The Departments of Human Settlements (DHS) and Economic Development Department (EDD) briefed the Committee on their expenditure and performance in the 4th quarter of the 2010/11 financial year.
At the outset, the Committee expressed its concern, in relation to the DHS, that if the expenditure on transfers to provinces was discounted, the actual spending on other programmes, which were very important to the Department achieving its targets, was low. The DHS set out its 2011 Medium Term Expenditure Framework (MTEF) allocations for 2011-2014, the expenditure for each DHS programme, the fourth quarter expenditure performance, and the Human Settlements Development Grant (HSDG) allocations to provinces. An analysis showed that the Free State, Kwazulu-Natal (KZN), Mpumalanga, the North West and Western Cape all overspent on their fourth quarter HSDG allocations.
The Committee’s concerns focused on why only 74% had been spent on the Housing Policy, Research and Monitoring programme, how the DHS was able to plan when it was not spending money on research and monitoring, why overall spending on housing was so low, and how it was possible for provinces to spend all their money without reaching their targets. Members questioned why the HSDG was also supposed to cater for the purchase of land for housing. They were particularly concerned as to what criteria the DHS used to allocate the HSDG to provinces, and to shift funds from one province to the next. There were problems across the country regarding the quality of housing, and yet DHS's expenditure on monitoring was very low. Members also noted some apparent discrepancies; in one case Free State did not complete any of its serviced sites, yet managed to spend 312% of the funds allocated for the fourth quarter, implying that houses were built on non-serviced sites. In another case, R80 million was shifted from KwaZulu Natal to Limpopo, who then underspent, meaning that the money was not used by either province. Members were under the impression that funds were supposed to have been shifted from the Free State to the Northern Cape in the 3rd quarter, but noted spikes in spending in the Free State in the 4th quarter. They enquired as to exactly how the money was spent, and where the money over-spent had emanated. These questions calling for specific detail were emphasised a number of times.
Members also enquired how the DHS managed to perform when this department itself suffered a lack of capacity, and enquired about the filling of vacancies. Members were also particularly worried about sanitation and called for reports on that, as well as on what improvements each province had made by using that grant in the last financial year They were concerned that only 66% of the R100 million allocated to the Rural Households Infrastructure Development Grant (RHIDG) was spent, despite the desperate need in rural areas for housing. They expressed the view that the purpose of the MTEF was to allow entities to plan properly, and were concerned that all the spending patterns seemed to be indicative of lack of proper planning. Members asked whether the DHS was relying upon reports from the provinces, or if it had its own inspectors or monitors on the ground, and stressed that more monitoring was needed overall. Members further questioned the transfer of R100 million to Gauteng for Khutsong, and the further funding of R15 million. When told that this was for a joint electrification project, Members stressed that although they understood the need to promote integration, and supported it, they still noted that the problems had not arisen overnight and should have been properly budgeted. A representative from National Treasury outlined that there were challenges around structuring responsibilities. Members felt that more explanations were needed on why shifting of provincial funds was done in the third quarter, but the funds were only paid over about a month before the end of the financial year, and why it took so long to respond to requests for additional funding. Members then noted that the Committee was running out of time, but felt that there was much that still needed to be interrogated, particularly since Members would need to convey the information to their constituencies, and therefore called for a further meeting on 10 August to continue the discussions, with specific queries being mentioned as a starting point for that meeting.
The Economic Development Department presented information based on the unqualified audited financial statements for 2010/11. The total adjusted budget for the 2010/11 financial year was R449.8 million, of which about 89% of the total adjusted amount had been spent. Transfer expenditure amounted to R44.2 million, or 48% of the adjusted appropriation of R91.3 million. It was explained that in most cases, the reasons for under-expenditure in the various programmes were due to the fact that 2010/11 was the first year of operations, and that there were still challenges in filling the necessary posts with suitable and experienced staff. Compensation of employees accounted for about 60% of the budget, but the vacancy rate was about 30.5%. The EDD had applied for permission to roll over about R35 million to the following financial year and expected a decision on this from National Treasury in the first week of August 2011. The revenue collection for 2010/11 amounted to R547 million, most accounted for by fines levied by the Competition Commission. The Department presented a detailed outline of the targets for the financial year, and linked these to the Estimates of National Expenditure targets.
