Economic Development's 2012/13 Performance & 2013/14 Projections: input by Financial and Fiscal Commission

Economic Development

11 March 2013
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Financial and Fiscal Commission (FFC) said the analysis was not for the full year but only up until the end of the third quarter of 2012/13. FFC’s primary focus was on intergovernmental financial and fiscal matters. The Budget reflected a growth in public sector infrastructure investment and the FFC attempted to coordinate microeconomic policy to support development objectives. Current economic development challenges included high unemployment, poverty, increasing inequality, lack of development of the small business sector and a lack of infrastructure and poor health and education outcomes. The Economic Development Department had had successive years of improvement in its spending pattern and given that the nature of the EDD was that it was not actively involved in construction projects, the Department’s spending pattern was expected to be relatively linear. The FFC had recommended to government that it should redirect spending to activities that directly and indirectly created jobs. Government’s response was that there were already a number of job creation initiatives. It would therefore be important to monitor the outputs of the Department's entities which operated on the ground and could influence job creation. The Department had four programmes: Administration, Economic Policy Development, Economic Planning and Coordination, and Economic Development and Dialogue. Key policy priorities were promoting investment, increasing the availability of development finance, implementing and adjudicating competition policy effectively and creating an efficient international trade administration. The Budget of the EDD had increased from R400m in 2010/11 to R696m in 2012/13 and was expected to reach R987m over the MTEF to 2015/16 at an average real growth rate of 8.1%.  The Planning and Coordination programme comprised the major share of the total budget at 86%. The programme included tribunals and development finance institutions to which transfers were made. By January 2012, the Department had spent 82% of its budget. The FFC questioned whether 16 non-financial indicators were sufficient for the Department to report on. It said that some indicators were vague and it was unclear how some were measured with no reference made to the plans being reviewed. Some indicators had more than one output while others overlapped.

Members asked to whom the FFC made its recommendations. Members acknowledged that the FFC reported to Parliament, not to the departments, and asked if the FFC received any feedback from the departments. Members asked what the FFC’s view on an ideal spending graph was. Members asked the FFC to expand on the under spending of 23% in the Economic Policy programme and on the issue of the EDD not being a ‘delivery’ Department. Members said illegal immigrants as well as Human Resources in the Department should be included as challenges facing the Department. Members asked how good intergovernmental relations were with regard to planning and coordination, especially the three spheres of government. What were the problems? What happened after MinMecs had met, was there follow up?
Members said the continued vacancies were a challenge as the Department could not argue that they could not fill posts for five years. Could the FFC ask these questions to the Department? What was the relationship between the FFC and the Department of Performance Monitoring and Evaluation (DPME)? Members asked why regulatory bodies could not identify how many jobs had been created through their work. Had the transfers to these bodies increased? Was it proper that the money of these entities were included in the Department’s budget? How did the Department influence the work of these entities after the transfer of funds? Members asked how employer compensation could grow while at the same time the supply of goods and services was decreasing. Members felt there was too much spike in the expenditure pattern and this was occurring at the end of the quarter when quarterly reports were due. Was there any way to monitor whether this was taking place? Members asked if the FFC analysed the entities of the EDD. Members noted that there were still resignations at EDD even though the Department claimed that conditions had improved.
Members said the border regions were suffering from illegal immigration and the equitable share did not account for this.

Meeting report

 

Financial and Fiscal Commission briefing
Mr Bongani Khumalo, CEO of the Financial and Fiscal Commission (FFC), said the analysis was not for the full year but only up until the end of the third quarter of 2012/13. He said the FFC operated in terms of Section 220 of the Constitution and made recommendations under Chapter 13 of the Constitution. Under the FFC Act it had a broad mandate which covered any financial or fiscal matter but that its primary focus was on intergovernmental financial and fiscal matters. In the context of the global economy and the South African economy, the Budget reflected a growth in public sector infrastructure investment and the FFC attempted to coordinate microeconomic policy to support development objectives. Current economic development challenges included high unemployment, poverty, increasing inequality, lack of development of the small business sector and a lack of infrastructure and poor health and education outcomes. The Department had had successive years of improvement in its spending pattern. Given that the nature of the Economic Development Department (EDD) was that it was not actively involved in construction projects, the Department’s spending pattern was expected to be relatively linear. The FFC had recommended to government that it should redirect spending to activities that directly and indirectly created jobs. Government’s response was that there were already a number of job creation initiatives. It would therefore be important to monitor the outputs of the Departments entities which operated on the ground and could influence job creation.

Ms Lydia Ntenga, Programme Manager: National Budget, said that the Department had four programmes: Administration, Economic Policy Development, Economic Planning and Coordination, and Economic Development and Dialogue. Key policy priorities were promoting investment, increasing the availability of development finance, implementing and adjudicating competition policy effectively and creating an efficient international trade administration. The Budget of the EDD had increased from R400m in 2010/11 to R696m in 2012/13 and was expected to reach R987m over the MTEF to 2015/16 at an average real growth rate of 8.1%.  The Planning and Coordination programme comprised the major share of the total budget at 86%. The programme included tribunals and development finance institutions to which transfers were made. By January 2012, the Department had spent 82% of its budget compared to the 90% it had at the same time the previous year. The FFC questioned whether 16 non-financial indicators were sufficient for the Department to report on. It said that some indicators were vague and it was unclear how some were measured with no reference made to the plans being reviewed. Some indicators had more than one output while others overlapped.

