJECT FINANCE

THE BOARD OF DIRECTORS

AND INVESTMENT COMMITTEE

Saki was appointed as the inaugural chairman of AsgiSA ECâ&#x20AC;&#x2122;s board in 2007. He is chairman of some of the countryâ&#x20AC;&#x2122;s leading organisations such as Liberty, Stanlib, the Council of the University of Witwaterstrand and the Presidents Business Working Group. He is also deputy chairperson of the Standard Bank Group and non-executive chairman of Safika Holdings, president of Business Leadership South Africa and co-chairman of the Business Trust.

Gloria is the AsgiSA EC project finance and investment committee deputy chairperson. She is a founding member and executive director of Wiphold and chief executive officer of Wipcapital. She serves on several boards including Old Mutual, Nedbank, Mutual & Federal, JSE, the Financial Sector Charter Council, as well as the Independent Ports Regulator where she is chairperson. Her leadership role as a trustee of the Women Investment Portfolio Holdings Limited Share Trust, the Women Investment Portfolio Holdings Investment Trust, as well as being chairperson of the Presidential Working Group for Women has earned her numerous awards. She is also a member of the Presidential Economic Advisory Committee and an honorary member of the Actuarial Society of South Africa.

CHAIRPERSON

Archie has extensive expertise in business and is the founding member of the Mthatha Chamber of Business. He has also served the National African Federated Chamber of Commerce (NAFCOC) as a councillor, president of the Mthatha branch and was appointed national president between 1992 and 1994. He has over 30 years experience as a non-executive director in 36 private and government-funded institutions.

Zodwa Manase, CA (SA)

ASGISA EC HUMAN RESOURCES

ASGISA EC AUDIT COMMITTEE

COMMITTEE CHAIRPERSON

CHAIRPERSON

Pepi is the chief executive of Coega Development Corporation. He is a member of various industry bodies such as the South African and United Kingdom Institute of Directors, the South African Institute of Civil Engineers, the Project Management Institute, as well as being a fellow of the South African Academy of Engineers. He also serves in the capacity of non-executive chairperson of Agreement South Africa and is the council chairperson of the University of Fort Hare.

Zodwa is the audit committee chairperson for the Government Communication and Information Systems Unit, the Media Diversity Development Agency as well as the International Marketing Council. She is also the chairperson of Total South Africa and the State Information Technology Agency. She also serves on the boards of the South African Reserve Bank and Medi-Clinic Corporation Limited.

Xola Phakathi Xola is a member of the provincial legislature and is the former secretary of Cosatu Eastern Cape.

BOARD OF DIRECTORS

Pepi Silinga

09 BOARD OF DIRECTORS

Dr Sibongile Muthwa

Nico Ferreira

Mbulelo Sogoni

Sibongile, Director-General of the Eastern Cape provincial government, is a published scholar with a passion for public leadership, gender empowerment, public policy processes and intergovernmental relations. She has facilitated leadership development processes across sectors as well as being associated with several leadership formations in Africa and abroad, including the United Nations University Global Leadership Academy. Sibongile holds an ex-officio position on the AsgiSA EC board.

Nico has been involved in worldwide programmes of nation and community building in Europe, the Americas, West and East Africa, and southern Africa. Through his work with diverse people and countries, he has developed a conviction that ordinary people can play a part in shaping events around them. He worked as a consultant with the National Development and Management Foundation, was vice-president of the National African Farmers’ Union, and board member of the National Industrial Chamber. He served Stutterheim, an Eastern Cape town in the Amahlathi Local Municipality for more than 10 years as mayor and deputy mayor. In addition, he was the executive director of the Stutterheim Development Foundation. He is also the co-author of “Making a Difference – the Stutterheim Story”, a book he co-wrote with Barbara Nussbaum on the town’s process of change and development.

Mbulelo was appointed the Eastern Cape’s MEC for Agriculture & Rural Development in 2009. Subsequent to this, he was the Premier of the Eastern Cape. His involvement spans various tiers of government including past positions such as the executive mayor of Alfred Nzo District Municipality, the Eastern Cape MEC for economic affairs, environment and tourism, and deputy director of the provincial education department. He has also served on the executive committee of the South African Local Government Association. Mbulelo holds an ex-officio position on the AsgiSA EC board.

Prof Nompumelelo Jafta

Andile Nkuhlu

Thandeka Mbassa

Nompumelelo is an honoured isiXhosa linguistics and literature scholar. She has lectured and published numerous books in isiXhosa. She is also a member of professional bodies including the isiXhosa National Language Body, the Distribution Agency for Arts Culture Heritage, the Eastern Cape Geographical Names Committee, and the isiXhosa National Lexicographical Unit. She has also served on the boards of the South African Broadcasting Corporation (SABC) and the Transkei Development Corporation.

Andile is the corporate finance executive director at Nkwe Platinum and the residing executive chairman of Itsuseng Investment. His experience includes being the chief director responsible for public enterprises as well as being a business strategy executive director at JCI Limited. His background also includes roles within property and wine estate, mining and exploration, equity markets and listing as well as forestry.

Thandeka is the deputy DirectorGeneral of the Department of Water and Environmental Affairs (DWEA). She has served DWEA (the former Department of Water Affairs and Forestry) for more than ten years in previous roles such as director of planning and development and chief director for the Gauteng, Northern Cape, Free State and North West provinces.

Gugile Nkwinti and Phumulo Masualle, in their former roles as MECs for the provincial departments of Agriculture and Economic Development and Environmental Affairs respectively, were appointed by former Premier Mbulelo Sogoni as ex-officio members. Gugile is now the national minister for Rural Development and Land Reform and Phumulo is the provincial MEC for Health. Mlulani Manjezi, DBSA manager for sustainable communities, is also an ex-officio member of the board.