Members commented that the Department seemed to have performed well, despite its lack of capacity. Members asked about the intention behind the Walmart/Massmart merger, but most of the other questions were directed towards the intentions in regard to recruitment, what differences were likely to be seen once the posts were filled, and how the Department’s goals of job creation were to be reached, when it was under-staffed itself. Members also felt that more had to be spent on Broad Based Black Economic Empowerment and the Second Economy, as indicated on slide 7, and to close the economic gaps in the country.
Fourth Quarter 2010/11 expenditure and performance briefings
Chairperson’s opening remarks
Chairperson Mr E Sogoni welcomed the Department of Human Settlements (DHS), the Economic Development Department (EDD) and Members from the Portfolio Committee on Human Settlements.
He noted that although the expenditure by the Department of Human Settlements looked quite good against the budget figures, it must be remembered that a large portion of funding consisted of transfers to provinces. If, for example, the transfer for the Human Settlement Development Grant (HSDG) was excluded from the expenditure, then the remaining expenditure against budget was quite low, across programmes such as the compensation of employees, policy research and monitoring, housing, and delivery on strategic relations and governance. These were really important programmes for the functioning of the DHS, and so the Committee wished to know what the problems were. The Committee also wanted to the DHS to report on the matter of sanitation.
Department of Human Settlements briefing on 4th quarter expenditure 2010/11
Mr Thabane Zulu, Director-General, Department of Human Settlements, informed the Committee that the presentation focused on the DHS’s expenditure, including areas of under-expenditure. The DHS would try to explain the context of some of the figures in the presentation.
Mr Nyameko Mbengo, Acting Chief Financial Officer, DHS, told the Committee that the DHS’s total budget allocation for 2010/11 was R16.2 billion, which was to be split between five programmes, as follows: Administration (R221.2 million), Housing Policy Research and Monitoring (R43.9 million), Housing Planning and Delivery Support (R207.1 million), Housing Development Finance (R15.7 billion), and Strategic Relations and Governance (R145.1 million). The 2011 Medium Term Expenditure Framework (MTEF) Allocation showed a revised estimated budget of R19.3 billion for 2010/11, divided into: Administration (R211.9 million), Housing Policy Research and Monitoring (R47.7 million), Housing Planning and Delivery Support (R225.2 million), Housing Development Finance (R18.7 billion), and Strategic Relations and Governance (R157.6 million). The Housing Development Finance Programme consisted of the Human Settlements and Development Grant (HSDG), which received R12.9 billion, the Urban Settlements Development Grant (USDG) that received R5.1 billion, the Housing Disaster Relief Grant (HDRG) that received R133.8 million, the Rural Household Infrastructure Development Grant (RHIDG) that received R100 million, and departmental agencies, who received R312.2 million. The medium term estimates showed a budget of R22.5 billion for 2011/12, R24.8 billion for 2012/13, and R26.7 billion for 2013/14.
He then presented the expenditure analysis. As at 31 March 2011 the DHS had spent 85% of its administration budget, 74% of its housing policy research and monitoring programme budget, 76% of the housing planning and research support programme budget, 100% of its budget for the housing development finance programme, and 60% of its strategic relations and governance budget. An analysis of the DHS’s expenditure by economic classification, as at 31 March 2011, showed that 90% of its budget on compensation of employees was spent, and there was also spending of 73% of its goods and services budget, 23% of its budget on interest paid on financial leases, 96% of the payments for financial assets budget, 100% of its transfers and subsidies budget, and 59% of its payment for capital assets budget.
A fourth quarter expenditure performance report showed that the DHS had spent R60.1 million of its projected fourth quarter administration budget of R62.9 million. It had spent R10.2 billion of its fourth quarter housing policy research and monitoring budget of R11.2 million. The DHS spent R53.6 million of the R59.3 million housing planning and delivery support budget for the fourth quarter. However, the DHS had overspent on its fourth quarter budgets for the housing development finance programme, and strategic relations and governance programme, by R243.5 million and R7 million respectively.
He then set out the total adjusted HSDG allocations for 2010/11. The Eastern Cape received R1.63 billion, the Free State received R1.03 billion, Gauteng received R3.8 billion, KwaZulu Natal (KZN) received R2.7 billion, Limpopo received R1.37 billion, Mpumalanga received R1.01 billion, the Northern Cape received R447 million, the North West received R1.18 billion, and the Western Cape received R1.95 billion. So far the Eastern Cape had spent 91.8% of its allocation, the Free State spent 100% of its allocation, Gauteng spent 99.2%, KZN spent 100% of its allocation, Limpopo spent 91.9%, Mpumalanga spent 100%, the Northern Cape spent 87.5%, and the Western Cape spent 99.2%.
