National Treasury said the New Development Bank (NDB) was established by an agreement between the governments of Brazil, Russia, India, China and South Africa (BRICS countries) with the purpose of mobilising alternative sources of financing, strengthening the cooperation among BRICS countries, and complementing existing efforts by other development partners and International Financial Institutions (IFIs) for global growth and development. The BRICS countries constituted the only founding members of the Bank; however the Articles of Agreement provided for the inclusion of other United Nations members. The subscribed capital was US$50 billion allocated equally amongst the founding members . The paid-in capital, which was US$2 billion for each country, was to be paid over 7 years in pre-agreed instalments. The purpose of the New Development Bank Special Appropriation Bill (NDB Bill), was to appropriate additional money in the 2015/16 financial year for Treasury to pay the first capital instalment of US$150 million to the NDB.
Treasury explained the Finance Bill was aimed at implementing the recommendations of the Standing Committee on Public Accounts on unauthorised expenditure. It provided for the authorisation of national government unauthorised expenditure arising from the 2004/05, 2007/08, 2008/09 and 2010/11 financial years. A total of R110.22 million in unauthorised expenditure was incurred by the Presidency, Department of Women, Children and people with Disabilities, Social Development and Trade and Industry:
▪ The Presidency had overspent its 2008/09 budget of R316.7 million by R14.5 million or 4.6% while it had had overspent its 2010/11 budget of R812 million by R28.4 million or 3.5%. The overspending was as a result of creation of additional Ministries for National Planning, and Performance, Monitoring and Evaluation; legal fees; travel and subsistence; Presidential hotline and leave gratuities.
▪ The Department of Women, Children and People with Disabilities (DWCPD) had overspent its 2010/11 budget of R106.192 million by R3.728 million or 4%. The overspending was due to operational expenditure not initially provided for such as the hosting national days and travel and subsistence.
▪ The Department for Social Development (DSD) in 2007/08 had under-spent by R37.7m. However, there was over-spending against the Comprehensive Social Security Programme of R24.1m which caused an unauthorised expenditure; this was driven by over spending on social grants. The social grants programme was demand driven. The behavioural aspect of the programme made it unpredictable. Apart from the behaviour related to the take up of social grants, the accumulation of back pay, application complexities and external risks all needed to be factored into budget projections. Variation of 1% in such a model was generally acceptable. Over-spending of R26 million against a budget of R63 billion in 2007/08 was a 0.04% variation.
▪ The Department of Trade and Industry (DTI) unauthorised expenditure was in four broad categories: compensation in terms of Bilateral Investment Treaty (BIT) (R6.1 m), staff debts that had been written off (R0.1m), General Export Incentive Scheme debts (GIES) written off (R31.1m), and other debts written off (R.02m).
The Financial and Fiscal Commission submission on the New Development Bank Special Appropriation Bill found that there were certain pros and cons in respect of the role of the NDB. One of the pros was that the NDB Articles of Agreement would allow the option of financing certain projects in local currencies. The second of the pros was the modernisation of risk management and monitoring techniques, improving the mobilisation of savings and the allocation of resources. The third of the pros was increased stability. As regards the cons, volatility might become increased. Another con was in respect of the stability of the exchange rate and inflation rate. On the budgetary Implications of the Bill, it noted the amount appropriated from the National Revenue Fund for the first instalment to the NDB would come from the sale of state assets and was due in January 2016. It recommended that the Committee should request Government has measures in place to ensure country’s ability to secure funding. The Commission supported the NDB Bill and its financing through sale of non strategic state assets. While the NDB Bank will likely have benefits beyond existing opportunities and compensate for loss of dividends, for this benefit to materialise will require strong oversight and scrutiny to ensure ongoing relevance, project readiness, constitutional values are upheld and fiscal risks are minimised (through trade-offs at a high political level).
The Commission supported the condonement of unauthorised expenditure as provided for in the Finance Bill. However, for public financial management to remain credible, the Commission would like to emphasize that dealing with unauthorised expenditure should not be dragged out unnecessarily as executing consequences for authorised expenditure may be more difficult.
