Banks Amendment Bill & Financial & Fiscal Commission Amendment Bill: Adoption and Committee Report; BRICS ; New Development Bank and Contingent Reserve Arrangement: National Treasury briefing; Money Bills Amendment Procedure and Related Matters Act review: Parliamentary Legal Services briefing

Meeting report

Banks Amendment Bill [B17-2014]
The Chairperson asked Members to consider the Banks Amendment Bill, with the latest version of the clauses.

Clauses 1, 2, 3, 4 and 5 were voted on and adopted. The Bill as a whole was then voted on and adopted. The DA reserved its right to decide on a position.

The Chairperson noted that the Committee Report on the Bill found it to be a challenging Bill. There was a commercial process running parallel to the legislative process. The Committee hoped that agreement would be reached between contenders, and that negotiations would lead to an amicable outcome.

The Report was considered, voted on and adopted.

Financial and Fiscal Commission Amendment Bill [B1-2015]

The Chairperson advised that the B-version of the Bill be referred to.

The Chairperson referred to the aims of the Bill (page 2). There was overlap between phrasing relating to the role of the Financial and Fiscal Commission (FFC) and the alignment of FFC recommendations to the Constitution.

Adv Empie Van Schoor, Chief Director: Legislation, National Treasury, agreed that this was so.

The Chairperson suggested that the phrase “to correctly describe the role of the Financial and Fiscal Commission” be removed. It was too vague. The sentence “to strengthen the requirements for organs of state…” could be written more simply.

Adv Van Schoor said that the wording had been agreed to with the Legal Adviser at the time.

The Chairperson said that the Constitution was beautifully simple and clearly written, compared to those of other countries, and was an "utter delight to read". He suggested that, based on this example, overly intricate formulations in other legislation had to be avoided.

The Chairperson referred to the use of “a” power in the sentence that read: to replace the Minister’s power to make regulations with a power for the Commission to make rules regarding its functioning… (line 12, page 3).

Adv Empie Van Schoor, National Treasury Chief Director of Legislation, replied that it referred to the fact that there was no power for the Commission to change its functions.

Adv Frank Jenkins, Senior Parliamentary Legal Adviser, opined that “a” was in order, although “the” would be better.

The Chairperson presented clauses 1 to 7 to the Committee for questions and comments. He noted that omissions under clause 7(b) were still included.

Adv Jenkins noted that the A list had been included in the B version. The original Bill had stated that the subsection would be replaced.

Ms T Tobias (ANC) asked when a clean version of the Bill would be available. She stressed that the Committee had to vote on a "clean" Bill.

The Chairperson said that Parliament and the National Treasury (NT) could sort the matter out. Advocates Jenkins and Van Schoor were over-stressed, and were trying to deal with an unmanageable load. In addition, the Committee Researcher was on leave. This meant that the documentation simply could not be produced on time.

The Chairperson advised that the need for regulation be mentioned in clauses related to a full-time Chairperson. The roles of the CEO and full-time Chairperson also had to be set out. He suggested that under 10(c), in addition to the phrasing referring to the "relationship between the Chairperson of the Commission and the chief executive officer", the phrase “distinct roles of” could be added. He asked for comment from other Members.

Mr D Ross (DA) replied that he was in favour of that. The DA was concerned about a bloated State, and did not want a full-time Chairperson. There was the possibility of conflict between the CEO and the Chairperson. It was good to define roles.

Adv Van Schoor suggested that this could be placed in the long title.

The Chairperson presented clauses 11 to 20 to the Committee for questions and comments. None were recorded, and he then noted that the Bill was ready to be voted upon.

The Chairperson read out the report. The key issue in the Bill process was whether the CEO and the Chairperson had to be the same person. The Committee welcomed this Bill, which was long overdue. The Committee had decided that there had to be a clause for the appointment of a full-time Chairperson. The respective roles of the Chairperson and the CEO had to be defined. The FFC had to be prudent with costs related to the office of the full-time Chairperson. The Chairperson had to be monitored. There had to be a review of the role of the FFC by both government and civil society.