11 FINANCIAL STATEMENTS

AsgiSA Eastern Cape (Pty) Ltd Registration number: 2005/008163/07 Financial statements for the 15 months ended 31 March 2009

Report of the Auditor-General to the Eastern Cape Provincial Legislature on the financial statements and performance information of the Accelerated and Shared Growth Initiative for South Africa – Eastern Cape (AsgiSA EC) for the period ended 31 March 2009 Report on the financial statements Introduction 1. I have audited the accompanying financial statements of the Accelerated and Shared Growth Initiative for South Africa – Eastern Cape which comprise the balance sheet as at 31 March 2009, the income statement, the statement of changes in net equity, the cash flow statement for the period then ended, a summary of significant accounting policies and other explanatory notes, and the directors’ report, as set out on pages 54 to 74.

2. The accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with the International Financial Reporting Standards (IFRS) and in the manner required by the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA) and the Companies Act of South Africa and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Auditor-General’s responsibility 3. As required by section 188 of the Constitution of the Republic of South Africa, 1996 read with section 4 of the Public Audit Act, 2004 (Act No. 25 of 2004) (PAA), my responsibility is to express an opinion on these financial statements based on my audit.

FINANCIAL STATEMENTS

The accounting authority’s responsibility for the financial statements

4. I conducted my audit in accordance with the International Standards on Auditing read with General Notice 616 of 2008, issued in Government Gazette No. 31057 of 15 May 2008. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 5. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk 50

assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 6. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion 7. In my opinion these financial statements present fairly, in all material respects, the financial position of the Accelerated and Shared Growth Initiative for South Africa – Eastern Cape (AsgiSA EC) as at 31 March 2009 and its financial performance and its cash flows for the period then ended, in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the PFMA and the Companies Act of South Africa.

Emphasis of matters Without qualifying my opinion, I draw attention to the following matter(s): REGISTRATION IN TERMS OF PFMA AND BASIS OF ACCOUNTING 8. The entity is in the process of registering to be listed as a schedule 3C public entity and adopted the International Financial Reporting Standards (IFRS) as its basis of accounting and accounting framework. FRUITLESS AND WASTEFUL EXPENDITURE 9. As disclosed in note 25 to the financial statements, fruitless and wasteful expenditure to the amount of R101 094 was incurred.

Other matters 10. Without qualifying my opinion, I draw attention to the following matters that relate to my responsibilities in the audit of the financial statements. UNAUDITED SUPPLEMENTARY SCHEDULES 11. The supplementary information set out on pages 72 to 74 does not form part of the financial statements and is presented as additional information. I have not audited these schedules and accordingly I do not express an opinion thereon.

Non-compliance with applicable legislation COMPANIES ACT (ACT NO. 61 OF 1973) 12. Non-compliance with Sec 215(1)(a) and (c) – The company did not keep in one of the official languages of the Republic a register of directors and officers of the company and secretaries thereof in respect of every director or officer including any changes occurring from time to time in the particulars. 13. Non-compliance with Sec 215 (2) – The company did not enter in the said register the name and date of appointment of the auditor of the company and the date and particulars of any change of such name and date of appointment. 14. Non-compliance with Sec 216(2) - The company did not within 14 days after receipt of any particulars regarding any director or officer lodge a return with the Registrar in the prescribed form reflecting the contents of such register after such particulars or such change occurred. 15. Non-compliance with Sec 285 (2)(b) - The company did not before the end of its current financial year on payment of the prescribed fee and on lodgement with the Registrar of the prescribed form with the approval of the Registrar given on good cause shown, change the end of the financial year to a date being not more than six months later. 16. Non-compliance with Sec 170(1)(b) The company did not give at least twenty-one days’ notice of any intended change in the situation of the registered office or of the postal address to the Registrar: INCOME TAX ACT (ACT NO. 58 OF 1962) 17. Contrary to paragraph 15 of the 4th schedule of the Income Tax Act, the company did not register for withholding taxes within 14 days after becoming an employer, including PAYE (Pay as You Earn), SITE (inclusive of employee tax), UIF (Unemployment Insurance Fund) and SDL (Skills Development Levy). 18. Non-compliance with Sec 67 (1) - The company did not apply to the Commissioner to be registered as a taxpayer within 60 days after becoming a taxpayer. No tax exemption certificate was obtained to indicate to the contrary.

Governance framework 19. The PFMA tasks the accounting authority with a number of responsibilities concerning financial and risk management and internal control. Fundamental to achieving this is the implementation of key governance responsibilities, which I have assessed as follows:

Key governance responsibilities NO. MATTER

Clear trail of supporting documentation that is easily available and provided in a timely manner 1. No significant difficulties were experienced during the audit concerning delays or the availability of requested information. Quality of financial statements and related management information 2. The financial statements were not subject to any material amendments resulting from the audit.

3. The annual report was submitted for consideration prior to the tabling of the auditor’s report. Timeliness of financial statements and management information 4. The annual financial statements were submitted for auditing as per the legislated deadlines [section 55 of the PFMA] Availability of key officials during audit 5. Key officials were available throughout the audit process. Development and compliance with risk management, effective internal control and governance practices 6. Audit committee • The entity had an audit committee in operation throughout the financial period. • The audit committee operates in accordance with approved, written terms of reference. • The audit committee substantially fulfilled its responsibilities for the period, as set out in section 77 of the PFMA and Treasury Regulation 27.1.8. 7.

Internal audit • The entity had an internal audit function in operation throughout the financial period. • The internal audit function operates in terms of an approved internal audit plan. • The internal audit function substantially fulfilled its responsibilities for the period, as set out in Treasury Regulation 27.2.

X X X X

8. There are no significant deficiencies in the design and implementation of internal control in respect of financial and risk management. 9. There are no significant deficiencies in the design and implementation of internal control in respect of compliance with applicable laws and regulations.

10. The information systems were appropriate to facilitate the preparation of the financial statements. 11. A risk assessment was conducted on a regular basis and a risk management strategy, which includes a fraud prevention plan, is documented and used as set out in Treasury Regulation 27.2. 12. Delegations of responsibility are in place, as set out in 56 of the PFMA. Issues relating to the reporting of performance information 13. The information systems were appropriate to facilitate the preparation of a performance report that is accurate and complete.

14. Adequate control processes and procedures are designed and implemented to ensure the accuracy and completeness of reported performance information.

