Department of International Relations and Cooperation & African Renaissance Fund on their 2014 Strategic Plans

Meeting report

The Chairperson opened the meeting. He welcomed the Deputy Minister and his delegation and gave the Department the opportunity to continue with the presentation which had started in the morning. He expressed the wish that all Members would be in attendance in future. In order to make recommendations, he urged the Members to consider all the documents – those that were discussed in the morning and the information that would be provided in this meeting – thereby inviting an informed narrative on all the documents that have been presented.

The Deputy Minister introduced the officials who had accompanied him. The Director-General was currently overseas.

The Chairperson invited comments and observations, as it was in the Department’s interest in the process of going forward.

Outcome of 2013/2014 budget
Continuing on page 25 of the briefing document, the outcome of the 2013/2014 budget, the Chief Executive Officer (CFO), Mr Caiphus Ramashau, explained the reasons for the overspending of the 2013/14 budget for Programme 1 (Administration), Programme 2 (International Relations); Programme 3 (International Relations). Programme 4 (Public Diplomacy and Protocol) and Programme 5 (International Transfers). The outcome was influenced by inflationary adjustments; the depreciation of the Rand against other major currencies; foreign exchange fluctuations; facilitation and provision of protocol services to the Heads of State/Governments who attended the State funeral of former President Nelson Mandela; and foreign exchange losses in relation to contributions to the United Nations, African Union and Southern African Development Community.

In Programme 2 the depreciation of the Rand led to higher operational costs and a budget under-spent by R7.3 million due to deferred expenditure.  DIRCOhas received an adjustment appropriation of R5.75 million after the adjustment estimate. The Department has reached an agreement with National Treasury in terms of the accounting, for the foreign exchange rate that should be used. Unfortunately the rate was based on the assumption that the Rand would appreciate, which did not happen. He said the Department faced challenges in honouring its commitments to other landlords due to foreign exchange movement going forward. In the past, the Department had received unqualified audits and it will continue to strive towards this goal. Given the situation described above, at the end of the financial year the Department had therefore recorded a loss.

In dealing with the 2014-2017 budget allocation per programme, Mr Ramashau explained that there is an element of currency exchange movement. The Department does not have an instrument to manage this phenomenon and it needs a contingency reserve to manage the movement. Currently, when there is a loss, the Department must account for why it did not take the necessary measures to contain the expenditure within that budget.

The total proposed budget per programme for 2014/15 is R5.754 million; for 2015/16 it is R4.033 million; and for the year 2016/17 it is R6.410 million. The relevant table indicates that there is a year on year growth for all programmes, except for Programme 5 (International Transfers) where the percentage of -21.8% indicates a decrease in budget growth.

The 2014 Budget allocation per Economic Classification also indicates growth in the classifications of Compensation of Employees; Goods and Services; and Payments for Capital. But Transfers and Subsidies indicate a decrease in growth of -22.8%.

In the Overview of the Medium-term Expenditure Framework (MTEF) allocation, Mr Ramashau said spending was expected to increase to R6.4 billion, and that the Department’s growth trend has been decreasing over the seven year period.  Taking into consideration the projected foreign exchange loss, the budget growth further decreases to an annual average of 2.3%.

Under the ‘Approved baseline’ figure of R5.754 million, an amount of R277.56 million is shown for the Recapitalisation of the African Renaissance Fund (ARF).

A pie chart indicates the allocation as a percentage of total Budget for –
•           Earmarked funds (19%)
•           Compensation of employees (41%)
•           Goods and Services (23%)
•           Available budget to fund Department’s operations (17%)

Mr Ramashau discussed the measures that the Department intended taking to implement cost containment:
Finding a workable foreign exchange mechanism, i.e. a model to account for expenditure:
The Department realises that the government also faces challenges under the current economic conditions, as the revenue is shrinking in terms of cost containment measures. The Department cannot do hedging because that sends a wrong message to the market – i.e. that the government does not have faith in the Rand. 
At the current prevailing exchange rate, for the MTEF period, R1.3 billion is required to contain the current deadline.
Review of the appointment of locally recruited personnel: a legislative framework needs to be explored to help create employment;
Utilisation of technology in the conduct of foreign policy. There are challenges in terms of the availability of connectivity.

He concluded by discussing the following issues:  Formulation of an acquisition strategy for properties abroad, where a funding model needed to be created; drafting of a Foreign Service Bill; and review of the ARF Act – creation of a partnership fund for development.

