Medium Term Budget Policy Statement: input by Housing, Provincial & Local Government, Mineral & Energy Affairs, an Economist

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Meeting Summary

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Meeting report


7 November 2001

Relevant documents
Department of Housing: Presentation on Policy Priorities
Provincial & Local Government Deputy Minister’s Address
Department of Minerals & Energy Affairs Presentation
[The above documents are incorporated in the minutes]
Presentation by Economist, Mr Goolam Ballim
Medium Term Budget Policy Statement 2001

The Department of Housing presented its current strategic policy priorities. The Deputy Minister of Provincial & Local Government submitted that local authorities play an important role in rebuilding communities and carrying out the provisions of the Constitution that obliges government to deliver certain things. In view of this the Department provide guidelines on how to prioritise spending in the MTBPS. The Department of Minerals and Energy affairs provided a brief overview of the challenges that they face and the successes that have been achieved.
An economist made a presentation on the SA economy and the MTBPS.

Department of Housing input
The Director General, Ms M Nxumalo-Nhlapo, made the presentation to the Committee. He presentation is included hereunder.

· The aim of the Department of Housing is to determine, finance, promote, coordinate, communicate and monitor policy in respect of housing and human settlement.
· Vision: A nation housed in sustainable human settlements

Strategic Overview
Housing environment since 1994 White Paper :
- 1.2 million housing opportunities created, more than 5 million poor people housed
- Earlier focus on quantity rather than quality housing
- Address housing needs and backlogs
- Had to grapple with high under-spending earlier in housing delivery as capacity was being developed.

She said that the Department has deliberately not reviewed their policy and that they are still guided by the 1994 White Paper because the policy is a framework for strategic objectives. Since 1994 policy instruments have been developed to deliver on the principles and objectives of the White Paper. Strategy is constantly being developed to facilitate delivery.

The location of housing areas are often far from urban areas and places of employment. The MECs tend to take any available land to find an easy solution instead of using the best available land.
- There are many fly-by-night developers that deliver shoddy work. The shift now has been towards quality rather than quantity. The National Home Owners Registration Council helps with quality control for the houses developed through the subsidy.
- There has been an under expenditure in the delivery process. In 1995 the Department embarked on the finalisation of the policy instruments and guidelines for delivery programs. The system only started operating in the 1996. There was therefore a large budget roll-over from 1994/95 and 1995/96. Expenditure increased thereafter and now the pace of delivery has stabilised at 200 000 houses per year.

In view of this background the DG identified the Strategic Policy Priorities:

Current Strategic Policy priorities
Current policy trends in the housing programme:
- Effect of changing demographics and resource constraints on housing delivery
- Effect of Grootboom judgment and recent land invasions = Change in Strategic Thrust
- Medium Density Housing a priority
- Moving towards medium density housing and integrated development
- Creating higher quality housing and living environments
- Reducing dependency and promoting a culture of savings
- Redefining the backlog - adequacy of traditional dwellings
- Interventions regarding the effects of natural disasters on housing
- Promoting new and innovative building technologies
Contributions required from Government, the financial sector the NGO sector and
ultimate beneficiaries
- Cater for inflation in the construction industry
- Extension of the Housing Warranty Scheme through the National Home Builders Registration Council (NHBRC) to beneficiaries
- These initiatives will require an increase in budget allocation over the MTEF
- Indications of possible affordable increases in allocation of R300, R579 and R574 over MTEF
- The increase is to maintain housing delivery at average level of 200 000 Subsidies per annum
- Poverty relief program expected to be implemented to deliver rental housing at 15 000 units per annum

The DG said that the Grootboom judgment indicated that Departments need to develop programs to respond to persons in crisis. For this reason a specific initiative outside the main subsidy which is about 0.5-0.7% of the provincial budget has been established to help communities in crisis who are faced with disasters.

On the land invasions, she said that the Department must respond more speedily on rapid land settlement outside the subsidy program. The Department sincerely hopes that all parts of society feel the impact of the housing strategy. People know how to proceed to get access to housing but there are those groupings who will not utilise the formal procedures and this is a challenge that will have to be dealt with.

