Hearing on the 2012 Medium Term Budget Policy Statement with the Human Science Research Council

Standing Committee on Appropriations

30 October 2012
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Committee had invited the Human Sciences Research Council to present a submission on how the limited resources available to the country could be utilised more effectively.  The submission was divided into sections dealing with the National Health Insurance scheme, school infrastructure, the national infrastructure programme, rural development and job creation.  The context, principles, objectives and challenges for each section were outlined.

The Council’s recommendations on the NHI included the establishment of a shadow Operational NHI Unit to undertake preliminary and to ensure that adequate skills were available when the Single Purchaser NHI Fund was established; that the qualitative assessment of the pilot projects was supplemented with a quantitative assessment; the finalisation of the White Paper and public participation in the process; the finalisation of the implementation plan; the introduction of draft legislation based on the final White Paper; the establishment of an ICT system for NHI; the development of a risk management plan and the establishment of a further ten pilot districts.

Recommendations on education included that norms and standards for school infrastructure were set; that the roles of the Departments of Basic Education and Public Works were clearly defined and effectively linked; that mechanisms were put in place to allow schools to communicate infrastructure needs; that the quality of the National Education Infrastructure Management System was assured; that management system indicators were used to prepare multi-year budgets to address deficits and that programmes were developed to address the resource and personnel deficits.

Recommendations on the country’s infrastructure programme included the active participation of the community in the planning and implementation of infrastructure projects; increased fiscal control over projects; holding the responsible entities accountable; better coordination and alignment of infrastructure projects; the implementation of the Construction Sector Transparency Initiative system to monitor and report on projects and increased oversight by Parliament to ensure that the objectives of the programme were met.

The Council warned of the negative consequences of under-spending on rural development.  The aims and objectives of the various rural development initiatives and entities were not clear.  Recommendations included the shifting of budget allocations towards making good quality food more affordable through investment in local agro-food markets and providing food price subsidies to low-income families.

The Committee Report on Expenditure Patterns for the Fourth Quarter of 2011/12 was adopted, with amendments.

Meeting report

The Committee had invited the Human Sciences Research Council to present a submission on how the limited resources available to the country could be utilised more effectively. 

Submission by the Human Sciences Research Council (HSRC)
The submission was divided into five sections (see attached document).

Dr Olive Shisana, Chief Executive Officer, HSRC presented the section on what could be done to ensure that the health system was ready for the implementation of the National Health Insurance (NHI) scheme.

The submission covered the principles and objectives of NHI; a summary of the management reforms and legislative process required in terms of the White Paper; hospital reimbursement reform; the establishment of the Office of Health Standards Compliance; the progress made in respect of quality improvement; the strengthening and reform of district health authorities to manage NHI; primary health care services and the development and implementation of a human resource strategy for health.

The references to NHI in the 2012 Medium Term Budget Policy Statement (MTBPS) were summarised.  Although the National Treasury had indicated that an additional R6 billion would be required in 2014/15, provision had not been made in the Medium Term Expenditure Framework (MTEF).  The Treasury required a quantitative assessment of the progress made on institutional reforms and the capacity of the health system to provide services before additional funds would be made available.  The Treasury was assessing alternative revenue options for NHI.  A conditional grant was established in April 2012 to test certain innovations necessary for the implementation of NHI and to pilot the scheme in certain districts.

The HSRC was concerned over the decline in public health expenditure as a percentage of the gross domestic product (GDP) and as a percentage of total Government spending.  The down-ward trend was contrary to the high priority rating given to NHI.  The constraints in spending the NHI conditional grant were acknowledged.  The recommendation was that the NHI conditional grant was changed from a Schedule 5 grant to a Schedule 7 grant.

The establishment of the NHI Fund was provided for in the Green Paper on NHI.  Funding should be made available for the establishment of a shadow Operational NHI Unit to undertake the preliminary work necessary and to ensure that adequate skills were available when the Single Purchaser NHI Fund was established.

The Minister of Health had visited the pilot projects that were set up in 10 districts to assess what progress had been made.  The HSRC suggested that the qualitative assessment of the pilot projects was supplemented with a quantitative assessment.

