Statement by Mr Firoz Cachalia, MEC for Economic Development in Gauteng following Blue IQ Investment Holdings (Pty) Ltd’ Annual General meeting

This morning Blue IQ Investments Holdings (Pty) Ltd (Blue IQ) held their Annual General Meeting (AGM) which I attended as the shareholder principal.Blue IQ is a wholly owned entity of the Gauteng Department of Economic Development (GDED), with a mandate to unlock the economic potential of the province and lead to measurable improvements in sustainable growth and job creation.I am pleased to inform the media of the key outcomes of this meeting:

Annual Report

Blue IQ’s Annual Report is presented as a consolidated group report, encompassing the agency’s active subsidiaries annual results, these include:

• Constitution Hill
• The Automotive Industry Development Centre (AIDC)
• The Supplier Park Development Company (SPDC)
• The Innovation Hub (TIH)
• The Gauteng Motorsport Company (GMSC)
• The Greater Newtown Development Company (Newtown)

Today we approved the report for submission to the Legislature in compliance with the Public Finance Management Act regulations.

During the 2009/10 financial year Blue IQ achieved the following significant results:

• Blue IQ played a significant role in assisting in the formulation of Gauteng Employment Growth and Development Strategy (GEGDS) and also provided the operational framework, through its subsidiaries, for the implementation of many components of the GEGDS.
• The AIDC and SPDC played a key role in facilitating the investment by FORD SA of approximately R3.2 billion into the South African economy, with the bulk of this being earmarked for Gauteng. This in turn enabled SPDC to facilitate further Foreign Direct Investment (FDI) in the Automotive Supplier Park through Motherson, an Indian based company, that will invest in excess of R50 million in building a Tier 2 supplier manufacturing facility at the park, which will create 222 permanent jobs.
• The Innovation Hub, thorough its Tshwane Smart City and Activator programmes, rolled out Wi-Fi hotspots around Tshwane.Furthermore tenant companies at the Hub filed five patents for registration, two of which originated from theincubation programme.
• Constitution Hill and Newtown, the two subsidiaries of Blue IQ jointly owned by the Johannesburg Development Agency, continued to attract tourism and business through strategic events, exhibitions and tour initiatives.
• Over the past year, Blue IQ has reconfigured its activities to fully align the strategic business objectives with the new administration’s provincial priorities.The Gauteng Provincial Governments will continue to harness Blue IQ’s expertise in the development of strategic economic infrastructure and leverage it resources to develop sound Green Economy and Industrial support initiatives.The CEO’s statement will address this in more detail.

Audit report

You will recall that a year ago, ‘Operation Clean Audit’ was launched to ensure that the Department and its Agencies build and adhere to greater governance, compliance and financial controls.I am pleased to announce that Blue IQ’s 2009/10 report from the Auditor General shows a significant improvement in the quality of financial management and administration within the organisation. In the 2008/09 financial year, two entities (Constitution Hill and Newtown) received Disclaimers and as a result the Blue IQ Group was Disclaimed. In the 2009/10 financial year, both these entities received unqualified audits.

The Auditor General (AG) has given unqualified audit reports to ten (10) of the subsidiaries within the Blue IQ Group and only one entity – namely Genesis Fitness – received a qualified audit. The “findings” raised by the AG for the Group and subsidiaries were reduced by over 50% - from 236 to 116.Only 9 matters were re-reported from the previous financial year.

The Auditor General’s Report reflects significant turnaround that has been achieved at Blue IQ under the leadership of the Blue IQ executive team, with the direction and guidance of the Board.

The summary of the AG’s Report is as follows:

One of the priorities for the new financial year will be to achieve a completely “clean audit” report across all the subsidiaries.

With regards to Genesis Fitness the AG reports the following:

The Board of Blue IQ Investment Holdings (Proprietary) Limited instituted a forensic investigation into the transactions surrounding the R5-million bank guarantee as well as the appropriate action to be taken in remediation of the irregularity. Furthermore, the Board also instituted a forensic investigation into the apparent financial irregularities pertaining to the management of Blue Catalyst Investments (Proprietary) Limited and its associated entities, including Blue Catalyst Matching Fund Trust, Genesis Fitness (Pty) Ltd and Adlevo Capital SA Fund. The forensic report was completed in October 2009. The Board of Directors is implementing the recommendations.