15. A strategic plan was prepared and approved for the financial period under review for purposes of monitoring the performance in relation to the budget and delivery by the entity against its mandate, predetermined objectives, outputs, indicators and targets (Treasury Regulation 29.1/30.1.) 16. There is a functioning performance management system and performance bonuses are only paid after proper assessment and approval by those charged with governance. 52

Overall reflections and conclusion on the governance framework based on other key governance requirements 20. The financial statements were subject to material amendments resulting from the audit, resulting in all material audit findings being adjusted and the financial statements amended accordingly. 21. The audit committee and internal audit function did not function throughout the period as this was the first period of operations of AsgiSA EC and it only started its operations late in 2008. The establishment of risk management, effective internal control and governance practices of AsgiSA EC was facilitated by the Office of the Premier during the initial months of the reported period before responsibility was transferred to AsgiSA EC in the latter months. 22. There were significant deficiencies in the design and implementation of internal control in respect of compliance with applicable laws and regulations during the first period of operation that resulted in the noncompliance reported in other matters above. 23. The information systems were not appropriate to facilitate the preparation of a performance report that is accurate and complete and insufficient control processes and procedures resulted in the accuracy and completeness of reported performance information being insufficient.

Report on other legal and regulatory requirements REPORT ON PERFORMANCE INFORMATION 24. I have reviewed the performance information as set out in the annual report. THE ACCOUNTING AUTHORITY’S RESPONSIBILITY FOR THE PERFORMANCE INFORMATION 25. The accounting authority has additional responsibilities as required by section 55(2)(a) of the PFMA to ensure that the annual report and audited financial statements fairly present the performance against predetermined objectives of the public entity.

Audit findings (performance information) CONTENT OF STRATEGIC/CORPORATE/ANNUAL PERFORMANCE PLAN 29. The strategic plan of the entity did not include key performance measures and indicators for assessing the entity’s performance in delivering the desired outcomes and objectives, as required by Treasury Regulation 30.1.3. LACK OF REPORTING ON ALL PREDETERMINED OBJECTIVES IN ANNUAL REPORT 30. The entity has not reported on all the predetermined objectives, as required by section 55(2)(a) of the PFMA, in particular the strategic objectives. LACK OF EFFECTIVE, EFFICIENT AND TRANSPARENT SYSTEMS AND INTERNAL CONTROLS REGARDING PERFORMANCE MANAGEMENT 31. The accounting authority did not ensure that the entity has and maintains an effective, efficient and transparent system and internal controls regarding performance management, which describe and represent how the entity’s processes of performance planning, monitoring, measurement, review and reporting will be conducted, organised and managed, as required in terms of section 51(1)(a)(i) of the PFMA. INADEQUATE QUARTERLY REPORTING ON PERFORMANCE INFORMATION 32. The quarterly reports of the entity did not track progress against all outputs, indicators and targets as per the approved strategic plan and therefore did not facilitate effective performance monitoring and evaluation, as required by Treasury Regulation Section 30.2.1.

Appreciation 33. The assistance rendered by the staff of the Accelerated and Shared Growth Initiative for South Africa – Eastern Cape (AsgiSA EC) during the audit is sincerely appreciated.

THE AUDITOR-GENERAL’S RESPONSIBILITY 26. I conducted my engagement in accordance with section 13 of the PAA read with General Notice 616 of 2008, issued in Government Gazette No. 31057 of 15 May 2008. 27. In terms of the foregoing my engagement included performing procedures of an audit nature to obtain sufficient appropriate evidence about the performance information and related systems, processes and procedures. The procedures selected depend on the auditor’s judgement. 28. I believe that the evidence I have obtained is sufficient and appropriate to provide a basis for the audit findings reported below.

East London 31 July 2009

Directors’ responsibilities and approval The directors are required by the Companies Act of South Africa, 1973, to maintain adequate accounting records and are responsible for the content and integrity of the financial statements and related financial information included in this report. It is their responsibility to ensure that the financial statements fairly present the state of affairs of the company as at the end of the financial 15 months and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards. The external auditors are engaged to express an independent opinion on the financial statements. The financial statements are prepared in accordance with International Financial Reporting Standards and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates. The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the company and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board of directors sets standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the company and all employees are required to maintain the highest ethical standards in ensuring the company’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the company is on identifying, assessing, managing and monitoring all known forms of risk across the company. While operating risk cannot be fully eliminated, the company endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss. The directors have reviewed the company’s cash flow forecast for the 15 months to 31 March 2010 and, in the light of this review and the current financial position, they are satisfied that the company has or has access to adequate resources to continue in operational existence for the foreseeable future. The external auditors are responsible for independently reviewing and reporting on the company’s financial statements. The financial statements have been examined by the company’s external auditors and their report is presented on page 49. The financial statements set out on pages 56 to 74, which have been prepared on the going concern basis, were approved by the board of directors on 29 May 2009 and were signed on its behalf by:

Saki Macozoma, CHAIRMAN 54

Directorsâ&#x20AC;&#x2122; report The directors submit their report for the 15 months ended on 31 March 2009.

1. Incorporation

7. Authorised and issued share capital The company was incorporated with an authorised share capital of 100 ordinary shares of R1 each which were issued at par value.

The company was incorporated on 01 March 2005 and commenced business on 5 January 2008.

There were no changes in the authorised or issued share capital of the company during the 15 months under review.

2. Review of activities

8. Borrowing limitations

Main business and operations The company is engaged in rural development and agrarian transformation development and operates principally in South Africa. An amount of R100million was appropriated to AsgiSA EC by the Eastern Cape Provincial Government and transferred by the Eastern Cape Development Corporation as a grant for utilisation within the mandate of AsgiSA EC. The operating results and state of affairs of the company are fully set out in the attached financial statements and do not, in our opinion require any further comment. Allocated remaining funds of the company was R11,547,906 for the 15 months ended 31 March 2009.

3. Going concern The financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. The ability of the company to continue as a going concern is dependent on the continued support of the Eastern Cape Provincial Government which remains the companyâ&#x20AC;&#x2122;s main source of income.

4. Post balance sheet events The directors are not aware of any matter or circumstance arising since the end of the financial 15 months to date of this report, not otherwise dealt with in the financial statements, which significantly affect the financial position of the company or the results of its operations that would require adjustment to or disclosure in the annual financial statements. It should be noted that the provincial government approved that AsgiSA EC will become a subsidiary of the ECDC in the near future.