In addition, the HSRC recommended the finalisation of the White Paper and public participation in the process; the finalisation of the implementation plan; the introduction of draft legislation based on the final White Paper; the establishment of an ICT system for NHI; the development of a risk management plan and the establishment of a further ten pilot districts.

Dr Vijay Reddy, Executive Director: Education Service Delivery Unit, HSRC presented the section on what could be done to improve the delivery of school infrastructure and quality education.

The submission highlighted the inequalities in the South African education system and summarised what constituted effective learning spaces and adequate school infrastructure.  A breakdown of the infrastructure shortfalls in each province was included.  Government had made R9.17 billion available An analysis of the 2011/12 third quarter expenditure patterns revealed that most provinces were under-spending on school infrastructure programmes.  As at March 2012, only 4.5% of the projected budget had been spent.  Examples of the facilities at four homeland and Model C schools were provided.  Submissions for National Norms and Standards for School Infrastructure were invited in 2008 but had not resulted in the formal establishment of such norms and standards.  Progress had been made in creating a database of school infrastructure.

The Departments of Basic Education (DBE) and of Public Works (DPW) were both involved in primary infrastructure improvements to schools.  However, proper mechanisms to ensure that the needs of schools were communicated and addressed were lacking.  Certain supply-chain management and procurement issues prevented effective roll out of infrastructure improvement plans.

The HSRC recommended that norms and standards for school infrastructure were set; that the roles of the DBE and DPW were clearly defined and effectively linked; that mechanisms were put in place to allow schools to communicate infrastructure needs; that the quality of the National Education Infrastructure Management System (NEIMS) was assured; that NEIMS indicators were used to prepare multi-year budgets to address deficits and that programmes were developed to address the resource and personnel deficits.

Dr Peter Jacobs, Chief Research Specialist, HSRC presented the section on job creation through Government’s core delivery mandate.  The issue of jobs needed to be seen in the context of the domestic and global economy over recent years.  The outlook for economic growth was not favourable in the short- to medium term, resulting in the need for prudent budgetary decisions.  South Africa aspired to increase spending on ‘investment’ (i.e. infrastructure and economic competitiveness) and ‘social wage’ (i.e. education, health, water and informal settlements) items at the expense of ‘consumption’ items (i.e. administrative costs, salaries and wasteful spending).

The implications for jobs in the short-term included the stagnation of growth in public sector employment and modest growth in private sector employment.  An increase in employment in the infrastructure and construction, agriculture, manufacturing, mining, the ‘green economy’, tourism and consumer and business services sectors was expected in the medium-term.  However, certain question marks remained over how employment growth would be stimulated, how labour-absorbing growth would be promoted, the uncertain relationships between the private sector and labour unions, how the issue of youth unemployment would be addressed and what the strategy was for the Jobs Fund.

Ms Judith February, Executive Director: Democracy and Governance presented the section on infrastructure development and the separate submission prepared by the Democracy Governance and Service Delivery Unit of the HSRC (see attached document).

In the MTBPS, the Minister of Finance confirmed Government’s commitment to grow the economy through public spending.  The budget for infrastructure during the current MTEF period was R845 billion.  In carrying out its oversight mandate, Parliament should ensure that the infrastructure programme was properly planned, implemented and monitored.  Poor infrastructure delivery remained a problem at the provincial and local government levels.  The challenges included poor project planning capacity, poor implementation capacity, the misalignment of projects with the national priorities, poor coordination between the three levels of Government and insufficient communication and partnerships between Government and the private sector.

The National Development Plan (NDP) was released in August 2012.  The NDP was informed by a diagnostic report, which indicated nine primary development challenges.  The NDP was intended to advance a multi-dimensional approach to development and advocated the provision of economic infrastructure to deliver basic services such as electricity, water, sanitation, telecommunications and public transport.  The New Growth Path (NGP) announced in 2010 identified a range of structural economic problems that had to be addressed.  The NGP included the goal to create 5 million new jobs by 2020.

The Presidential Infrastructure Coordinating Commission (PICC) was established to coordinate and accelerate the long-term infrastructure development programme.  The PICC mandate was however limited to large projects.