The Fourth Quarter Expenditure Performance report for the HSDG showed that from 1 January 2011 to 31 March 2011 the Eastern Cape spent 76% of the money that was transferred. The Free State spent 312% of the transferred funds, Gauteng spent 101%, KZN spent 190%, Limpopo spent 61%, Mpumalanga spent 167%, the Northern Cape spent 87%, the North West spent 187%, and the Western Cape 216%.
In terms of housing delivery, the Eastern Cape completed 23 763 serviced sites and houses, compared to its annual target of 30 000. The Free State did not complete any of its serviced sites but completed 5136 houses. Gauteng completed 46 983 serviced sites and houses. This was well above the annual target of 39 920. KZN completed 25 019 serviced sites and houses in relation to its 33 000 target. Limpopo completed 17 981 of its target of 18 489 serviced sites and houses. Mpumalanga completed 12 019 serviced sites and houses, compared to the 15 065 target. The Northern Cape exceeded its target of 4 436, by building 6 796 serviced sites and houses. The North West also exceeded its 21 042 target by completing 23 192 services sites and house. The Western Cape’s annual target was 33 000, of which it had managed to complete 24 536 serviced sites and houses.
Mr J Gelderblom (ANC) noted that only 74% had been spent on the Housing Policy, Research and Monitoring programme. There were many problems with housing. He asked how the DHS was able to plan when it was not spending money on research and monitoring. Both elements were important for planning purposes.
Mr M Swart (DA) asked for clarity on the interest that was paid for financial leases, which showed only 23% spending. He also noted that the payment for capital assets was only 59%. He asked why these figures were so low. He noted that there was money available for housing, but if the Committee looked at the percentages that were actually spent, they would note that this was low.
Mr Mbengo replied that the DHS probably over-estimated the amount required for interest for financial leases.
Mr A Steyn (DA) stated that one of the confusing issues was that most of the DHS’s spending was on transfers to provinces, which distorted the picture. If transfers were excluded from the total expenditure, it was clear that the DHS was under-spending on its key programmes. There were problems across the country regarding the quality of housing, and yet the Committee found that the DHS's expenditure on monitoring was very low. In addition, most of the provinces were spending around the 90% mark, but his concern was that very few had actually delivered on their targets. This brought him to the issue of bad planning, since the question must be asked how provinces managed to spend without reaching their targets. This did not make sense. There had to be synergy between an entity's deliverables and its expenditure.
Mr Zulu answered that it was important for the Committees to recognise the fact that the DHS, through the proper processes, approved the business plans submitted by the provinces. Technically speaking, this was the “end of the story” as far as the national DHS was concerned, since the performance and achievement of the business plans should be monitored by the accounting officers of the provincial departments, including the MECs. However, the DHS had a fully-fledged branch that dealt with monitoring and evaluation. This was linked to the DHS's own performance at national level, and to how provinces performed on the business plans submitted to the DHS. The manner in which the provinces budgeted to meet their targets was not necessarily linked to their expenditure. It was therefore misleading to measure the targets that were set against the budgets that were being spent. There were certain elements that required funding that were not necessarily linked to the provinces' targets. For example, provinces needed land on which to build houses. Sometimes this was not reflected as a target, and was therefore not included in the budget, although there was a process to acquire land, and to ensure that it was feasible for the types of structures that were to be built.
Mr Steyn stated that the HSDG grant was a conditional grant for housing. He did not understand why the money to purchase land had to come from this grant. This still highlighted the issue of poor planning. If provinces knew they needed a certain amount of money to purchase land, then they also knew how much of their budget would be left for other matters. There had to be synergy, or at least some sort of correlation, between expenditure and delivery on housing targets.
Mr Zulu disagreed with Mr Steyn. The standard practice was that the grant also was intended to cover the departments’ responsibility of buying the land for the houses. The DHS worked with provinces, municipalities and other national departments on housing programmes.
Mr Zulu added that the DHS was in the process of increasing its capacity for effective monitoring, on the ground, of the projects approved on the provinces’ business plans. The DHS's capacity in the last years had been limited, which affected the effectiveness of monitoring on the ground. The DHS was in the process of increasing its capacity at the national level by establishing the Programme Management Unit, as the DHS had now realised that this would be important. The DHS would also be monitoring the quality of delivery on the ground, in line with the business plans, on a quarterly basis. The DHS usually used the third quarter performance to determine the decisions that had to be taken on a national level, specifically in relation to under-performing provinces. Concerns could also be raised at MinMEC meetings, where financial performance assessments were provided for every province. The DHS also advised provinces on how they could improve their performance. A special MinMEC would be taking place in September 2011 to discuss the provinces’ financial performance.