5. Directorsâ&#x20AC;&#x2122; interest in contracts None of the directors have any interest in any contracts entered into by the company.

6. Accounting policies The company has prepared its annual financial statements in terms of International Financial Reporting Standards (IFRS).

In terms of the Articles of association of the company, the directors may exercise all the powers of the company to borrow money, as they consider appropriate.

9. Dividends No dividends were declared or paid to shareholders during the 15 months.

10. Directors The directors of the company during the 15 months and to the date of this report are as follows: Saki Macozoma (Chairman ) Pepi Silinga Nico Ferreira Nompumelelo Jafta Zodwa Manase Dr Archie Nkonyeni Andile Nkuhlu Xola Phakathi Gloria Serobe Thandeka Mbassa

11. Secretary The secretary of the company is Luvuyo Thomas.

12. Holding company The holding company is the Eastern Cape Provincial Government.

13. Special resolutions The company did not pass any special resolutions.

14. Auditors The Auditor General of South Africa will continue in office in accordance with section 270(2) of the Companies Act.

Balance sheet for the 15 months ended 31 March 2009

Note(s)

Assets

2009

Non-Current Assets Property, plant and equipment

1,596,710

Intangible assets

64,533

Deferred tax

444,250

2,105,493

Inventories

5,708,331

Trade and other receivables

1,095,534

11,578,108

60,666,572

79,048,545

81,154,038

Current Assets

Biological Assets/Assets available for sale Cash and cash equivalents

Total Assets

Equity and Liabilities Equity Share capital

100

Retained income

11,547,906

11,548,006

Liabilities Non-Current Liabilities

Operating lease liability

30,264

Payable to SARS

562,815

Operating lease liability

8,477

Trade and other payables

21,312,726

Deferred income

Current Liabilities

47,691,750

69,575,768

Total Liabilities

69,606,032

Total Equity and Liabilities

81,154,038

Income statement for the 15 months ended 31 March 2009

Note(s)

2009

Other income

56,230,764

Operating expenses

(55,270,499)

Remaining funds

Valuation adjustment on biological assets and agricultural produce Finance costs Remaining funds before taxation Taxation

(960,265)

11,578,108

Allocated remaining funds for the 15 months

960, 265 11,578,108

(30,202) 11,547,906

Statement of changes in equity for the 15 months ended 31 March 2009

Share capital

Retained income

Total equity

11,547,906

Balance at 01 January 2008 -

11,547,906

Issue of shares

Allocated remaining funds for the 15 months

100

Total changes

100

11,547,906

11,548,006

Balance at 31 March 2009

100

11,547,906

11,548,006

Note(s)

Cash flow statement for the 15 months ended 31 March 2009

Cash flows from operating activities Cash generated from operations

Note(s)

2009

Finance costs Tax received

63,318,334 (960,265) 88,363

Net cash from operating activities

Cash flows from investing activities

Purchase of property, plant and equipment

Purchase of other intangible assets

( 70,839)

Net cash from investing activities

(1,779,960)

Cash flows from financing activities

Proceeds on share issue Total cash movement for the 15 months

Cash at the beginning of the 15 months Total cash at end of the 15 months

62,446,432

(1,709,121)

100 60,666,572 60,666,572

Accounting policies 1. Presentation of financial statements The financial statements have been prepared in accordance with International Financial Reporting Standards, and the Companies Act of South Africa, 1973. The financial statements have been prepared on the historical cost basis, and incorporate the principal accounting policies set out below. No level of rounding has been used in preparation of the financial statements. The presentation currency of the financial statements is South African Rand. 1.1 Significant judgements In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts represented in the financial statements and related disclosures. Use of available information and the application of judgements is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the financial statements. Fair value estimation The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the company for similar financial instruments. Impairment testing The company reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. In addition, goodwill is tested on an annual basis for impairment. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets. Expected future cash flows used to determine the value in use of goodwill and tangible assets are inherently uncertain and could materially change over time. Management used the higher of value-in-use and fair value less cost to sell to determine the recoverable amount of intangible assets with an indefinite useful life and identifying assets that may have been impaired. Useful lives and residual values of property, plant and equipment The Company’s management determines the estimated useful lives and related depreciation charges for the items of property, plant and equipment. These estimates are based on management experience of similar items in prior years. Management will increase the depreciation charge where useful lives are less than previously estimated useful lives.

Taxation Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The company recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the company to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the company to realise the net deferred tax assets recorded at the balance sheet date could be impacted. Effective interest rate The company used the Treasury borrowing rate as point of departure and basis for discounting financial instruments. 1.2 Biological assets/ assets available for sale An entity shall recognise a biological asset or agricultural produce when, and only when: • the entity controls the asset as a result of past events; • it is probable that future economic benefits associated with the asset will flow to the entity; and • the fair value or cost of the asset can be measured reliably. Biological assets are measured at their fair value less estimated pointof-sale costs. The fair value of livestock is determined based on market prices of livestock of 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. Where market determined prices or values are not available, the present value of the expected net cash inflows from the asset, discounted at a current market-determined pre-tax rate is used to determine fair value. An unconditional government grant related to a biological asset measured at its fair value less estimated point-of-sale costs is recognised as income when the government grant becomes receivable.

1.3 Property, plant and equipment The cost of an item of property, plant and equipment is recognised as an asset when: • it is probable that future economic benefits associated with the item will flow to the company; and • the cost of the item can be measured reliably. 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. The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located is also included in the cost of property, plant and equipment. Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses. Depreciation commences when the assets are available for use. Depreciation is provided on all property, plant and equipment other than freehold land, to write down the cost, less residual value, on a straight line basis over their useful lives as follows: Item Plant and machinery Furniture and fixtures Office equipment IT equipment

Average useful life 5-10 years 7-10 years 3-5 years 3-7 years

The residual value and the useful life of each asset are reviewed at each financial period-end. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset. Property plant and equipment is derecognised either on disposal or when no future economic benefits are expected from the 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. Repairs and maintenance are charged to expenses during the financial period in which they are incurred. Assets held under finance leases are depreciated over their expected useful lives on the same bases as owned assets or, where shorter, the term of the relevant lease.