The HSRC agreed that infrastructure development could be an effective way of addressing poverty.  Less waste, less inefficiency and more fiscal control were necessary.  A participatory element must be included in the infrastructure programme to ensure that the community was involved and benefited directly from the projects.  Although the South African constitution envisaged a representative and participatory democracy the country had fallen short of ensuring buy-in from communities in Government plans.  In a study undertaken by the HSRC, it was found that there were wide discrepancies between the perception of the community of the benefits of a development and the perception of the local government authority that adequate public participation had taken place.  In many instances, communities were not consulted but were simply informed after the fact.  Public/private partnerships (PPP’s) and engagement with non-governmental organisations (NGO’s) could contribute to effective service delivery.  Proper planning and a multi-stakeholder approach were advocated.

The PICC identified monitoring and accountability as key issues in rolling out large infrastructure projects.  The HSRC suggested that the Committee considered issues of accountability within the large-scale projects and the extent of the involvement of the local community and business sector in the planned projects.

Corruption and maladministration were the major risk factors and could undermine the best-laid plans.  The Construction Sector Transparency Initiative (CoST) was a global initiative to ensure value for money from publicly financed construction projects.  The submission summarised the purpose of CoST, which could be applied to other types of construction projects (such as PPP’s); the practical application of CoST and the benefits of applying the system to the country. 

The HSRC urged the Committee to play an active role in ensuring that the objectives of the infrastructure programme were met.

Dr Jacobs presented the section on how expenditure could be improved to attain the best outcomes with regard to rural development.

The submission covered the policies applicable to smallholder farmers; the budgetary provision for rural development; the review of the Comprehensive Rural Development Plan (CRDP); the National Rural Youth Service Corps (NRYSC); the Pro-active Land Acquisition Strategy (PLAS); the Re-capitalisation and Development Programme (RECAP); the progress made in rural infrastructure development; agricultural development support (ADS) to small farmers; the decline in employment in the primary agricultural sector and household food security.

Although increased funding was made available to the Department of Agriculture, Forestry and Fisheries (DAFF) its effectiveness was dependent on adequate capacity and the ability to deliver.  The CRDP was the Department’s flagship programme, encompassing the development of rural areas, enterprise development and job creation, household food production projects and some PPP’s with local government authorities.  The purpose of the NRYSC was not clear.  Although the programme had provided 7,401 young people with training, it was not certain whether the trainees were assured of a job after completing the course.  PLAS provided for the State to acquire farms, which are leased to beneficiaries instead of providing land grants.  However, chaos had ensued when attempting to allocate three farms to 52 applicants.  RECAP was intended to assist struggling land reform beneficiaries and to make South Africa food-secure but it was unlikely that the target to train 416 emerging farmers would be met.  The rural infrastructure development plan was fragmented and disjointed and more cooperation between the various Government Departments involved in the programme was required.  Agro-logistic programmes were not clear on how smallholders and rural communities would be reached.  Accurate data on small-scale farmers was required.  The sharp decline in employment in the agricultural sector in the previous decade (from 2.5 million to slightly more than 500,000) was worrying.  The decline in household food security was another area of concern.

The HSRC warned of the negative consequences of under-spending on rural development.  The Council suggested that budget allocations were shifted towards making good quality food more affordable through investment in local agro-food markets and by providing food price subsidies to low-income families.

Discussion
The Chairperson thanked the delegates from the HSRC for the submission.

Mr M Swart (DA) found the presentation to be informative.  Planning was integral to running a business.  The NHI programme involved pilot projects rather than a thorough planning process.  He asked what the cost of the pilot projects was.  It would appear that there had been a drastic reduction in the quality of the basic education syllabus as universities had introduced their own tests to determine if matriculants were ready for further study.  He asked what could be done to improve the quality of basic education.  He was not convinced that small-scale farming was the answer to improving food security.  In his opinion, large farming enterprises were more effective to provide food security to the country.

Mr J Gelderblom (ANC) appreciated the open and frank engagement with the HSRC.  He disagreed with Mr Swart that small-scale farming was not successful and cited the Vaalharts scheme developed in the 1930’s as an example.  Government should consider establishing similar schemes on the productive land available in the Eastern Cape and KwaZulu Natal provinces.  He asked what role could be played by the Committee to encourage the DAFF to develop an effective rural development plan that could be easily understood and implemented.  It was also necessary to address small farmers’ complaints about unnecessary red-tape.  He asked how entrepreneurs in the agricultural sector could be encouraged.  Emerging farmers needed mentors but the quality of extension officers was questionable.  He asked what could be done to improve the standard of extension officers.