Ms G Borman (ANC) said that the Committee would have liked to see more detail on the DHS's sanitation programme, as it was a matter of serious concern to the Committee.
Ms Borman also said that it was confusing that so many adjustments were being made to the budgets but entities were unable to spend the money.
Ms L Yengeni (ANC) asked what criteria the DHS used to allocate the HSDG to provinces, saying that it was important to know this as money was being taken away from provinces when they were seen to be under-performing. She also asked for more clarity on the R100 million that was supposed to be transferred to Khutsong. She noted that the DHS made mention of the HDRG, which no longer existed, and she asked if that grant had been applied specifically in KZN, or if it was last used on KZN before it was discontinued, and also enquired as to why the DMG was discontinued.
Mr Mbengo answered that the allocations for the HSDG were formula-based. The DHS used figures from Statistics South Africa to allocate amounts to provinces. The decisions were mainly based on equity but looked at various aspects such as housing needs in the provinces. In addition, there were priority projects that had to be approved by MinMEC, and these would be included in the various allocations to provinces.
Mr Mbengo explained that the original allocation of R100 million for Khutsong was meant for the North West province, because Khutsong was still part of North West at the time. However, this money was transferred to Gauteng when Khutsong fell within that province, after demarcation of provincial boundaries.
Mr Zulu confirmed that the HDRG was a special allocation for KZN, as it was supposed to serve a specific purpose. The National Treasury approved the grant for a specified period of time. This was why there was no other allocation for the DMG over the next few years.
Mr M Mbili (ANC) addressed the matter of housing delivery. He noted that the Free State did not complete a number of its serviced sites, but that this province managed to spend 312% of the money that was transferred in the fourth quarter, from January to March 2011. This seemed to imply that the Free State was building houses where there were no serviced sites. He asked for more clarity on that issue.
Mr Mbili also asked what criteria the DHS used to allocate funds to provinces and to shift funds from one province to the next. An amount of R80 million was shifted from KZN to Limpopo, yet the 4th Quarter Expenditure Report showed that Limpopo had only been able to spend 61% of the funds that were transferred to it, whilst KZN was then unable to spend the funds it needed, and that had been moved away. Finally, there was no spending by either province of that money.
Mr Zulu replied that the DHS ensured that it did follow the normal and due process for adjusting its budgets, as set out in the Division of Revenue Act (DoRA). National Treasury could confirm this. If there was a discrepancy, the internal audit capacity of the DHS would be able to pick it up, and the Office of the Auditor-General would be able to see it as well, which would lead to an audit query. In his capacity as Accounting Authority he also made sure that right processes were in place to monitor the budget.
Mr Zulu then addressed the question as to what criteria the DHS used to allocate funds to provinces and to shift funds from one province to another. He explained that DHS looked at the level of under-performance in each province, and then made its decisions on the basis of the information it had. The risk was that this was done in the third quarter. It meant that the performing provinces had to be assessed thoroughly, to see that they had done their “homework” in order to fulfil their targets by the end of the year. The DHS also had to confirm, from the performing provinces’ submissions for additional funding, what plans they had to utilise the funds they were requesting. The challenge was that there was then limited time to complete the assessment process, and limited time for the provinces to spend those funds before the end of the financial year, since the actual transfers of funds normally took place only one month before year-end. The specific reason that Limpopo could not spend the additional funding was that there were problems with implementation of the transfer, and this had been a matter queried by the Auditor-General (AG). The DHS has made a submission to the AG on this transfer.
Co-Chairperson Ms Dambuza also addressed the shifting of funds from Free State to the Northern Cape. She asked for clarification on this. DHS had informed the Committee in the 3rd quarter that the funds would be transferred, but it then appeared that Free State spent more money in the 4th quarter, and the spike in spending was not indicated in the presentation. The Committees wanted to know how the R133 million was spent. Free State had over-spent, and she asked where it got its money, if the funds were shifted to another province. Members of the Portfolio Committee on Human Settlements also received a report showing that R200 million was shifted from KZN to another province, but when the Committee had visited KZN in March 2011, the Members were informed that KZN received R150 million from the DHS. She asked what the actual transfer figures were.