Clauses 1 to 5 of the Bill were voted on and accepted, but then the Chairperson asked Adv Jenkins if the Committee could proceed directly to voting on the Bill as a whole.

Adv Jenkins found that would be in order.

The Bill as a whole was voted on and adopted by the Committee.

The Committee Report was then voted on and adopted.

It was noted that the DA reserved its position.

BRICS New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA): National Treasury Briefing

Mr Lungisa Fuzile, Director General, National Treasury, gave a presentation on the New Development Bank (NDB) and Contingent Reserve Arrangement (CRA). He firstly explained the background. BRICS leaders had decided in 2013 that the establishment of a New Development Bank was feasible and viable. The BRICS finance ministers thus signed the agreement to the New Development Bank, and the treaty to the Contingent Reserve Arrangement in 2014. The Bank was to have an initial authorised capital of US $100 billion. The motive for the New Development Bank was the recognition of financing constraints that BRICS member countries and other emerging market and developing countries faced in addressing their infrastructure challenges. The Bank would mobilise alternative sources of funding. BRICS countries would be the founding members of the bank, but the articles provided for the inclusion of other United Nations members also. No shareholding would be made available to the private sector. The Bank would have its principal office in Shanghai. The Bank’s Africa Regional Centre would be in Johannesburg, South Africa.

South Africa would benefit the most from the Contingent Reserve Arrangement. Money could be invested in non-BRICS countries. The CRA would help BRICS countries forestall short-term liquidity pressures, provide mutual support and further strengthen the global financial safety net. When requested, BRICS countries would engage in short term swap transactions with the country requesting support. There was currently no budgetary provision made for the MTEF. Options considered included a budget request for the upcoming 2015 MTEF. The Contingent Reserve Arrangement would not require South Africa to transfer any resources before the receipt and approval of a request.

Discussion

Ms P Kekana (ANC) welcomed the practical steps taken to ensure that BRICS' s NDB was established. There were, however, strong financial implications. The US$ 2 billion issue had only been outlined. It was stated that a South African office would run concurrently with the head office. She asked if the financial implications of that had been taken into account and were settled.

Mr Fuzile replied that China would pay for the office, the office site and buildings. No other country would pay for that. Special funding was a mechanism to cover initial costs. There were interactions with a municipality for South African offices. There would be little cost to South Africa as a member. All starting costs would be temporary and not of a continuing nature. Institutions would be functioning soon. Not too many people were involved, possibly only ten or twelve. Financial costs would be dealt with in the next budget.

Ms Kekana referred to stringent measures to qualify to access money. The Development Bank of South Africa (DBSA) had needed money to assist with a coal haulage project, which could not take off because funding could not be accessed.

Mr Fuzile replied that when South Africa had asked for help, it had struggled to raise money. South Africa had been pushed aside by the conditions of other sources of funding. BRICS would establish whether a loan or a grant would be given. Most conditions were sensible. It would be looking into whether the loan could be repaid.

Ms Kekana asked what was distinctive about BRICS.

Mr Fuzile replied that BRICS was complementary to the IMF and the World Bank, although it did differ from them in terms of governance arrangements. The IMF governance staff had been on hold since 2010, and was slow to move. Big members could veto decisions. In BRICS, members would be on an equal footing. The IMF and the World Bank sometimes showed a lack of sensitivity to developmental issues in developing countries. Priorities were in conflict with the needs of developing countries. In other respects, however, BRICS would be run like any other bank. The US$ 10 billion injected was expected to grow over time. It was essential to get an “A” credit rating for the Bank, to enable it to raise capital cheaply, to get to borrowers in developing countries. It would be necessary to look into how quickly member countries could commit their percentage of performing loans. There was the risk of loans to countries who could default. A competitive edge could creep in. There had to be both competition and cooperation to finance infrastructure projects.

Dr B Khoza (ANC) said that there was not much that the Committee could do, but the full implications of the BRICS initiative had to be understood. She asked about dividend policy, in terms of percentages.