Ms R Mashigo (ANC) queried the necessity and effectiveness of the various implementing agencies.  She asked if certain infrastructure projects could be linked and funded more effectively.  She asked what grants were currently available for infrastructure projects.

Ms N Mkhulusi (ANC) recalled that there used to be a tool to evaluate teachers.  She wondered to what extent poor school infrastructure contributed to the poor results achieved.  She asked what steps needed to be taken by Government to address the poor school infrastructure.  In certain cases, a lack of available land inhibited schools from expanding or upgrading existing infrastructure even if sufficient funds were available.

Mr G Snell (ANC) pointed out that the Constitution made provision for State entities to cooperate with each other.  He asked if the HSRC had considered undertaking a research project on the impact of the three-tier governance system on service delivery.  In his opinion, the current system hindered effective service delivery.

Mr L Ramatlakane (COPE) remarked that the Committee had the power to amend Money Bills.  He asked if adequate funding provision had been made for NHI.  He asked what could be done to address the challenges concerning the youth more effectively.  Education was a national priority and he wondered what the reason was for the delay in implementing norms and standards for the education system.  He asked if there was a fear that the substantial amount that had already been spent on the education system would go to waste if norms and standards were introduced.  He asked what needed to be done to turn around the rural development programme and what lessons could be learnt from the experience of other countries.  He asked what needed to be done to ensure that infrastructure projects were integrated and that budgets and programmes were aligned.  He noted the decline in the percentage of GDP allocated to health and asked if the provincial budgets were aligned with the national priorities and policies.  It was not clear how all the entities involved in NHI interacted with each other.

The Chairperson asked if the 42% rate of unemployment amongst the youth could be verified.  He asked if the effectiveness of the PICC could be assessed.  He asked for comment on the idea of a national office responsible for State procurement.  He asked if progress was being made to improve the training of teachers and if teacher training was focused on providing the learners with the necessary skills (particularly in mathematics and science) that would allow them to get a job.  He asked if the development of school infrastructure was in progress.  He asked if district health services correlated with municipal districts.  He noted that R5 billion had been made available for the job creation fund but very little had been spent to date.  He asked what could be done to accelerate the process.  He asked if the Rural Cooperative Bank had been established.  He asked what the relationship was between NRYSEC and the Department of Rural Development.

Mr Gelderblom observed that many of the rural development projects experienced major problems.  Certain projects were being funded by foreign donor funding and he wanted to know what the implications were for South Africa if donor funding was withdrawn.

Dr Shisana advised that funding for the NHI in terms of the Green Paper increased from R25 billion in 2012 to R156 billion by 2016.  Most of the funding provision was not new money and all except for R5 billion had been included in the MTEF budgets.  The latest census and HIV mortality data needed to be applied in refining the budget provision.  She agreed that research into the effectiveness of the three-tier governance system would be useful.  Currently policy was decided at the national level, planning took place at the provincial level and implementation should take place at the local government level.  Similar challenges were faced by Canada.  The Committee should consider changing the health funding model from Schedule 5 to Schedule 7, as suggested by the HSRC.  An additional ten NHI pilot projects should be undertaken.  NHI was based on the concept of integrating public and private health care and it was necessary to consider starting off with a public-funded system.  She suggested that Parliament considered finalising the necessary legislation to provide for the establishment of norms and standards for school infrastructure.  As soon as effective legislation was in place, the necessary inspections could be carried out to assess the needs and shortfalls of each school.  She confirmed that the NHI districts were aligned with local government districts.

Ms February advised that the Extended Public Works Programme (EPWP) was intended to involve and benefit the local community.  Large infrastructure construction programmes were less conducive to community participation.  People had to have a say in the development of their community and more needed to be done to develop innovative partnerships with local businesses, Black Economic Empowerment (BEE) and the awarding of tenders.  Local government authorities lacked skills capacity and were unable to implement projects and deliver services as required.  The issue of the effectiveness of the governance system and the possibility of changing the system had been under debate and the Governance and Service Delivery Unit of the HSRC could undertake a study into the matter.