Ms Dambuza also questioned how the DHS performed, if there was a lack of human capacity at the Department.
Mr Zulu replied to the question about spikes in spending in provinces. He said that sometimes certain issues arose that the provinces had not budgeted for, and that were not included in the business plans. This was what led to the over-expenditure. However, this did not justify spikes in expenditure. The DHS could forward to the Committee the information on how the money was actually spent. The DHS has also informed the National Treasury of certain spikes in expenditure that had caused concern.
Ms R Mashigo (ANC) said that the issue of rural development also had to be raised. The DHS allocated R100 million to the Rural Households Infrastructure Development Grant (RHIDG) for 2010/11. It was of great concern to her that only 66% of the budget was spent, when people in rural areas were desperate for housing. She thought that the DHS did not have a proper plan in place to utilise the money set aside in the RHIDG. She also thought it was the duty of the accounting officer to ensure that the money appropriated to entities was appropriate for what they were doing.
Co-Chairperson Mr Sogoni asked if the DHS had a proper policy in place for rural housing.
Mr Sogoni also noted that the Medium Term Expenditure Framework (MTEF) allowed entities to see how much money would be allocated to them in the future. This allowed them to make proper plans and to see what infrastructure was needed to deliver on their programmes. Mr Sogoni noted that slide 2 of the presentation showed that DHS had received an allocation of R16 billion, although slide 3 showed an MTEF allocation of R19.3 billion, and he asked for clarity.
Mr Zulu agreed that the MTEF assisted departments in planning for longer than just one year. The DHS emphasised this point when it met with the provinces. It also allowed the DHS to monitor what the provinces were doing.
Ms Yengeni asked for more information on the sanitation grant and what DHS expected provinces to do with this grant. She asked what improvements each province had made with the grant in the last financial year. She asked if the DHS relied purely on reports sent in by provinces or whether the DHS had its own monitors on the ground.
Co-Chairperson Mr Sogoni noted that funds were being shifted from one province to another, but experience showed that this had not translated into housing delivery. The Committee realised that the DHS did not have the capacity to deliver on this target. However, he pointed out that the President’s State of the Nation Address had emphasised the need to fill vacant posts, and he therefore asked what plans were in place to deal with this.
Mr Zulu agreed that the vacancies were a contributory factor to the under-expenditure of the DHS at national level. Since the former Department of Housing had been transformed, with additional mandates, into the DHS, were had been number of vacancies, which the DHS had delayed filling, although it had tried to identify those that needed to be filled urgently, as they were crucial to the good performance of the DHS. However, there were also new areas of focus arising from the integrated mandate, which required specialised capacity and talents. The DHS wanted to ensure that it put talent where it was most needed. One area that was critical for the DHS and the provinces was the Project Management Unit, since many of the challenges of the past were due to lack of this capacity and expertise in the sector. The DHS wanted to improve on the quality of managing its projects, by using systems that were at its disposal.
Ms Yengeni said she understood the transfer of R100 million to Gauteng for Khutsong, but she wanted an explanation of why this province had received an additional amount of R15 million.
Mr Mbengo answered that the additional R15 million was a “re-allocation from the DHS's operational budget to the grant in terms of the Act”. National Treasury approved this re-allocation, which was intended to be used for a project in Gauteng that the province could not fund.
Ms Yengeni said she needed to know exactly what the R15 million was used for.
Mr Zulu explained that it was a priority project that the provincial department and local municipality had budgeted for Gauteng, which had to do with electrification.
Co-Chairperson Ms Dambuza noted that the Minister had committed R25 million to the electrification project. She asked what happened to the other R10 million that was not used by the province.
Mr Zulu replied that R25 million had been committed to the electrification project, but the province only requested R15 million from the DHS. He said that the electrification programme was a joint effort between the DHS, the Gauteng Provincial Department, and the local municipality. This was the spirit in which the DHS wanted to promote integration.
Mr Mbili said that integration of activities was very important. The DHS had to assist the Committees with clarity on certain matters. The DHS had a broad mandate, which was why he understood that they had to intervene in the electrification programme. However, one question still remained unanswered, and that was why this problem had not been budgeted for, as it clearly did not arise overnight. The challenges should have been foreseen by the province or municipality and budgeted for in an appropriate way.