Extensive discussions have taken place with Treasury and Cabinet on the manner in which houses are delivered. In rural areas township development is not always the answer and a new strategy for delivery is the improvement subsidy to allow people to improve their existing dwellings.

In urban areas, the location of housing development and working together with other departments is very important. It is the intention of the medium density program to achieve a high quality product and to provide an alternative tenure to ownership. Medium density focuses rather on rental with a possibility of ownership after 10 years.

The impact of the budget on the backlog is that currently 2.2 million houses are required. 200 000 houses are delivered each year. The budget facilitates in maintaining this average. Each year more people need houses so it is important to develop strategies to lessen the dependence on government as the only means to get access to housing.

In conclusion, the DG said that a system has been developed that will facilitate better management of conditional grants. A new allocation formula for 2002 will be used to determine the allocation to provinces. There will be a complex monitoring system to assess provinces on the basis of their spending priorities so that problem areas can be established early and attended to.

Mr Andrew (DP) said that in her address, the DG had referred to ‘housing opportunity’ and wanted to know if this was the same as a unit.

Mr Hanekom (ANC) commented that two provinces with large populations have only spent 1/3 and Gauteng less than 20% of their allocations. He asked if the MTBPS fairly reflects government’s priorities and secondly if there should be shift towards saying where spending should be directed.

Mr Tolo (ANC) asked if there is a national standard to prevent government from being ripped off by developers. He noted that in one part of the country it would cost x amount to build a house while in another part to build the same house would cost much more or much less.

Mr Baloyi (ANC) asked if they are going to see the roll-over of grants and if there were any plans to speed up land transfer. He wanted to know how the housing improvement grant was to be managed.

Mr Masutha (ANC) said that the Grootboom Judgment was not just about housing but about distribution. People do not just need shelter but require a whole package. He wanted to know to what extent there is an integrated strategy with the other departments to deliver a whole package to the destitute. Secondly he asked how significant is urban renewal in the department’s budget because it is important to see a turnaround of the urban centres.

The DG said that housing opportunities refer to all the different variety of products that the Department provides. They would include houses, flats, rental units and shacks that have been replaced by a house etc.

In provinces spending is influenced by a number of factors. There is a project cycle and it takes an average of three years to complete. So provinces may have allocated the budget for the next three years. When it reaches completion, a new set of projects need to be entered into. In Gauteng developers submitted R3 billion worth of projects. All the projects started 3 years ago and are now coming to an end. For Housing, it is always slow at the beginning at the year. During September the most spending occurs because it seems that projects are being completed around this time. In December there is another peak because the building industry goes on holiday and all the invoices are submitted. No invoices are submitted in January but then there is a peak in February and March because of the year end.

The manner in which priorities are indicated in the budget is appropriate. For example, Education is important because if we do not increase the education level, Housing will always need more money. It is important that long term goals are focussed on to ensure economic growth. The government must not play such an important role in providing houses in the future. Currently government needs to service 70% of the population. In most countries the government services 10% of the population and they can do it well. We are however still at the beginning of our economic growth and transformation.

There are national norms and standards. A house must be at least 30 square metres. National government gives a capped amount per unit. If the cost is higher, provinces must make up the difference.

On the Housing improvement grant, the DG said that in the Northern Province houses were washed away or the roofs collapsed because of structural inadequacy. To assist people in how to build, the government provides help through workshops and education.

Land transfers are speeding up. There is an agreement with the Minister of Land Affairs to fast track the transfer procedure.

The DG said that government is moving towards working together in a development strategy amongst departments. This can be done. But at the same time it is difficult to approve a single programme for an area because all departments have different priorities at the moment. They might have their own expenditure plan to say what programmes will be embarked on but it would be impossible to say when this development will take place.

The inner city housing programme is a key focus. It is very labour intensive and takes long. The delivery is subject to the need to establish an associated management structure. This structure needs to be in place before the institutional subsidy can be accessed.