Mr Khumalo said in terms of Chapter 9 of the Intergovernmental Relations Act, the Minister, on tabling the Division of Revenue Bill (DoR), had to respond to how it took into account the FFC recommendations while in terms of Section 4 of the Money Bills Act, the Commission's recommendations were to be considered by Committees when meeting with the relevant department about the DoR.  Where the Minister did not respond to the FFC’s recommendations, then the relevant Department had to respond to it.
The FFC had called a meeting and briefed all parties affected by the comments. The Committee could raise the issue of the FFC’s recommendations with the EDD on the basis of Chapter 2 and Chapter 7.

Discussion

Mr H Hoosen (ID) asked to whom the FFC made its recommendations.

Mr Khumalo replied
that its recommendations were to Parliament.

Mr Hoosen acknowledged that the FFC reported to Parliament, not to the departments, and asked whether the FFC received any feedback from the departments.

Mr Khumalo replied that it had invited the Department to a meeting and then took them through the recommendations. It was up to the Department to accept or reject the recommendations but the report ultimately were recommendations to Parliament not the Department. 

Mr Hoosen asked what the FFC’s view on an ideal spending graph was.

Mr
Khumalo replied that the ideal one was a linear one but that this rarely happened. The graphs shown in the presentation, in his view, reflected a department that was learning. The Department had improved since the previous year but there was still room for improvement so that the graph would appear more linear.

Mr X Mabasa (ANC) asked the FFC to expand on the under spending of 23% in the Economic Policy programme and on the issue of the EDD not being a ‘delivery’ Department.

On the latter part of the question, Mr Khumalo replied that he meant the Department’s graph was more likely to be linear as it was not a department involved in construction projects.

Ms Ntenga replied that the 23% under spending in the Economic Policy programme was because of vacant posts not being filled. This was a worry as the underspend was as a result of the Department having identified posts and a budget for it in its planning but had not spent it because personnel costs were ring-fenced and could not be spent on other programmes and Department had to account for the underspend.

Ms D Tsotetsi (ANC) said illegal immigrants as well as Human Resources in the Department should be included as challenges facing the Department.

Mr Khumalo replied that Treasury was a good example which built their own skills base in-house through internship programmes. The vacancies issue was better discussed with the Public Service Commission. Regarding migration, stability was needed in population demographics to allow for successful planning. Some municipalities’ equitable share had shown declines of 80% because of population movements. Similarly with provinces, the Eastern Cape and KwaZulu-Natal (KZN) had shown declines in population numbers which had resulted in KZN receiving R6b less. The challenge was not that they went away permanently; it was that at some point they returned. Regarding foreign migrants, he said the Department of Home Affairs had successfully done registration drives and South Africa also had international commitments which it had to uphold. The equitable share was based on income. The FFC would be engaging with stakeholders on redrafting the provincial equitable share formula.

Mr Z Ntuli (ANC) asked how good intergovernmental relations were with regard to planning and coordination, especially the three spheres of government. What were the problems? What happened after MinMecs had met, was there follow up?

Mr
Khumalo replied that the Department did not have a person dealing with intergovernmental relations. He said different provinces had a similar type of ministry and he got the same type of question from them too. There was a need to take the MinMec’s a step further and the FFC would make a recommendation to strengthen the MinMec’s role.

Mr Ntuli said the continued vacancies were a challenge as the Department could not argue that they could not fill posts for five years. Could the FFC ask these questions to the Department? What was the relationship between the FFC and the Department of Performance Monitoring and Evaluation (DPME)?

Mr
Khumalo replied that there was no direct relationship between the two. The FFC had tried from the start to establish one because there were lots of synergies in their work but that there were lots of people movement in the Department.

The Chairperson asked why regulatory bodies could not identify how many jobs had been created through their work. Had the transfers to these bodies increased? Was it proper that the money of these entities were included in the Department’s budget? How did the Department influence the work of these entities after the transfer of funds?

Mr
Khumalo replied that the Competition Commission oversaw merger approvals which were a direct signal to business on how they had to operate. The Competition Commission could document what impact its decisions had on job creation and this should be built into their work procedures. In the Wal-Mart case, unions had been concerned about job losses and the question was whether the Competition Commission could do a follow up and monitor the jobs issue.

Mr
Khumalo replied that the 86% portion of the budget for the Economic Planning and Coordination contained the transfers to the entities. The FFC would look at legislation and the accounting structures to ascertain whether the entities were independent and did not have to account to the Ministry and give a written reply. Similarly it would investigate whether the money transferred to entities had to be spent in line with government priorities or whether they were totally independent of these priorities.  

The Chairperson asked how employer compensation could grow while at the same time the supply of goods and services was decreasing. She felt there was too much spike in the expenditure pattern and this was occurring at the end of the quarter when quarterly reports were due. Was there any way to monitor whether this was taking place?

Mr Khumalo replied that monthly reports had to be submitted, so the Committee could request them. If the reports were not submitted, it would be an offence under the Public Finance Management Act.

Mr Hoosen asked if the FFC analysed the entities of the EDD.

Mr Khumalo replied that FFC could do so at the Committee’s request.


Ms Tsotetsi noted that there were still resignations at EDD even though the Department claimed that conditions had improved.

The Chairperson asked what the role of Chapter 9 or Chapter 13 institutions were, as the Committee found itself circumscribed by being dependant on what was tabled before it, for example the Auditor General’s audit report and the Section 32 reports. It could write recommendations to Parliament but these were mostly not considered or implemented.

Mr Khumalo replied that there was a Forum of Institutions Supporting Democracy, comprising Chapter 2, 9, 10 and 13 bodies which gave advice to strengthen Parliament’s capacity and identify its shortcomings. An office had been established in Parliament to assist in coordination. The current Chairperson of the Forum had met with the Speaker to follow up on issues because the forums member bodies produced lots of reports and they could get lost in the complexity of Parliament processes.


The Chairperson said the border regions were suffering from illegal immigration and the equitable share did not account for this.

The meeting was adjourned.

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