Ms Yengeni added that the Committee could not let the DHS talk about things that were not fully understood. The Committee was entitled to have clarity on certain matters. She understood that the DHS was not only concerned with building houses, and that some functions also had to be budgeted for in other departments. She asked for the practical effects where functions of different entities were so integrated.
The Chairperson said that it seemed the DHS wanted to come across as an “overall” structure that could do everything with its budget.
Mr Zulu said that this statement was a very important point, as it defined the manner in which the DHS was working, and was what had informed its turnaround strategy. The DHS wanted to establish key areas of strategic collaboration with other entities. One of the challenges with the transfer of the sanitation function was how to integrate it into the DHS's functions. Government had realised it could not talk of housing in rural areas without also focusing on sanitation. The DHS was in the very first phase of putting this programme into perspective, and integrating functions with relevant departments and other entities. The DHS would be meeting with different teams from different departments to ensure that all budgeted for these multi-layered projects. The DHS had adopted an approach that would allow it to assist the Department of Cooperative Governance and Traditional Affairs (COGTA) with certain projects in which they were engaged, and this was where integration would start to take shape. However, it required a lot of work with different departments who must all play their parts.
The National Treasury representative replied that the issues raised by the Committee gave an indication of what was wrong with the sector’s institutional arrangements, responsibilities that were assigned to various departments, how money was allocated to various entities. The HSDG had space for seventeen subsidy programmes, with over 28 subsidy instruments. It was an incredibly complex conditional grant. It was important to decide whether the priorities were those of national, provincial or local government. If not included in the provincial budget, then it was not a priority. However, if something was regarded as a national priority, there was an allocation formula that allowed the HSDG to give the national department enough flexibility to deal with national priorities. One of the issues that had to be clarified was how responsibilities, powers and functions were going to be properly assigned to different entities, and how the money would be allocated to deal with this.
Mr Mbili said that he understood the constraints faced by the DHS and the provinces.
Mr Mbili referred again to the explanation of the DHS that shifting of funds was processed at the end of the third quarter, and additional funds were transferred almost at the end of the fourth quarter.
Co-Chairperson Sogoni interrupted, saying he thought the DHS had to clarify this statement further.
Mr Mbili agreed. He noticed that the Northern Cape received even more money during the end of the fourth quarter. The Free State spent 312% of its HSDG budget and the North West spent 187% of its HSDG budget. He asked where these provinces got this money to over-spend.
The Chairperson noted that slide 13, on the 4th quarter expenditure performance for the HSDG, was very confusing. He wondered why the DHS had to take so long to respond to requests from provinces for additional funding.
Ms Mashigo said she understood the Committee was running out of time and needed to move on to the next presentation, but she felt that this discussion was far from winding down. The Committee needed the public to understand what was happening with the money that was appropriated and adjusted for use by the provinces for housing. The Committee still did not know why the DHS under-spent on its Housing Policy, Research and Monitoring programme. The DHS said that it had low capacity, but it knew these functions had to be fulfilled, because the budget included them. When there were instances of massive under-spending and over-spending, this was very confusing and erratic. The Committee had to understand what was happening, as Members needed to take the information to their constituencies. There were many questions that had not been answered by the DHS. The Committee had expected a more in depth report from the DHS. She wondered if the DHS was going to meet with the Committee next week to give full explanations, that could satisfy both the Committee and the public.
Ms Yengeni added that she was concerned about the DHS, as it was a very “sensitive” department. She agreed that Members were expected to go to the public and answer to certain issues. This was very difficult, especially during election times. The Committee needed to understand the challenges the DHS faced, in order to assist this department. Members also needed to know what progress they had made in provinces. She did not see the DHS could succeed, given its current lack of capacity. She wondered how DHS could allocate money to provinces when DHS knew that it would not be able to monitor the spending of the funds. The DHS needed monitors on the ground to check the provinces' business plans, and to assess whether projects were going to succeed. DHS had to know what challenges the provinces faced. It was not wise to give money when the DHS did not know how it would be used. The sooner the DHS capacitated itself, the better.
Mr Gelderblom asked the DHS to also tell the Committee, when it returned, how much money had been budgeted for consultants.
Co-Chairperson Mr Sogoni said that the Committee could either ask the DHS to respond to the questions by way of a conclusive report, or invite the DHS to return to the Committee on 10 August 2011, which was probably preferable. The questions that were raised were very important.
Mr Zulu answered that the DHS was more than willing to meet with the Committee on 10 August.