It was difficult to assess the effectiveness of the PICC.  The plan was to roll-out the infrastructure in stages and the application of the CoST system should address most of the concerns.  CoST would utilise the existing reporting systems and generate data.  The Minister of Public Works had endorsed CoST but the agreement of all the parties involved had to be obtained.  She thought that a central State procurement office was a good idea.  The concept would work provided the office was effective and not merely another bureaucratic layer to complicate the procurement process.  The establishment of a tendering database was a prerequisite.  The International Labour Organisation (ILO) definition of ‘unemployment’ was used.  The percentage youth unemployment was based on the data available before the census results were released.

Dr Reddy responded to the questions about education.  Basic education had not received positive press coverage in 2012.  The perception of the education system had been more positive during the previous year.  In her opinion, the school curriculum was of a high standard but the problem was with how the curriculum was implemented.  The mathematics curriculum in particular was challenging.  She undertook to provide the Committee with a report on a recent study undertaken by the University of the Witwatersrand.  The HSRC would be releasing the report on the mathematics and science study in December 2012. 

The question was how much of the funding provision was spent on the actual infrastructure project and how much was spent on the administrative costs of the implementing agency.  In certain cases, donor funding agreements specified exactly how much had to be spent on the actual project.  The Department of Public Works should have a better understanding of what was involved in building a school than the Department of Basic Education.  She understood that the DPW was involved in a public/private partnership in certain projects in the Eastern Cape.  She suggested that a monitoring system and an extensive database with details of every school were created.  The data needed to be kept up to date to provide accurate information for planning purposes.

Research results indicated that 40% of schools had a teacher/pupil ration of greater than 40 and were considered to be overcrowded.  Norms and standards were subject to a different legal framework than guidelines.  She assumed that the decision to issue guidelines rather than norms and standards was made because the latter option was more vulnerable to legal challenges.  The census data indicated movement of the population between the provinces.  It would appear that young graduates tended to move to the more affluent provinces, such as Gauteng and the Western Cape, which had implications for long-term planning.  She acknowledged that teacher training remained a challenge.  Bursary schemes were available for aspirant teachers.  Research results indicated that early learning interventions in mathematics and science were crucial but challenges remained, in particular at Grade R.

Dr Jacobs was not sure if the Jobs Fund would increase access to employment.  There was too much emphasis on industrial development and more programmes needed to be developed and implemented.  More attention needed to be paid to ensure that effective mechanisms were in place for transferring the funds.  The overall unemployment rate according to the census data was 24.5%.  The youth could be classified as persons in the age bracket 15 to 25 or 15 to 35.  The unemployment rate for these age brackets was significantly higher than the national average.  There was no ‘quick fix’ solution to the problem of youth unemployment but lessons could be learnt from the experience in other emerging countries, e.g. Brazil.

Dr Jacobs agreed that the quality of extension services needed to be improved.  This could be achieved by improving the training of extension officers.  He disagreed that small-scale farming was not successful and referred to the outcome of three international studies.  The Rural Cooperative Bank was a new initiative of the Department of Rural Development.  The Bank had not yet been established.  He agreed that the suggestion that the various grants currently available were consolidated was a good idea.  A study had been undertaken on how the various grants paid to an entity could be utilised to optimum benefit.  The HSRC recommended that the investment in producing quality food crops was increased.  China and Brazil had implemented food security programmes, e.g. the Brazilian zero-hunger programme.  The programme should include aspects of food production, food quality and food distribution.  More cooperation between the Departments of Health, Social Development and DAFF was necessary to improve rural development.

Mr Ramatlakane asked if South Africa produced enough food.  He understood that farming output had declined and that food prices increased because of scarcity.  The problem with a lack of food security was that many households could not afford the cost of food.  He asked if food distribution was part of the problem.

Dr Shisana thanked the Committee for the opportunity to present the submission from the HSRC.  She had found the exchange with Members to be of value.  She undertook to provide the Committee with the various research reports referred to during the briefing.  The Committee was welcome to request any additional information required.

Committee Report on Expenditure Patterns for the Fourth Quarter of 2011/12
The draft Committee Report on Expenditure Patterns for the Fourth Quarter of 2011/12 was circulated to Members.

Mr Swart suggested that item 4.10 was omitted from the report as it was not possible to make a finding.

The Committee adopted the report, with amendments.

T
he meeting was adjourned.


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