Intangible assets are initially recognised at cost. Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised when: • it is technically feasible to complete the asset so that it will be available for use or sale. • there is an intention to complete and use or sell it. • there is an ability to use or sell it. • it will generate probable future economic benefits. • there are available technical, financial and other resources to complete the development and to use or sell the asset. • the expenditure attributable to the asset during its development can be measured reliably. Intangible assets are carried at cost less any accumulated amortisation and any impairment losses. An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Amortisation is not provided for these intangible assets. For all other intangible assets amortisation is provided on a straight line basis over their useful life. The amortisation period and the amortisation method for intangible assets are reviewed every period-end. Reassessing the useful life of an intangible asset with a definite useful life after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its useful life. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised as intangible assets. Amortisation shall commence when the asset is available for use and shall cease at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5 Non- current Assets Held for Sale and Discontinued Operations and the date that the asset is derecognised. Intangible assets are derecognised either on disposal or when no future economic benefits are expected from the asset. The gain or loss arising from the derecognition of an item of intangible assets is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of intangible asset is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. Amortisation is provided to write down the intangible assets on a straight line basis. This principle is applied in the case of computer software which is to be written down over a five-year period.

1.4 Intangible assets An intangible asset is recognised when: • it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and • the cost of the asset can be measured reliably. 60

1.5 Financial instruments Initial recognition The company classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial assets and financial liabilities are recognised on the company’s balance sheet when the company becomes party to the contractual provisions of the instrument. Financial instruments are initially recognised at fair value. Fair value determination The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the company establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs. Derecognition Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expires or the financial asset is transferred and the transfer qualifies for derecognition. Financial liabilities (or a part of a financial liability) are derecognised from the statement of financial position when it is extinguished—i.e. when the obligation specified in the contract was discharged or cancelled or expired. 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.

Tax expenses Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from: • a transaction or event which is recognised, in the same or a different period, directly in equity, or • a business combination. Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity. 1.7 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the Statement of Financial Performance on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the financial year in which termination takes place. Finance leases – lessee Finance leases are recognised as assets and liabilities in the balance sheet at amounts equal to the fair value of the leased property or, if lower, 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 interest rate implicit in the lease.

Trade and other payables are classified as loans and payables. 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. 1.6 Tax Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

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 – lessee Operating lease payments are recognised as an expense on a straightline basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset. This liability is not discounted. Any contingent rents are expensed in the period they are incurred.

1.8 Inventories Inventories are measured at the lower of cost and net realisable value on the first-in-first-out basis. Inventories consist of stationary. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects is assigned using specific identification of the individual costs. When inventories are consumed, the carrying amount of those inventories are recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. Inventories acquired are not held for trading, and consists of consumables in stock. 1.9 Impairment of assets The company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the company estimates the recoverable amount of the asset. Irrespective of whether there is any indication of impairment, the company also: • tests intangible assets with an indefinite useful life or intangible assets not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed during the annual period and at the same time every period. • tests goodwill acquired in a business combination for impairment annually.

Any impairment loss of a revalued asset is treated as a revaluation decrease. Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating units, or groups of cashgenerating units, that are expected to benefit from the synergies of the combination. An impairment loss is recognised for cash-generating units if the recoverable amount of the unit is less than the carrying amount of the units. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order: • first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit and • then, to the other assets of the unit, pro rata on the basis of the carrying amount of each asset in the unit. An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset.

If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. 62

1.10 Provisions and contingencies Provisions are recognised when: • the company has a present obligation as a result of a past event; • it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and • a reliable estimate can be made of the obligation.

fair value, are presented in the balance sheet by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset.

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

1.12 Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred.

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. If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision. A constructive obligation to restructure arises only when an entity: • has a detailed formal plan for the restructuring, identifying at least: - the business or part of a business concerned; - the principal locations affected; - the location, function, and approximate number of employees who will be compensated for terminating their services; - the expenditures that will be undertaken; and - when the plan will be implemented; and • has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. After their initial recognition contingent liabilities recognised in business combinations that are recognised separately are subsequently measured at the higher of: • the amount that would be recognised as a provision; and • the amount initially recognised less cumulative amortisation. Contingent assets and contingent liabilities are not recognised. 1.11 Government grants Government grants are recognised when there is reasonable assurance that: • the company will comply with the conditions attaching to them; and • the grants will be received. Government grants are recognised as income over the periods necessary to match them with the related costs that they are intended to compensate. A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs is recognised as income of the period in which it becomes receivable. Government grants related to assets, including non-monetary grants at 63

Grants related to income are presented as a credit in the income statement (separately).

1.13 Prepayments Irregular expenditure Irregular Expenditure is expenditure in contravention of, or that is not in accordance with a requirement of any applicable legislation, including the PFMA, the State Tender Board Act or any regulations made in terms of this Act, and any provincial legislation providing for procurement procedures in that provincial government. Irregular expenditure is accounted for as expenditure in the Statement of Financial Performance and where recovered it is subsequently accounted for as other income in the Statement of Financial Performance. Fruitless and wasteful expenditure The entity considers fruitless and wasteful expenditure to be expenditure which was made in vain and would have been avoided had reasonable care been exercised. Fruitless and wasteful expenditure is measured at cost and is charged against income in the period in which they are incurred and disclosed in accordance with the PFMA. 1.14 Prepayments Prepayments are recognised as an asset at fair value when the expenses are paid. 1.15 Related parties The entity follows the guidance of IAS 24 to identify related party relationships, transactions and balances and the disclosures on those identified.