Co-Chairpersons Sogoni and Dambuza agreed that the DHS would meet again with the Standing Committee on this date, to provide the information required.
Economic Development Department 4th Quarterly Report, 3 August 2011
Professor Richard Levin, Director General, Economic Development Department, presented the quarterly report of this entity. He noted that the information presented was based on the 2010/11 Audited Annual Financial Statements. The Auditor-General had given an unqualified audit opinion on the statements.
The total adjusted budget for the 2010/11 financial year was R449.8 million. Expenditure for the 12 months of 2010/11 was at R400.6 million (89% of the adjusted appropriations). If the transfers to entities were excluded, then the expenditure was R44.2 million (48% of the adjusted appropriation of R91.3 million).
The 2010/11 financial year was the first full year of operation of the Economic Development Department (EDD). The EDD staff grew from 18 to 79 over the financial year. The entity experienced challenges in recruiting suitable and experienced staff. The compensation of employees was a major cost driver, consisting of 60% of the budget, which accounted for lower expenditure here. The EDD applied for rollovers of committed funds, totalling R35 million, which might have changed the expenditure picture. The actual spending for Programme 1 at 31 March 2011 was R35 million or 78% of the budget. The actual expenditure for Programme 2 amounted to R6.6 million or 39% of the budget. The slow spending on this programme was due to the slow rate in filling posts, again because EDD was in its first year of operation. The financial year expenditure for Programme 3 was R359 million or 95% of the budget of R376 million. The amount of R356.5 million was transferred to the EDD’s Public Entities. The expenditure for Programme 4 was R455 000 or 4.3% of the adjusted budget of R10.712 million. The slow spending on this programme was due to the slow rate of filling posts, as EDD was in its first year of operation.
The Department had 124 posts, of which 75 were filled, leaving a vacancy rate of 39.5%. The EDD requested National Treasury (NT) to roll over committed but unspent funds from 2010/11 to the 2011/12 financial year, in the amount of R35.050 million. A decision from National Treasury was expected in the first week of August 2011. The revenue collection for 2010/11 amounted to R547 million and the main generator of revenue for the EDD was fines and penalties from the Competition Commission. The projected revenue figure was exceeded, as a result of the Pioneer Food audit report. The EDD had made a concerted effort to fill vacant posts as rapidly as possible. The expenditure would improve as posts were filled. 60% of the funded posts should be filled in current financial year.
Dr Levin then drew Member’s attention to the annexure setting out performance against targets for 2010/11. This document was drawn in line with the New Growth Path (NGP) for South Africa, and encouraged discussion and debate on its key measures. The EDD and Department of Public Services and Administration (DPSA) had developed a system to measure the employment impact of government programmes and policies. The entity engaged with various forums of government to align key aspects of work with the principles of the NGP. The Department also engaged with provincial and local governments to align the provincial growth and development strategies and integrated development plans to the NGP. It provided project facilitation support by intervening to address blockages hindering the progress of province-led projects, and promoted dialogue to save and create jobs at sector and workplace levels. The EDD had to ensure additional funding for agencies and worked with them, where appropriate, to realign mandates to government’s focus on employment. This Department had the mandate to participate in the Walmart/Massmart hearings, and to work with the Department of Energy and the IMC to finalise the South Africa’s new Integrated Resource Plan (IRP2) for electricity.
The Estimates of National Expenditure (ENE) Target 1 was related to policy and analytical papers. It included the NGP documents and summaries, the discussion document on social economy, knowledge economy, mining and beneficiation, manufacturing, and a discussion document on the public sector. The ENE Target 2 provided an overview of the policy platforms. The targets to be reached related to the second Next Economy National Dialogue, the EDD and International Labour Organisation (ILO) Workshop on the construction sector and the green economy on 17 May 2011; the co-hosting of the Green Economy Summit from 18-20 May 2011, the seminar on exchange rates, the policy platform on food security, the Green economy business forum, a public lecture by Professor Joseph Stiglitz, a workshop on assessing the direct impact and indirect impact of the state on employment, and discussions with the Mining Industry Growth, Development and Employment Task Team (MIGDETT) on implications of NGP for mining.