Mr Fuzile replied that as the bank grew, South Africa would be entitled to its 20% equal share of the total bank.

Dr Khoza asked about South Africa’s equity benefits. It would not do to be naïve about the current South African situation. She asked about implications for countries who were in the bad books of the IMF. There were also countries who were hostile to South Africa. South Africa’s international relations had to be strengthened, especially with other countries in Africa.

Mr Fuzile replied that the question was whether connect facilities would work against foreign relations.

Mr Ross remarked that fiscal constraints on the Reserve Bank and the Treasury had to be recognised. He warned against opportunistic funding of BRICS.

Mr Ross asked what could be expected later in the year, in terms of the Medium Term Budget Policy Statement (MTBPS). He asked if payment would be in components. There had to be a pool established to address challenges in Africa, and specifically the electricity challenges in South Africa. Care had to be taken that budgets were not eaten up.

Mr Fuzile replied that subscription capital would be contributed over time. There would be the initial accumulation of US$ 50 billion, with the balance paid in seven instalments.

Mr Ross asked how the exclusion of the private sector was viewed.

Mr Fuzile replied that the private sector would be brought in later.

Mr I Mosala (ANC), Health Portfolio Committee quorum Member, asked about interest repayment for non-funding members, and whether the same strict conditions would apply.

Mr Fuzile replied that it was not possible to have one interest rate. The risk profile of countries differed.

The Chairperson remarked that the US$ 100 billion was not really very much money. He asked about the authorised capital of the World Bank. He asked what the South African office would do in relation to the Beijing headquarters.

Mr Fuzile replied that US$ 100 billion could indeed make a big difference. The authorised capital of the World Bank was US$ 280 billion.

The Chairperson said that the introduction of the new bank was welcomed. He agreed that the Committee could not change anything, but could report to the House. He asked when the BRICS NDB would be launched formally.

Mr Fuzile replied that there would be a formal launch at the BRICS summit in July. Key appointments would be made before then. South Africa had to get through its process by the end of May, so that the agreement could be ratified as soon as possible.

Dr Khoza asked about the motivation for having the BRICS African chapter in South Africa.

Mr Fuzile replied that BRICS had to have a footprint in key regions. South Africa and Brazil were the far-flung regions. There had to be a feeling of accessibility. The priority for South Africa was project development. The problem with poor countries was that they lacked the ability to make out a case for money - and this was a problem that existed over and above the poverty challenges. There was a lack of technical expertise. BRICS being in South Africa would be better placed for South Africa and the rest of Africa to access funding.

Review of the Money Bills Amendment Procedure and Related Matters Act, 2009 (Act No. 9 of 2009): Parliamentary Legal Services briefing

The Chairperson said that the Money Bills Act matter would be debated on 6 May in the Committee, and on 7 May in the House.

Adv Frank Jenkins, Senior Parliamentary Legal Adviser, noted that the National Assembly had instructed the Finance Standing Committee to review the Act, with a view to introducing amending legislation if necessary. The Committee was required to review the application of the legislation in terms of time frames and sequencing associated with different financial instruments and Bills; procedures to be developed in the rules; and the functions and management of the Parliamentary Budget Office (PBO).

The PBO had to perform and deliver on its mandate. Accountability measures for the PBO were not included in the legislation.

The Financial Management of Parliament Act (FMPA) was not aligned with the Money Bills Act. The Finance Standing Committee was required to confer with the Appropriations Standing Committee. The Money Bills Act provided time frames and sequencing related to The Budget Review and Recommendations Report (BRRR); the Medium Term Budget Policy Statement (MTBPS); the fiscal framework, the Division of Revenue Bill (DORB) and the Appropriation Bill; revenue bills; and the adjustments budget. Section 15 of the Act established the PBO. The question was how the PBO could be aligned with the FMPA. The role of the executive authority was crucial to alignment with the FMPA. Section 16 of the Act provided for norms and standards for provincial legislatures. Section 16 of the Act had to be in line with the Constitution.