Further Questions
Mr Zita (ANC) said that where people help themselves to improve existing dwellings, it is cheaper. He asked if this is this not the way to go in addressing the housing shortage.

Mr Pieterse (ANC) commented that the location of a development sometimes made no sense. It is put in the middle of nowhere. He referred to the trend of people selling their subsidy houses and municipalities attaching these houses when municipality charges are not paid. He asked the DG to comment on this.

A member asked how speedily the rural backlog will be attended to because people were moving away from the rural areas into urban areas to get access to housing.

Ms Thomson (ANC) asked why is rental not a popular option for the Department.

Communities do not build as fast. 20 workshops needs to beheld and the whole programme is very labour intensive. The improvement grant cannot be relied on as the only or main delivery tool but it is supported because it is very cost effective.

The location of older projects is very problematic. In 1994 developers made proposals that were accepted and the development started on land that they owned that was normally on the outskirts.

The selling of subsidy houses has been dealt with in the Housing Amendment Act 2001. The house cannot be sold for eight years. Local government is also limited in attaching the property and if they do it must be sold to the province so it can re-allocate it.

There are extensive programmes in the rural areas. The policy on rural areas is being assessed because what was done in the past was not effective.

Rental is popular. The old rental programme has been phased out and it is difficult to get the new one started. Medium Density housing is mainly rental housing.

Provincial & Local Government Ministry
The presentation was made by the Deputy Minister, Ms Ntombazana Botha. The Deputy Minister read from a written presentation included hereunder:

Deputy Minister's Address to the Budget Committee:
I would like to express my appreciation for this opportunity to make this presentation to the Budget Committee. My presentation will focus primarily on the transformation of local government. We still have a long way to go with the transformation of local government and it is imperative that we always bear in mind that our transformation processes are driven by the desire to improve service delivery and the lives of all South Africans.

The transformation of local government has been identified as a key priority by our
Cabinet. You will recall that the 1996 Constitution mandates local government to:
· provide democratic and accountable government to local communities;
· ensure the provision of services to communities in a sustainable manner;
· promote social and economic development; and
· encourage the involvement of communities and community organisations in matters of
local government.

This constitutional injunction needs to be borne in mind whenever we give consideration to
the matters the Budget Committee is attending to. Our local authorities play a leading role
as we proceed with the rebuilding of local communities and environments. We dare not
forget where we come from.

Laws alone cannot bring about developmental local government. We have to be seen at
all times to be supporting improved service delivery through1 amongst others, capacity
building, the development of performance management systems and the strengthening of
the institutional capacity of local authorities.

All these requirements demand that our country invests in the development of a viable
system of local government. We have a brand new system, and we must remember that
the new local authorities were established less than 12 months ago.

In addressing spending priorities, the Minister for Provincial and Local Government has
emphasised the need to ensure that the challenge of building viable municipalities is
confronted by all national and provincial departments involved in municipal affairs. It
must also be stated that, in all respects, our policies and approaches to local government
transformation are guided by the Constitution and the White Paper on Local Government.
This Committee should therefore challenge the whole of government to champion the ideal
stated by our Minister.

The following principles need to guide the prioritisation of spending in the medium-term:

· National and provincial governments are required to support and strengthen the capacity of municipalities to manage their own affairs, to exercise their powers and to perform their functions. Municipalities in South Africa have varying levels of administrative capacity. Municipal administrative systems need to be transformed to support improved service delivery and to meet developmental responsibilities.

· National government must provide sufficient funds from the fiscus so that the local sphere can provide services and discharge its developmental mandate. The review of intergovemment fiscal relations will assist in determining the appropriate size of the equitable share and other transfers to be allocated to the local government sphere. This should result in shifts in resource allocation from the national to the local sphere of government, a point emphasised by the Minister of Finance in his speech last week.

· Provincial governments should assist in ensuring financial stability and service sustainability within the local sphere through, amongst others, the re-direction of provincial spending in terms of integrated development plans (IDPs) of municipalities, providing support to municipalities in financial distress and undertaking corrective action, where necessary. Provinces should be required to adequately budget for this support.