Notes to the financial statements

2. Biological assets/assets available for sale

2009

Cost/Valuation

Accumulated depreciation

Carrying value

11,578,108

Valuation adjustment

Total

on biological assets

and agricultural produce

Cropping commodities

11,578,108

Cropping commodities Reconciliation of biological assets - 2009

11,578,108

Methods and assumptions used in determining fair value The net realisable income, based on the yield estimate method, was used to determine the value of the biological assets as it is considered more representative of the “fair value”, especially due to the costs incurred exceeding the estimated realizable income. To appraise the growing crop value the projects and farms were visited to have an overview of what has been planted and the general condition of the crops. A yield estimate was made based on the planting date, cultivars, plant population per hectare, visible nutrient status, weed control, pest control, cob numbers per hectare, cob size, soil moisture situation and general condition of plants at that stage. Input figures (production cost), up to 31 March 2009, were supplied from the projects’ accounting system. These cost figures were then split in relation to the hectares planted with the different crops and on the different farms. Although the cumulative costs method was discarded as a method to determine “fair value” the cumulative costs were nevertheless compared to the maximum estimated realizable income to establish the negative influence on yield due to planting late and adverse weather conditions during the growing season. The estimated value arrived at (based on the potential yield) was further adjusted for the maturity percentage of the crop at 31 March 2009 and for the time value of money as can be seen in the calculations on the next page. Production capital is normally acquired at the prime lending rate plus a risk factor therefore the commercial banks’ prime rate was used as a basis to determine the discount rate used. The biological asset valuation was based on the market price of R1,500. Due to the recent fluctuations and market volatility the market prices for these commodities may differ from the original valuation. AsgiSA EC embarked on a jointly funded project with Alfred Nzo District Municipality. The project relates to primarily maize production. AsgiSA EC does not have a legal right to the crop, the project was not included as a Biological Assets in the financial statements.

2009

3. Property, plant and equipment

Cost / Valuation

Accumulated depreciation

Plant and machinery

464,808

(11,360)

453,448

Furniture and fixtures

516,350

(37,264)

479,086

Office equipment

190,203

(15,896)

174,307

IT equipment

537,760

(47,891)

489,869

1,709,121

(112,411)

1,596,710

Additions

Depreciation

Total

Plant and machinery

464,808

(11,360)

453,448

Furniture and fixtures

516,350

(37,264)

479,086

Office equipment

190,203

(15,896)

174,307

IT equipment

537,760

(47,891)

489,869

1,709,121

(112,411)

1,596,710

Total

Carrying value

Reconciliation of property, plant and equipment - 2009

Assets to the value of R591,150 have been purchased by the Office of The Premier, but were not transferred to AsgiSA EC at year end. Refer to note 27.

4. Intangible assets

Cost / Valuation

Computer software

Accumulated amortisation

Carrying value

70,839

(6,306)

64,533

Additions

Amortisation

Total

Computer software

70,839

(6,306)

64,533

Held to maturity

Available for sale

Reconciliation of intangible assets - 2009

5. Financial assets by category The accounting policies for financial instruments have been applied to the line items below: 2009

Loans and

Fair value through profit

receivables

or loss - held for trading

or loss - designated

Other receivables

109,037

Cash and cash equivalents

60,666,53

109,037

60,666,534

6. Deferred tax Deferred tax asset Deferred income

444,250

7. Operating lease asset (accrual) Non-current liabilities Current liabilities

2009

(30,264) (8,477) (38,741)

The lease payments are payable monthly and lease payments are straight-lined over a period of 2 and 5 years respectively. The rental is payable in installments of respectively R15,413 and R15,874 per month. The lease agreement with the Eastern Cape Development Corporation amounted to R174, 612 of which AsgiSA EC paid R80 245. The differential lease payment of R94 367 has been included in the establishment costs paid by the Office of The Premier. Refer to note 27.

8. Inventories Production supplies Consumables

5,702,939 5,392 5,708,331

Inventory consists of consumables which will be utilized by the company in its daily business operations.

9. Trade and other receivables Prepayments

974,712

Deposits

109,037

Creditors with debit balances

11,785 1,095,534

No portion of the trade or other receivables was pledged as security for any financial liabilities. Not any of the terms and or conditions attached to the financial assets were re-negotiated during the period under review. Credit quality of trade and other receivables The entityâ&#x20AC;&#x2122;s management considers that all the above trade and other receivables that are not impaired for each of the reporting dates under review are of good quality. No trade receivables exit for the reporting period and therefore there was no impairment for receivables. Prepayments included crop insurance relating to the period 1 April 2009 to 30 June 2009.

10. Cash and cash equivalents Cash and cash equivalents consist of: Bank balances

60,666,572

The use of cash and cash equivalents are limited to budgets authorised for rural development, agrarian transformation and internally initiated projects. No cash and cash equivalents (or portions thereof) was pledged as security for any financial liability. Credit quality of cash at bank and short term deposits, excluding cash on hand. The credit quality of cash at bank and short term deposits, excluding cash on hand that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or historical information about counterparty default rates. 66

2009

Authorised 100 Ordinary shares of R1 each

100

Reconciliation of number of shares issued: 100 Ordinary shares of R1 each

100

Issued Ordinary

100

11. Share capital

12. Trade and other payables Trade payables

16,373,015

SARS - Accrued PAYE

516,444

Accrued incentives

1,155,824

Accruals

2,912,875

Accrued leave pay

354,568 21,312,726

None of the repayment terms attached to contracts have been renegotiated in the last year. The company did not defaulted on any of the accounts payable.

13. Financial liabilities by category The accounting policies for financial instruments have been applied to the line items below: 2009

Financial liabilities

Fair value through profit

at amortised cost

or loss - held for trading

or loss - designated

16,905,053

Trade and other payables

Total 16,905,053

14. Remaining funds Operating profit for the year is stated after accounting for the following: Operating lease charges Premises Contractual amounts

288,527

Valuation adjustment on biological assets and agricultural produce

(11,578,108)

Amortisation on intangible assets

6,306

Depreciation on property, plant and equipment

112,411

Employee costs

3,710,319

15. Finance costs Trade and other payables

4,462

Interest on fair value adjustment of expenditure

955,803

960,265

Local income tax - current period

474,452

16. Taxation Major components of the tax expense Current

Deferred Originating and reversing temporary differences

(444,250)

30,202

Accounting profit

11,578,108

Tax at the applicable tax rate of 28% (2008: 29%)

3,241,870

Reconciliation of the tax expense Reconciliation between accounting profit and tax expense.