The third ENE target dealt with engagement with provincial and local governments. These consisted of the Ministerial delegation’s visits to various areas and engagement with various provincial and local governments. The fourth target of the ENE involved the strategic engagements with Development Finance institutions (DFI) and banks. The Minister and Director General had engaged the agencies on their strategic plans and a meeting was held with all agencies on 4 June 2011. Some of the targets that were listed included the Minister’s engagement with the Industrial Development Corporation (IDC) and the Competition Commission, engagement with State Owned Enterprises on the NGP, and quarterly dashboard reporting of public entities. There was evaluation of entities’ strategic plans, and the Pioneer Food settlement.
Target five of the ENE dealt with the value of special financing for small businesses, targeted growth sectors and companies in distress. The target was R2 billion, but the Department achieved R3.097 billion. The IDC distress funding helped out 43 companies to the value of R2.096 billion and saved 12 182 jobs in the process. The Unemployment Insurance Fund (UIF), apart from funds used for distress funding, assisted 28 companies to the value of R1. 001 billion, saving 11 847 jobs.
The sixth ENE targets focused on Sector and Spatial plans. The Sector plans involved the Green economy, agricultural value chain, steel sector, a sector assessment of the clothing and textile industry, and the report on Square Kilometre Array for the Northern Cape Province. The Spatial plans included the N2 Wild Coast Toll Road, Bitou Municipality, Coega Industrial Development Zone, Atlantis, Ntunda, Economic Spatial Perspective, The Greater Taung Municipality, Peace Island, and the Matzikama Municipality. The social dialogue and capacity building was at the core of the eighth ENE target, and would include various sectors across the country. The ninth target revolved around the economic agreements. These were the clothing and procurement agreement, training layoff procedures, agreement to improve coordination on the Framework agreement, the national agreement on the Training Layoff Scheme, and agreement on a pilot project to build decent work in the construction industry.
Mr J Gelderblom (ANC) thanked the Department for the presentation and asked a question on the Walmart/Masmart merger. He asked whether the aim of the entity in this regard was to secure jobs for the people, or for the textile industry.
Mr Swart highlighted that the Department was relatively new, but acknowledged that it had done a great job even though it was lacking in capacity. He asked about the spending over the MTEF period, because he could see that there was under expenditure.
The Chairperson indicated that he had heard the point the Department was first evaluating each job before employing any person, and the Director-General’s reference to the lack of skills in the market. He asked what the EDD was doing in the meantime to overcome this challenge, for the long-term, and asked what difference the Committee would see from what had been presented today.
The Chairperson also understood that the EDD was established with job creation in mind, and asked how the Department’s goals would be achieved whilst the EDD itself lacked the capacity to grow. He was worried that many departments, including the EDD, seemed to show a tendency to under spend on issues like Broad Based Black Economic Empowerment (BBBEE) and the Second Economy, as indicated on slide 7 of the presentation. It was important to close the gap between economic classes, and these areas needed to be attended to. He asked about the general performance of the various stakeholders of the Department.
Dr Levin responded that the Walmart/Massmart debate underpinned the issue of securing jobs, because a massive influx of workers would be made possible by this merger. It was therefore important for the Competition Tribunal to formulate more appropriate conditions that would benefit the locals more.
He noted that the Department dealt with the challenge of adequate skills by bringing in young talented people on contract, and offering permanent employment to those who displayed the talent and skills. However, the EDD also lacked mentors to develop all these youngsters. There would be concerns raised if the EDD were to “poach” experts from other Departments, but the EDD had been successful in headhunting some talent directly and still had appointments to headhunt. It had been the goal of the entity to nurture local talent and bring these people in at middle management or just below management.
The under spending on job creation initiatives explained the importance of the system the Department developed with the Performance, Monitoring and Evaluation Department of the Presidency. The system required regular reporting from Departments on job creation initiatives. The Department was not just filling posts for the sake of filling them, but was ensuring that all vacancies were filled with service delivery in mind.
Dr Levin confirmed that the EDD was taking action in the area of BBBEE and the Second Economy. The New Growth Path set out policy in that area. The EDD also did some work with the University of Johannesburg on training and empowerment. Training was directed to Provincial Departments, regarding capacity development, but there was also an initiative with trade unions to embark on capacity building. The Department also hoped to undertake similar activities with smaller business. The EDD agreed with the concerns of the Committee around productivity and entrepreneurship and innovation, because the Department did have the capacity in those areas that would help with job creation initiatives.
The Chairperson congratulated the Department on receiving an unqualified audit report, but mentioned that Members usually accepted that with caution. The Department could account for everything by providing receipts but the Committee would like to engage with the Auditor General on the final report.
The meeting was adjourned
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