· The primary source of financing for most municipalities remains local taxes and other revenues levied and collected by municipalities themselves, including property taxes, levies and user charges. It is important that municipalities fully exploit own revenues, as well as intergovernmental transfers to meet their developmental objectives. But we cannot leave municipalities on their own as the service backlogs they face are rooted in our history, and constitute a challenge to the nation as a whole.

· There are large variations between municipalities across the country, with rural municipalities funding far less of their expenditure from own revenues than urban municipalities do. A number of municipalities have extremely limited own sources of revenue which rely heavily on the equitable share as their primary revenue source. The equitable share and other transfers that go to municipalities supplement these revenues and are intended to enhance access to services among low-income households.

At the July 2001 Cabinet Lekgotla, Cabinet appointed a Ministerial Committee
consisting of the Ministers for Provincial and Local Government, Finance, Land
Affairs, Housing, Minerals and Energy, Water Affairs and Forestry and Transport.
Their mandate is to:

(a) examine the feasibility of re-engineering our intergovernmental fiscal system in order to improve our ability to direct national and provincial resources towards addressing the developmental needs as identified in the Integrated Development Plans;

(b) develop proposals/guidelines on ways by which we can ensure a cluster and inter-cluster approach, as well as a cross-sphere approach to planning and budgeting, and to use the Integrated Rural Development Programme and the Urban Renewal Strategy as pilot projects in this regard.

The work of the Task Team addressed both short-term and medium-term issues. The
short-term issues were taken up in the Adjusted Estimates of National Expenditure
2001/02. The only requests which could not be accommodated are:

an additional amount of R400 million (R200 million for 13 rural nodes and R200 million
for 8 urban nodes), meant to address severe funding constraints in many of the nodes in general, and also to ensure that priority development projects are properly resourced/supported during the 2001/02 financial year. The funding constraints in many of the nodes will therefore have to be addressed in the first instance through re-prioritisation within the existing amounts available to individual departments and institutions

(b) R30 million to drive strategic programmes such as integrated development plans and performance monitoring; and

(c) R20 million to fund transitional issues related to the division of powers and functions between Category B and C municipalities.

The needs identified in the short-term also represent the spending priorities over the
medium-term. The Committee has also identified longer-term issues, i.e. for the 2003/04
financial year and beyond.

The re-engineering of the intergovernmental fiscal system to direct national and provincial
resources towards addressing the developmental needs as identified in the IDPs will be a
longer-term project. The short and medium term interventions within the local government
sphere should, however, ultimately feed into the longer term reforms which will be
considered when the allocation of the equitable share of nationally raised revenues among
the spheres is reviewed. While the need to substantially increase the funding to local
government has been identified, attention needs to be given to build the institutional
capacity of municipalities so that they can spend the money allocated.

Some of the areas under review in the next 10 to 12 months, which are policy priorities,
· the provision of free basic services:
Transfers from national government have a key role to play in ensuring that sufficient
resources are available for the implementation of the "free basic services" policy.
Transfers to local government have three related objectives:

- the extension of basic service infrastructure to households with limited or no services;
- the subsidisation of basic services to low-income households; and
- the development of municipal capacity to effectively manage ongoing service delivery.

· strengthening of the IDP as an overall planning tool to be used by government:
IDPs will primarily shift the focus of municipalities towards better, integrated and
sustainable delivery, co-ordinated at a national level by our Department. The IDPs will,
through our new system of local government, definitely contribute towards a shift in
budgetary priorities as was suggested in the recent fiscal review. In order to support this
process, the Department received R65 million over a period of two years of which R33
million is included in the Adjusted Estimates. These funds will address the institutional and
structural capacity of the municipal councils in the 13 nodal areas identified in the first
phase of the integrated rural developmental programme. In addition, a further R12,4
million has been transferred from the Department of Housing to be utilised in the urban
nodes which supplements the R30,471 million Municipal Systems Improvement Grant, and
this was transferred from the Department of Land Affairs's budget for the same purpose.