He suggested that in order to overcome the shortcomings, a draft amendment bill had to be developed and considered, and also taken through the public hearings. A Committee Bill could be introduced after public hearings had been held and a report tabled.

Discussion

Mr Ross remarked that the PBO had to play a more critical role in terms of the budget cycle. He asked about the advisory role of the PBO.

Dr Khoza said that the process had to be outlined, so that the Committee could see what progress had been made. The matter had been raised in the NA in 2012, and a lot of work had been done. She asked if there was a specific process going forward, or whether the Standing Committee (SC) would have to re-invent the process.

Ms Kekana said that there had to be time-frames. She asked when the mandate had been given for the Standing Committee to consider the Act. It was critical that the Committee should receive a report on how far things had been taken. The Chairperson had advised, in the previous year, that time-lines had to be considered for the process, from the tabling by the Minister to adoption by Parliament. It had to be ensured that Parliament had enough time to deal with the matter.

Ms Kekana said that she had thought that the PBO had to objectively advise other relevant committees. Legal Services had indicated that there were accountability challenges.

Dr Khoza referred to best practice in the functioning and management of the PBO. She asked what other budget offices were doing, and what constituted best practice. The institutional arrangements for the PBO had to be strengthened.

Adv Jenkins replied that research was done about budget offices in countries like Korea, Japan and Canada. PBOs advised committees on the budget cycle. PBO management issues centered around appropriate accounting structures. There was overly wide discretion for the Minister.

The Chairperson said that the Committee must be sure on what the previous Standing Committee of the Fourth Parliament had decided. This Committee now had to pick up where the previous Standing Committee had left off. It had been decided that the Chairperson of the Finance Select Committee had to lead the process. He had to be the key coordinator.

The Chairperson noted that the National Treasury had raised concerns that the process could be difficult to follow through. He asked Adv Jenkins if he had spoken to the National Treasury. The PBO had the sympathy and empathy of the Committee. The PBO board had approved of the principle of making amendments. However, it was practically very difficult to bring the Finance and Appropriations Standing and Select Committees together for the process. More space had to be provided for Parliament to consider the matter fully.

The Chairperson asked if the PBO had to account to the Speaker or to the Accounting Officer. He was inclined to think that it would have to be to the Speaker, if one considered the role of the PBO.

He noted that the House would require a full report and suggested that perhaps a sub-committee could be set up to that end.

Adv Jenkins replied that there was a report. He told the Chairperson that unfortunately the current Committee would have to do the bulk of the work. He had presented the report to a study group of other role players. Section 15 was discussed with the PBO, and as a result of those discussions, PBO inputs were worked in. If the PBO was to be managed by the Board, there would be questions about Articles and Chairpersons.

Another Member said that the term “board” was not used. There was an advisory panel.

The Chairperson and some Members were extremely amused by that term.

Adv Jenkins continued that the 2014 budget was only dealt with after the elections. It was not a normal period. Amendments were not meant for that period. The Act stated that all steps in the budgetary cycle had to be followed.

The BRRR adopted in the current year would feature in the budget of the following year. There was not enough time to respond to that at the MTBPS. The PBO had to advise Parliament on the budget cycle. However, the PBO did not, as yet ,have a separate budget for the Director to present to the Minister. It had to follow supply chain management procedures. The question was whether the PBO budget had to go through the Parliamentary administration. The process had to be introduced in the National Council of provinces (NCOP). Legislation of 1976 had to be looked at. The regulation making function had to be spelled out in more detail than in existing legislation.

The Chairperson said that the PBO had to have some autonomy.

He suggested that the matter would be further considered at the meeting of 6 May and a report presented to the House on 7 May.

Other business
The Chairperson summarised that there would be a meeting with Statistics South Africa on the following day, to overview its budget. He questioned whether Statistics South Africa had to go to the Presidency.

Mr Lungisa Fuzile, Director General, National Treasury, replied that Statistics South Africa did not report to the Minister of Finance.

The Chairperson said that the Executive had to decide. The Committee was in favour of the reporting lines being to the Presidency.

The Chairperson adjourned the meeting.