Forensic Investigations into the affairs of Blue Catalyst and its associated entities was conducted to determine contraventions of legislation by Blue Catalyst, compliance with the investment policy, financial soundness of Genesis Fitness and the activities of its directors and management. The forensic investigation was finalized and its recommendations relating to initiating civil and criminal action against the identified wrongdoers is being implemented through the relevant authorities.

Blue Catalyst was a subsidiary of Blue IQ responsible for the commercialisation of innovation. It is in the process of being wound down because it became apparent that it’s strategic intent and business model is not aligned with the provincial priorities.

As MEC responsible for Blue IQ I want to thank and congratulate the management and all employees of Blue IQ and its subsidiaries for their contribution towards a substantially improved audit. This was truly a team effort which reflects favourably on the expertise and commitment of the management team.

Board of Directors

Over the reporting period, the Board has played a key role in overseeing and guiding the audit turnaround process and strategic direction of Blue IQ. They have helped to provide a firm foundation for future growth.

It is my pleasure to welcome two new members, Ms Doris Dondur and Mr Abel Mawela to the Board of Blue IQ. I also wish to announce the appointment of Mr Bongani Phakhati, the current chairman of the Remuneration Committee and existing Non-executive Director, as Chairman of the Board.I take this opportunity to thank the outgoing Chair for her contribution at Blue IQ over the past and wish her well in her future endeavours.

In May, I submitted a response to the Provincial Legislature on fees paid to non-executive members of Blue IQ.I reported that Blue IQ Board members were currently being paid in accordance with the terms set out in their letters of appointment dated the 30^th of January 2009, some months before the current term. In November of 2009, I requested the CEO of Blue IQ to review the levels of remuneration of board members through a benchmarking exercise, in order to enable me to determine the appropriate terms of appointment of board members.

The outcome of this exercise showed that the fees received by board members were indeed excessive when compared with fees received by members of board of other DED agencies and comparable entities within both the private and public sectors.

Some contextualisation of the issue in relation to board fees is necessary.The significant increase in the annual board remuneration over the last two years is attributable to the fact that the number of meetings increased significantly as a result of decisions taken to strengthen the holding Board, improve alignment between the holding board and subsidiaries board and expand the roll of non-executive directors in the interest of good governance. Therefore negative imputations with regard to decisions made on the policy governing Board fees made by my predecessors and the ethics of the members of the board are incorrect and unfair.Board members have never determined their own fees. This is why I stated at the time that the members of the board retain my confidence and why today I announce the re-appointment of members to the Blue IQ board.

Nevertheless the board members and I have reached agreement that the fees structure has to be significantly reduced since members are required to attend many more meetings given their current responsibilities. Following a preliminary bench marking exercise and budget assessment, an interim remuneration policy approved today during the AGM, will take immediate effect. The fee structure is set out as follows:

A more rigorous benchmarking exercise will be carried out by the department prior to the commencement of the next financial year, ending March 2011, in consultation with other stakeholders and National Treasury as we establish the new Growth and Development Agency for the Province. We will ensure that a fair board remuneration framework is in place when the re-configured agency commences operations on the 1^st April 2011.

Institutional rationalisation

Blue IQ has over the past year also realigned its operations and mandate in keeping with major policy changes being effected at the Provincial Government level. These include changes emanating post the April 2009 provincial and national elections. An outcome of this process has resulted in the rationalization of some aspects of Blue IQ’s institutional framework.

The subsidiaries affected are as follows:

• Blue Catalyst Investment and its associated entities, The Matching Fund and Genesis Fitness will be liquidated and their respective Board of Directors dissolved.
• Greater Newtown Development Company will be liquidation and its Board of Directors dissolved following the sale and transfer of No1 Central Place.
• The Gauteng Motorsport Company is in the process of liquidation. Its Board will be dissolved once the liquidation process is complete.

Blue IQ will also introduce a single Audit and Risk Committee to oversee the Audit and Risks functions across the group. A similar Board subcommittee already (HR Remco) exists to oversee group wide Human Resource management issues.

For further information, please contact:
Mr Mandla Radebe
Office of the MEC
Cell: 083 2888 8915