The Chairperson thanked Mr. Ramashau for his presentation. He invited comments and observations from the Members.

Discussion

Mr S Mokgalapa (DA) queried the required amount of R1.3 billion as a contingency to sustain the movement of the current exchange rate.

Mr Ramashau replied that this was the amount the Department had agreed on with Treasury, as the rate stood today. (He mentioned in his presentation that there was no template as yet to determine the fluctuations.)

Mr Mokgalapa said he was satisfied if this amount was considered adequate. However, he referred to page 34 of the presentation (acquisition of properties abroad) and suggested that this item perhaps be increased by looking into acquisition and taking advantage of the possible escalation of property prices in overseas countries.

He raised the effect of employment at South Africa’s foreign missions on our expenditure abroad; were we bound by the Public Finance Management Act (PFMA)? If so, how did we navigate around the unavailability of local commodities?

Ms M Moonsamy (EFF) referred to pages 26-27 and asked the CFO whether the fluctuations in the rate of currency could be wholly blamed for the overspending and under-spending. She felt it was a huge concern, and should not become a convenient excuse. She suggested that suitable arrangements be made with Treasury to avoid a negative effect on the work of the Department and cause PMFA violations. She also needed clarity on the recapitalisation of the ARF.  How were the inefficiencies around the operations of the ARF being solved?  Was it not costing the Department dearly and how far were they in moving towards the agencies?

Mr Mokgalapa said that when the Committee met during the Fourth Parliament they were told that in the context within which they were operating, there was a tendency towards currency fluctuations and that they must budget accordingly. Now he found it disturbing that they were still battling with this aspect. There had been the economic downturn, and they had told the Department: go and do their projections.

Also, there was still the problem of the IT (International Transfers) and the problem of non-compliance. He wanted to know why the Department was not moving with speed. On the issue of acquisition, the Committee had been told it was cheaper to lease than to acquire property. He wanted to know what the status quo was now. The matter spoke to a bigger political picture. He asked whether the Department was not overstretching itself in the missions it currently had.

He asked whether the issue of unauthorised expenditure was going to affect the unqualified audit. He was concerned that these matters were going to affect the audit adversely in the next two to three years.

Public deployment, which is declining, was very important. DIRCOhad said the budget should cater for this problem.

He required clarity regarding the R440 million needed to maintain the current expenditure for the upcoming financial year.

Mr B Radebe (ANC) said he was very happy that the Department was striving to develop the African agenda. South Africa’s footprint was there as it was the fastest growing economy. However, there were some areas where he felt South Africa was not present.  The country was putting its priorities in the right place, but must not forget its historical partners, like the Americas and the European Union.

On the issue of the transfer to the ARF he said he did not know whether the transfer was adequate. Was the input equal to the output? In order to adopt the report for Parliament he requested a report by Monday on the projects of the Fund so that by Tuesday or Wednesday the information could be incorporated into the budget.

Mr Radebe was concerned that there was a lot of silence in the international policy around Ubuntu, which had become critical since the era of Mandela. It affected the conduct of SA’s partners in other areas. The Department’s foreign policy should reflect SA’s domestic policy. He requested a report around this issue.

He expressed huge concern around the issue in the media that someone employed by the Department had fraudulently and arrogantly flouted South Africa’s Basic Employment Act. He wanted to know how serious this problem was in South Africa. He was referring to a situation in Ireland and wondered whether it happened elsewhere. He asked: “Are we walking the talk?”

Ms C Dudley (ACDP) needed clarification on how the overspending was going to be dealt with, or covered.

Ms Dudley also requested clarification on legislation governing salaries overseas. In terms of the
ARF, she referred to Dr Zondi’s presentation in the morning and the recapitalisation of the ARF.  She was not sure where the Department was heading with that -- should there be a review of our missions?  She wondered whether there should be an audit or a conversation around that.

She asked whether the focus around the Blue Region, and the opportunities it represented, was reflected in the budget.

She enquired about civil society in other countries that were vulnerable, and whether the budget reflected a strengthening of relationships between them and Government.

The Chairperson thanked members for their comments and observations and requested the Department’s responses.