· infrastructure grant consolidation
It is the intention of government to rationalise municipal infrastructure grant funding into an
integrated, demand-responsive and decentralised disbursement mechanism
that will help to achieve the principles of consistency, autonomy, integration and grant co-

The public sector alone does not have the resources to meet the infrastructure
requirements of communities. Government policy has thus repeatedly emphasised the
importance of leveraging private sector capital in support of municipal infrastructure
investment. This is especially important in achieving government's commitment in
providing free basic services, as free basic services can only be provided if the necessary
infrastructure is in place. In this regard Cabinet has established the Municipal
Infrastructure Investment Unit to assist municipalities with delivery options.

From the 2001/02 financial year, national and provincial government departments were requested to redirect their budgets towards funding the rural development and urban renewal programmes. However, not much re-prioritisation has taken place. An assessment of current trends indicates that reprioritisation will not yield adequate resources for the effective implementation of these programmes.

As a result, most of the improvements of the inter-cluster and cross-sphere approach to
planning and budgeting, and the use of the rural development and urban renewal
programmes in this regard, will have to be attended to urgently.

The matter of determining how part of the funding for infrastructure can be utilised in the
implementation of the rural development and urban renewal programme is still receiving
further consideration within the Ministerial Committee, as some of these funds have
already been earmarked for particular projects.

Finally, I would like to re-assure the Committee that we fully appreciate the needs of our
fellow South Africans which, in the main, have to be provided for by municipalities. We are
also very sensitive to the need to ensure an optimal balance between capital and recurrent
expenditure. The next financial year, in particular, is going to place extreme pressures on
the Department to remain within the base-line allocations and all managers have
committed themselves to maximise the utilisation of the funds that could be provided.

We wish this new Committee well, as it continues to deliberate on these very important and challenging issues and to exercise its oversight responsibilities.

A member commented that when persons cannot pay for water, it is disconnected. It costs R1500 to reconnect the water supply. He wanted to know what is being done about this especially to allow these persons access to free water.

Mr Zita (ANC) asked if the Department would be able to meet all its obligations since it had not received all the money that was asked for.

A member asked if the impact of HIV / AIDS on local government as been investigated. Secondly is the subsidy for councillors remuneration a top-up amount or is it the full amount that needs to be paid to councillors?

Mr Cwele (ANC) commented that district councils are responsible for many functions without receiving the necessary funds. He wanted to know what is being done about this.

Mr Masutha said that there is significant litigation against provinces due to the failure to deliver. Are departments examining the difficulties in delivery and are they looking at different methods of delivery.

A member asked how does government assist the municipalities that have inherited problems from the past.

A member asked what is government doing about capacitating local government to deliver services as expected. Also sometimes municipalities pay top officials more than the President. Can these salaries be capped by National Government?

The Chief Financial Officer said that National Government provides no assistance for the reconnection of water.

In relation to the adequacy of the allocation to fulfill objectives, the additional R400 million that was requested was for capital expenditure.

The R108 million for councillors is to supplement the salaries. It is not sufficient to cover the total requirement but is meant to be a subsidy just to assist in areas where there problems.

The DG continued and said that "we are not dealing with the ordinary budget but with the adjusted estimates and this meant that some things cannot be accommodated". On the matter of disconnection, she said that each municipality is supposed to have an indigent policy. Municipalities will be a given a credit control policy that will be finalised soon.

The lack of the extra money that was requested but not allocated, will not have a negative impact because there is money available but the Department just asked for more.

National Government sets upper limits on remuneration. Remuneration ultimately is a local decision. Factors like the available tax base will cause disparities in remuneration. At the end of the day, if one does not pay well, there will be a negative impact on service delivery.

On HIV / AIDS, there is no central framework for this department.

Court cases will force government to provide more funds to C category municipalities. There are sharing arrangements between category B & C municipalities but at the end of the day the answer lies with the allocation of additional funds.