Tax effect of adjustments on taxable income Deferred tax effect income Less: tax on donation received from the Office of the Premier Add: Tax on expenses incurred with grant received from ECDC

(15,090,560) (654,054)

15,744,614

Less: Tax on valuation adjustment on biological assets & agricultural produce

(3,236,410)

Add: Tax on Non-deductable penalties and interest

24,742

30,202

Profit before taxation

11,578,108

17. Cash generated from operations Adjustments for: Depreciation and amortisation

118,717

Valuation adjustment on biological assets and agricultural produce

(11,578,108)

Finance costs

960,265

Movements in operating lease assets and accruals

38,741

Changes in working capital: Inventories

(5,708,331)

Trade and other receivables

(1,095,534)

Trade and other payables

21,312,726

Deferred income

45,355,843

63,318,333

18. Commitments

2009

Operating leases â&#x20AC;&#x201C; as lessee (expense) Minimum lease payments due - within one year

495,162

- in second to fifth year inclusive

932,991

1,428,153

Operating lease payments represent rentals payable by the company for certain of its office properties. Leases are negotiated for a term of two to 5 years. No contingent rent is payable.

19. Contingencies AsgiSA EC has a potential obligation in respect of interest on PAYE that is not yet paid over to SARS for the current reporting period. AsgiSA EC is currently in the process of registering for PAYE.

20. Related parties Relationships Holding company

Office Of The Premier

Other

Eastern Cape Development Corporation

Related party transactions Eastern Cape Provincial Government Grant Eastern Cape Development Corporation (ECDC)

100,000,000

Donations Office Of The Premier

2,335,906

Directorsâ&#x20AC;&#x2122; remuneration Refer to Note 21 for detail

1,414,817

Donations received from the Office of the Premier encompass the establishment expenditure of AsgiSA EC paid on behalf of the entity by the Office of the Premier. AsgiSA EC entered into a lease agreement with ECDC in respect of the Mthatha office. The monthly rental paid in respect of this agreement amounts to R15,874 per month.

2009

21. Directors’ emoluments Executive 2009 Mr. S Somdyala Mrs. J Baxter Mr. C Sangqu

Nett emoluments 683,238 246,398 157,781

Other benefits 19,696 12,880 13,536

1,087,417

46,112

Allowances 3,931 89,743 - 93,674

Non-executive 2009 Pepi Silinga Saki Macozoma (Chairman) Thandeka Mbassa Archie Nkonyeni Andile Nkuhlu Gloria Serobe Nompumelelo Jafta Nico Ferreira Xola Phakati Zodwa Manase

Total 706,865 349,021 171,317 1,227,203

For services as directors 18,618 23,274 12,412 29,956 6,206 18,618 24,824 23,750 23,750 6,206

Total 18,618 23,274 12,412 29,956 6,206 18,618 24,824 23,750 23,750 6,206

187,614

22. Risk management The company’s activities expose it to a variety of financial risks: market risk (including fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the company’s financial performance. Risk management is carried out by a central treasury department (company treasury) under policies approved by the board of directors. Company treasury identifies, evaluates and hedges financial risks in close cooperation with the company’s operating units. The board of directors provides written principles for overall risk management, as well as written policies covering specific areas, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

At 31 31 March 2009

Less than 1 year

Between 1 and 2 yrs

Between 2 and 5 yrs

Over 5 yrs

Trade and other payables

16,388,609

Risk from biological assets The company is exposed to financial risks arising from changes in commodity prices. The company does not anticipate that commodity prices will decline significantly in the foreseeable future. The company has not entered into derivative contracts to manage the risk of a decline in commodity prices. The company reviews its outlook for commodity prices regularly in considering the need for active financial risk management.

Liquidity risk The company’s risk to liquidity is a result of the funds available to cover future commitments. The company manages liquidity risk through an ongoing review of future commitments and credit facilities.

Interest rate risk As the company has no significant interest-bearing assets, the company’s income and operating cash flows are substantially independent of changes in market interest rates. The company had no borrowings for the period therefore no interest rate risk arises.

The table below analyses the company’s financial liabilities relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

Credit risk Credit risk consists mainly of cash deposits, cash equivalents. The company only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party.

23. Going concern

26. Change of the financial year end

The financial statements have been prepared on the basis of accounting

AsgiSA EC changed its financial year end from February to March

policies applicable to a going concern. This basis presumes that funds

in a process of alignment with the schedule 3C listing application as

will be available to finance future operations and that the realisation

submitted to National Treasury during the financial year under review

of assets and settlement of liabilities, contingent obligations and

and has prepared annual financial statements as at 31 March 2009.

commitments will occur in the ordinary course of business.

The outstanding lodgment of the CM 32 as at 31 March 2009 is merely an error of omission and will result in no tax or other benefit for the company, as the company was previously dormant.

24. Post balance sheet events There were no events after the balance sheet date that require adjustment to or disclosure in the financial statements.

25. Fruitless and wasteful expenditure

27. Establishment cost incurred by the Office of The Premier The Office of The Premier (OTP) was allocated R10m during the financial year under review to assist with the establishment costs of AsgiSA EC as per the Provincial Budget. AsgiSA EC verified and allocated post

Fruitless expenditure was incurred by AsgiSA EC during the financial

October 2008 costs amounting to R1,180,087 to the individual line items

period ended 31 March 2009 in respect of cancellation fees amounting

within the income statement. Costs amounting to R1 155 819 incurred

to R8,271.50 incurred on accommodation bookings cancelled on short

by OTP prior to October 2008 have been reflected on the detailed

notice. Delayed payments due to disagreements with our landlord(s)

income statement as establishment costs and have been based on

resulted in interest charged of R4,462. Subsequently AsgiSA EC has

schedules submitted by OTP. Assets to the value of R591,150 have

moved premises in East London.

been purchased by the Office of The Premier, but were not transferred to AsgiSA EC at year end.