Mr B Holomisa (UDM) said he was glad there would be some reports in the coming week. He requested that a report be tabled by the internal auditor of DIRCOregarding the ARF, where it implicated the Director-General, and that a copy be available for every MP who served on the Committee. He asked that the Minister or Deputy Minister come and brief the Committee on the matter later on. He said it could not be expected that junior officials, or anyone lower than the Director-General, give the briefing, because it affected the head of the Department. He requested the Deputy Minister to bring back the report which the Minister said at the time she was doing as an internal investigation. He believed that she had received it this year. He said ‘we want the full facts,’ because the truth lay under the figures, i.e. the summary listed in the presentation. He hoped this could be provided before finalisation of the budget, ‘failing which some of us will take this matter directly to the Public Protector for further investigation’.

Ms T Kenye (ANC) asked for more information about the missions – how many there are and in which countries, because some of the Members were new. She referred to the fluctuations in the Rand and warned not to expect any change.  She referred to pages 33 and 34 of the document and suggested that the framework be explored, so that there were no discrepancies in the funds.

Mr M Lekota (COPE) said, in a spirit of assistance, that their task as Members of the Legislature was to monitor the Executive.   Where it had made a commitment to the people of South Africa before the Legislature, the Committee was expected on behalf of the voters to keep watch on what the Executive had undertaken to do, in keeping with the resources of the nation. He realised that certain commitments were made based on projections, but on the issue of additional funds that were required, the Committee needed a sense of what legitimately would arise over the medium term period. Although fluctuations of foreign exchange, which could not be accurately predicted, would intervene, the Members needed a more or less accurate indication when the time came of how much the budgeting had fallen behind because of fluctuations. They needed to know whether resources may have disappeared as a result of the report on this Director-General.   For instance, how much did the activities of individuals affect the capacity of the country to meet its obligations? That kind of difference was very important. He requested that the Committee be informed of what was fruitless expenditure, and what was mischief making.  They must not miss what should not have happened. On Monday, the Committee needed to have that indication.

Mr M Maila (ANC) asked whether funds had been used for a particular project of the ARF, or whether they had been misused. If discrepancies were picked up by the Auditor-General, what did the Department do to remedy the situation as it moved forward?

The Chairperson replied that the report referred to by Messrs Holomisa and Lekota was still coming with the detail, which would -- or would not -- answer what they were asking.  Presented at this meeting was the plan for 2014/2015, and the report on the ARF would -- or would not -- answer the questions raised by Messrs Holomisa and Lekota.

Mr Holomisa said the Committee could wait for the answer regarding the ARF as an entity. The presentation by the Deputy Minister could be documented.

The Chairperson confirmed that they would wait for the answer on the ARF.  Mr Radebe’s question would be answered. He said that would be for the benefit of Members. It would not detract from the recommendation. Nothing would detract from the recommendation the Committee was making. The presentation must be made available to the other Members of the Committee.

He asked whether the Treasury had condoned the unforeseen and unavoidable expenditure with regard to the funeral of Mr Mandela.

On the issue of missions, he said SA was a big player and it needed these missions. It would not want to reduce them, depending on the influence in the area or the personalities involved. The Deputy Minister could respond in this regard.

On the advisability of chancelleries, he asked about the experience of other countries.  Did they buy properties to build embassies?

African Renaissance and International Cooperation Fund
The Deputy Minister, Mr Luwellyn Landers, dealt with some of the key questions. He acknowledged the questions about the ARF.  He gave information about the ARF, which had been established by an Act of Parliament in 2000 to enhance cooperation between the Republic and other countries, in particular African countries, through the promotion of democracy, good governance, the prevention and resolution of conflict, socio-economic development and integration, humanitarian assistance and human resource development. The allocation of the funds was binding in the PFMA -- the Department is bound by the PFMA and the Constitution to utilise the funds.

He had been informed that the Director-General was implicated in problems that had occurred. He, or the Minister, would provide the Chairperson of the Portfolio Committee with a written report on the results of that investigation by Monday. At some stage, the Auditor-General would declare himself on this issue.

Mr Radebe suggested that they separate the two issues. They had up to 11 July  to adopt the report. The ARF issue was a separate one.

Mr Lekota supported the Deputy Minister. The information they had on the ARF could be presented, but they could not act as if they did not have a concern.

The Chairperson summarised by saying that what was before them for recommendation by the Department was for 2014/15. They still needed to look at it.  Mr Holomisa had said it must happen here. The Committee could carry on with its work, whether the Department was able to bring the report on Monday, or later.

The Deputy Minister said that Mr Radebe was correct, in that two issues were before the Committee; one being the investigation by the internal auditor.

He asked to be informed on how far back to go with regard to information about countries which had been helped.