In conclusion the DG said that that "we have a great model" for local government. An increase in the equitable share will be welcomed but the answer is not always giving more money. If we are serious about the improvement in the delivery of services, resources must be allocated. Treasury says more money cannot be given because it cannot be spent, but this is exactly what is needed to build capacity.

Mineral & Energy Affairs Department (DME)
Due to the unavailability of the Minister Deputy Minister and the Director General the presentation was made by the Chief Financial Officer of the Department.

She said that it was the DME’s vision to address the historical imbalances of the past through job creation, equitable redistribution of energy and mineral resources, mass-based economic empowerment, rural development and eradication of poverty and its disabilities.

The mission of the DME was outlined as follows:
- To position the minerals and energy industry for global competitiveness
- To contribute towards effectual and sustainable development of minerals and energy resources
- to govern these industries to be safe and healthy
- to formulate and implement an overall mineral and energy policy to ensure optimum utilisation of mineral and energy resources.
- To contribute significantly towards poverty alleviation by deploying minerals and energy’s huge potential to address socio-economic imbalances.

It is the mandate of the DME to provide services for effectual governance of minerals and energy industries for economic growth and development, thereby improving the quality of life of the people of South Africa.

The challenges which the DME faces are:
- the increasing need to bring energy services closer to communities through regional offices
- the delivery of free basic services and to interface with local government on this matter
- educating people in the safe use of paraffin and ensuring that poor people receive the benefit of zero rated paraffin
- the new Gas Bill that requires regulation of gas industry and the pipelines in SA.
- implementation of the Mineral Development Bill
- to achieve sustainable development and addressing the past environmental legacy of mining and to sustain the economic growth of small scale mining
- to investigate new energy carriers e.g. gas, renewable energy and off grid solutions
- DME requires more capacity for international relations, off shore mining. (the Adopted energy white paper introduces new obligations and responsibilities without an increase in human capacity
- the implantation on the national electrification programme (NEP)

The presenter made a request for additional funds from Treasury. She highlighted two areas where the funds were needed:
- DME requested R74 million for the human resources for the NEP. This amount was for 269 new posts. DME received R10 million from Treasury for this. As a result the posts will be staggered. Only 133 posts will be filled at a cost of R30 million which still represents a shortfall.
- Another important financial implication is the revamping of the IT system. This is crucial for the implementation of the Mineral Development Bill that requires a new geographical information system. An additional R67 million will be required for the infrastructure and support services. The IT revamp is included in this additional request.

The priorities of the Department are the:
- Implementation of the Mineral Development Bill
- Implementation of the energy white paper
- Promote black empowerment enterprises (BEEs)
- Re-vamp the IT infrastructure

Some achievements of DME:
- Out of R600 million allocated this year R260 million has been spent and this suggests that the capacity to spend the rest by the end of the year exists.
- 104 673 houses were connected
- 90 schools and clinics were connected
- R140 million has been channeled to Black Economic Empowerment (BEE) contractors and about 2400 jobs are sustains at BEE contractors
- Small scale mining projects have been launches and are proving to be successful
- Regeneration of the local economies in mining areas that are experiencing down sizing.

In conclusion the presenter stated that DME is committed to achieve its vision and mission and to fulfill its mandate. The track record of spending by DME was submitted to be a good indication of the extent to which DME delivers on its mandate.

Mr Pieterse (ANC) commented that BEEs have become fronts and wanted to know how his can be prevented. He also wanted to know how the use of DME facilities by the Second National Operator will impact on DME.

A member asked if there was any relationship between Eskom and local authorities when it comes to the provision of free basic services, especially where communities have not yet received this free service.

Mr Baloyi (ANC) asked if the pilot project for free electricity targeted new or existing areas. Secondly he wanted to know who is the agent for the delivery of free services?

Mr Zita (ANC) asked if the R600 million for electrification goes to Eskom and what role does Eskom play in the electrification. He also wanted to know if the quality of the connection has been measured i.e. can the people use the electricity thereafter.

The presenter said that the agent for this year is Eskom. For next year it will be the municipalities.

In terms of BEEs there is a requirement of significant ownership and operational presence. These are the key factors.