A total amount of R88,362.91 was included in the current tax payable as reflected per note 17 to the financial statements. This amount comprises penalties and interest payable to the South African Revenue Services due the late registration of statutory deductions. The Company and Legal Secretariat is currently in the process of facilitating registration. The fruitless and wasteful expenditure incurred during the year will be condoned by the Board of Directors during the next scheduled Board Meeting. The recovery thereof has not been allocated to a specific official due to the expenditure being incurred as result of circumstances outside the sphere of control of the officials currently employed. Fruitless and wasteful expenditure

R101,094.41

incurred during the year Closing balance at year end

R101,094.41

Detailed income statement for the 15 months ended 31 March 2009

Note(s)

2009

Cost of sales Purchases

(5,708,331)

Closing stock

5,708,331

Other income

Donations

2,335,906

Government grants

53,894,858

Valuation adjustment on biological assets and agricultural produce

11,578,108

67,808,872

Expenses (Refer to page 73)

(55,270,499)

Remaining Funds

12,538,373

Finance costs

(960,265)

11,578,108

Remaining Funds before taxation Taxation Allocated remaining funds for the 15 months

30,202 11,547,906

Operating expenses Advertising, Marketing and Stakeholder Management

(3,391,660)

Back office support

(181,467)

Bank charges

(14,388)

Business plans & feasibility studies

(1,368,326)

Community capacity development (Furniture incubator)

(1,318,970)

Computer expenses

(40,721)

Consulting and professional fees

(3,592,653)

Consumables

(27,407)

Depreciation, amortisation and impairments

(118,717)

Employee costs

(3,710,319)

Entertainment Establishment costs paid by OTP - Advertising & Marketing - Business & Advisory Services - Administration & Advisory - Professional staff

(1,155,819)

24,539 8,790 1,008,575 24,013

- Lease payments

1,893

- Accommodation

34,014

- Car rental

40,003

- Transport

12,537

- Entertainment

(77,929)

1,456

Fines and penalties

(88,363)

Fruit Production

(28,959)

General expenses

(5,506)

Insurance

(4,195)

Integrated Cropping and Irrigation

(36,292,304)

Lease rentals on operating lease

(288,527)

Levies

(220)

Livestock value chain development

(226,817)

Magazines, books and periodicals

(38,888)

Minor Equipment Expenses

(51,970)

Motor vehicle expenses

(1,669)

New forestry

(844,877)

Postage

(10,369)

Printing and stationery

(187,177)

Repairs and maintenance

(18,399)

Secretarial and Board Fees

(371,308)

Security

(1,729)

Staff welfare

(2,159)

Subscriptions

(31,293)

Telephone and fax

(105,331)

Tourism Development Projects

(330,882)

Training

(149,291)

Travel â&#x20AC;&#x201C; local

(1,183,502)

Utilities

(8,388) (55,270,499)

Tax computation for the 15 months ended 31 March 2009

2009

Net income per income statement Permanent differences Less: Eastern Cape Provincial Government Grant received from ECDC Less: Donation received from the Office of the Premier Less: Valuation adjustment on biological assets Add: Expenses incurred with Eastern Cape Provincial Government Grant received from ECDC Add: Non-deductable penalties and interest Temporary differences Deferred interest Taxable income for 2009 Taxation thereon @ 28c in the Rand

11,578,108 (11,470,245) (53,894,858) (2,335,906) (11,558,608) 56,230,764 88,363 107,863

Amount payable to SARS Payable in respect of prior year Amount owing/(prepaid) in respect of prior year Tax owing/(prepaid) for the current year Normal tax Per calculation Amount payable to SARS at year-end

1,586,608 1,694,471 474,452

88,363 88,363 474,4522 474,452 562,815

2009

Allocation of funds remaining from the Eastern Cape Provincial Government Grant Allocated on to Rural Development and Agrarian Transformation Projects Banjwaludaka Integrated Cropping Project

526,748

Forestry Development

79,762

Highburry Irrigation and Integrated Cropping Project

461,741

Hota Mbewula Fruit Production Project

6,485,360

Ongeluksnek Integrated Cropping Project

5,551,193

Canola Pilot Project

4,638,490

Sakhisizwe Livestock Project

7,253,847

Theko Integrated Cropping Project

557,529

Alfred Nzo Integrated Cropping Project

3,670,000

29,224,670

Back Office Support and Strategic Consulting

2,826,636

Human Resources & Development

249,709

2 Grant allocated to internally initiated projects

Legal Services & Board Fees

208,832

Salaries, Wages & Incentives

1,273,569

Audit Fees (Internal & External)

1,742,364

ICT Strategy and Implementatio

2,740,000

Social Facilitation & Community Capacity Development

2,731,012

Business Model Implementation

947,971

Organisational Structure Design, Development & Implementation, Due Diligences and Legal Fees

2,260,806 14,980,899 74

List of abbreviations AsgiSA

Accelerated and Shared Growth Initiative of South Africa

CIPRO

Companies and Intellectual Property Registration Office

CSI

Corporate Social Investment

DWEA

Department of Water and Environmental Affairs (formerly referred to as the Department of Water Affairs & Forestry)

DWAF

Department of Water Affairs and Forestry (now referred to as the Department of Water & Environmental Affairs)

DBSA

Development Bank of Southern Africa

District Municipality

Eastern Cape

ECDC

Eastern Cape Development Corporation

EIA

Environmental Impact Assessment

FNB

First National Bank

Hectares

HIPPs

High Impact Priority Programmes

IDC

Industrial Development Corporation

IDZ

Industrial Development Zone

IFRS

International Financial Reporting Standards

Local Municipality

MFP

Massive Food Project

MAR

Mean Annual Runoff

NDA

National Development Agency

NGOs

Non-Governmental Organisations

OTP

Office of the Premier

PGDP

Provincial Growth and Development Programme

PFMA

Public Finance Management Act

SLA

Service Level Agreement

South Africa

SARS

South African Revenue Services

SPV

Special Purpose Vehicle

TMI

Transkei Meat Industries

Mthatha: ECDC House, 7 Sissons St, Fort Gale, Mthatha 5100, t 047 501 5100 | f 047 501 5110 East London: Arundel Park, Unit 2 & 3A, 12 & 14 Old Transkei Rd, Stirling, East London 5247, t 043 735 1673 | f 043 735 2679 Postnet Suite 385, Private Bag X 9063, East London 5200

email: buza@asgisa-ec.co.za | ww.asgisa-ec.co.za