He said there was a difference of opinion between the Department and Treasury in that the Department wanted to make use of the Fund, but Treasury had to concur. DIRCO says it should not need concurrence. He believed that 125 missions were not too much. The decision was one for the Executive. He urged the Committee to raise the issue and see what came out by way of a reply.

Although he was new in the Department,  he personally believed that every country where SA has an embassy and a consulate is in order. The Minister can apply her mind to this and go to Cabinet if she feels it is necessary. When missions are established, the decisions are based on strategic and national criteria. There has to be a motive when the Committee wishes the Department to close down a mission.

He said fluctuations in foreign exchange exist as a fact. He suggested that perhaps Treasury could find a way to insulate the Department, but Treasury would have to define what insulation means.

On acquisition of property abroad, he said the political situation in that country may change, which means SA might have to leave its property behind and that would be money lost. Leasing came with a risk. In certain countries, leases can change hands and the new landlord may give you notice. There might not be the stipulation of three months’ notice, as is the case in South Africa. He said SA was most definitely bound by the PFMA.

The size of South Africa is now larger.   The land under the ocean extends, although one can not see it. The Department has made application for the land under the ocean to be granted to South Africa making it the largest country on the African continent.

Mr Ramashau, the CFO, said detail could be given about unauthorised expenditure, but he reiterated that all departments were involved in unauthorised expenditure with regard to former President Nelson Mandela’s funeral. Instead of 15 heads of state, 102 had been received at the funeral. There had been no alternative source to provide additional funding, and the Department had had to facilitate the process. Treasury had to make recommendations on how the spending was made. When the audit report is presented, this would be detailed.

Mr Clayson Monyela, Deputy Director, mentioned that disputes involving diplomatic staff had occurred in Ireland and Thailand. These matters had been investigated and the Department had found in favour of its employees. There were limitations on how much could be explained in the meeting, but the diplomats did not break the law. The staff member in Ireland has been moved to Senegal.

Mr Maila wanted to know what informed the targets.

Mr Mokghalapa wanted clarity on the amount of R500 million that was “cut short” from this fund.  R100 million had been contributed to the AU Commission in a voluntary contribution. He wanted to know what had happened to the surplus.

Mr Radebe thanked the Department, but wanted to know what work had been done. According to the first MTEF allocation, it appears as if things had not been done before. What had happened since 2009 and 2014?

Concerning the utilisation of the Fund, he felt that once the Department had an approved budget, it should be able to spend those funds without blockages coming from Treasury.
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Mr L Mpumlwana complimented the Department on being so willing to give information and hiding nothing.


The Chairperson said his understanding of the ARF was that it was good that it could provide humanitarian relief and assistance, particularly in Africa. But he reminded Members that under certain circumstances SA had provided assistance to countries that had historical links, such as Cuba, and this would always be part of the discussion of the South African government.

Mr Maila said that in the targets, it was intended that four advisory committees should meet four times. He also referred to the R500 million allocated to the ARF.  When the annual reports became available, they would reveal more. He agreed with Mr Radebe on the other points. Assistance was at the discretion of the Cabinet. The rules of the PMFA were binding on the Fund and were in line with the Constitution. It was intended that all the irregularities that had arisen since 2000 should be resolved. A Parliamentary oversight had taken place, and the Committee would have had to interrogate this report. The Deputy Minister would go to the previous Committee to check whether this in fact happened. They would have to provide reasons if there had been no interrogation. He urged that when the annual report is provided, it be interrogated.

The CFO said funding had been redirected from the ARF, but this had taken place before it was received. It was not taken from the ARF. The ARF is a fund, not a Department.

The Chairperson asked about the projects that had been established with the funds that had been given to other countries under the ARF. He asked whether the Department had been able to verify whether that money had been used for the purpose it was intended.
 
The CFO replied that there had been irregular expenditure, with services not rendered. The question was, who was going to deliver the relevant aid? These were the issues noted.

A Member said the conditions of the budget were not perfect, but he proposed that they be accepted. He said the Department was respected, and expressed his appreciation.

The Chairperson called for comments on the budget allocated to the Department so that the Committee could facilitate a draft report for the coming week, for consideration and further improvements and refinements by the Committee. The work had to be finalised by 9 July.

Mr Radebe said that the Department’s mandate of making a better South Africa and a better world, was still on course. He stated that it was not perfect, but it was a job well done.

An announcement was made that the Committee would meet to consider and adopt the Budget Vote at 9.30 on Wednesday.

The Chairperson adjourned the meeting.