Areas that fall within Eskom’s boundaries do not receive free services. In the metros people are receiving the free service. Eskom is of the view that free service is a social programme and should be funded. If they do not get paid they will not provide free services. In the metros there are a mix of customers that range from industrial and commercial to residential. The mix makes it possible to cross subsidise the poorest in that metro. If there are no major industrial customers then a cross subsidisation will amount to a tax on the poor to pay for a services that they ought not to be paying for.

The role of Eskom in respect of the R600 million for electrification is that Eskom is a service provider.

The DME was asked to respond to the outstanding questions in writing.

Input by Economist on MTBPS
Mr Goolam Ballim, Financial Markets Economist at Standard Bank, said that the South African context must be viewed in the light of global economic developments. SA has been better able to withstand global challenges because of prudent planing and management.

In the early 1990s the US economy expanded and stock markets flourished because of the end of the Cold War. In the current environment of conflict, the global economy will perform sub optimally. In these circumstances, policy will have to lead the market instead of the market leading policy.

As a consequence that US economic growth has declined, the world economic growth has declined. The developing countries growth rate has also declined and, if it were not for India and China, the growth rate for developing countries would be less flattering.

Developing countries unlike the US and other advanced economies will not be able to stimulate their economy. SA is in a position to stimulate its economy and is in a better position than most of its developing peers.

The MTBPS indicates a shift in spending patterns with an increase in spending on social welfare and capital projects. Government investment grew by 2% in the first half of this year as compared to 0.1% last year. Parastatals increased capital investment by 5%. The MTBPS shows a shift from consumption expenditure to capital expenditure.

The major drivers of growth in the economy are:
- private sector and government capital spending
- declining interest rates.
It was good that the inflation target was not adjusted for 2003. The Treasury has therefore given the Reserve Bank leeway to reduce interest rates further. For 2004/05 the target is lowered and this sends a signal that government wants lower inflation to bring it into line with its main trading partners.
- declining tax rates to get the economy going
Tax as a % of GDP will decline . Treasury will probably give in excess of R6 billion back in tax cuts. Collection of revenue could be exceeding the projection by R7 billion. The rise in platinum prices alone should net R3 billion more in tax. It is appropriate to give back to the lower income groups because they consume while the higher income groups tend to save.
- Exports and the diversification thereof contributed materially to growth. The proportion of exports to GDP in 1996 was 20%. In 2001 it is 27%. This is a huge surge. More manufactured goods and services were exported. The weak Rand helped the cause. However off shore demand is slowing down and it is hard to expect that exports will sustain their momentum.
- The macroeconomic stabilisation and policy is credible.

SA is not a recipient of much foreign direct investment (FDI) therefore there have been no outflows. Asia and Latin America are dependant on FDI and now we see a slump in those economies. SA is less vulnerable.

In conclusion he said that the MTBPS is appropriate in terms of the global economic slowdown and the acknowledgment of the problem of capacity in the delivery of services is welcomed.

Mr Hanekom (ANC) asked what was the likelihood of achieving growth of 6% and what can government do to achieve this. He commented that it is good that SA is not dependent on FDI but that does not mean we do not want it. He asked why does SA receive so little FDI?

Mr Andrew (DP) asked if the country should resign itself that a 3.5% growth rate is all that we can achieve.

Mr Masutha (ANC) commented that many experts say that the economic problems in SA are related to all the social problems. He wanted the view of Mr Ballim.

Mr Ballim said that in the US, 60% of the economy is consumption based. In Japan there is a recession because consumers are not spending. The capacity of the consumer to spend is important. SA will be constrained by unemployment and the shrinkage of labour. The fostering of growth revolves around increasing the levels of the employed and the levels of income.

In Africa FDI is closely related to privatisation. SA is seen as a big brother to the countries to the North of us. Because we have no big brother it is very difficult. An example is Mexico who has a huge market in the US.

Addressing the social imbalances will come to the fore in the future and the MTBPS is a start.

The chair thanked Mr Ballim and the meeting was closed.


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