Members asked if BRICS members would be able to benefit from the NDB in terms of borrowing.; if there would not be challenges if the countries did not contribute on an equal basis; national department unauthorised expenditure could be prevented by proper planning; what system would be applicable if more countries decided to join the NDB, most especially in respect to the contribution to the share capital; when would callable shares become due and under what circumstances; why the debts of retired DTI staff had been written off; which state assets had been sold to generate money for South Africa’s payment of its NDB share capital; which institution would be the adjudicator in a disagreement between BRICS members.
New Development Bank Special Appropriation Bill: briefing by National Treasury
Ms Mmakgoshi Phetla-Lekhethe, Deputy Director General: International and Regional Economic Policy at Treasury, stated that the New Development Bank (NDB) was established by an agreement between the governments of Brazil, Russia, India, China and South Africa (BRICS countries). The NDB was a multilateral development bank (MDB) with the purpose of mobilising alternative sources of financing, strengthening the cooperation among BRICS countries, and complementing existing efforts by other development partners and International Financial Institutions (IFIs) for global growth and development.
The NDB founding documents consist of two agreements: (i) Inter-governmental Agreement which captures the broad agreement on key principles for the bank; (ii) Articles of Agreement which captures the technical specifications for the Bank’s establishment. The Articles of Agreement are a work in progress and will be continually updated with every agreement reached. The BRICS countries constitute the only founding members of the Bank; however the articles provide for the inclusion of other United Nations members. The initial authorised capital of the Bank was US$100 billion. The authorised capital determines the extent the bank will be allowed to grow. The subscribed capital is US$50 billion allocated equally amongst the founding members. All members will have equal shareholdings so that each country will contribute US$10 billion of the subscribed capital. This contribution is structured as follows: 20% paid-in capital and 80% callable capital. The paid-in portion, which is US$2 billion for each country, is to be paid over 7 years in pre-agreed instalments.
The BRICS countries will maintain at least 55% of the voting shares of the Bank. At a later stage, the Bank will be open to any sovereign that wishes to join, subject to predetermined criteria. The shareholding of non-BRICS countries will be capped both individually and collectively. There will be three levels of governance: Board of Governors, Board of Directors and Management. The Board of Governors will be at the ministerial level (Ministers of Finance); meeting annually. The Chair of the Board of Governors will be chosen on rotation, in line with the chairing of the BRICS formation. Each founding member will nominate a representative to the Board of Directors. Initially the Board of Directors will be a non-executive and non-resident body, meeting quarterly. The President will be from one of the founding members, to be appointed on rotation. There will be 4 Vice-Presidents, one from each founding member (except for the one represented by the President). The President will be the chief of the operating staff of the bank. Voting will be proportional to shares in respect of which BRICS will have bigger voting power compared to non-BRICS. Major policy decisions will be taken by the Board of Governors by consensus.
Concerning the NDB instruments and support, the Bank will provide support, in the form of loans, guarantees, equity participation and any other financial instrument to public or private projects in member countries. The Board of Governors (through a vote) could approve operations in non-member emerging markets and developing countries.
As regards the NDB and Africa Regional Centre (ARC), a Special Fund will be created within the Bank at the earliest occasion, with the participation of all founding members, for the purpose of helping project preparation and implementation. China will be the largest contributor. The bank will have its principal office in Shanghai. The Articles of Agreement called for the establishment of the bank’s Africa Regional Centre (ARC), in Johannesburg; this office is to be launched concurrently with the bank’s headquarters. The ARC will provide the primary operational interface between the NDB and the continent; striving to maximise the efficiency, effectiveness and impact of the Bank’s operations in Africa. Additionally, it will be responsible for creating and maintaining the NDB’s relationship with African states and regional bodies. Moreover the ARC will host project preparation capacity to bring projects that the Bank is interested in funding to a “bankable” stage.
The purpose of the NDB Bill is to appropriate additional money in the 2015/16 financial year for Treasury to pay the first capital instalment of US$150 million to the New Development Bank. Ideally the request for capital contribution for the first instalment will have been made during last year’s budget process. This is not done as the ratification of the agreement by Parliament was only finalised in July 2015. Therefore this agreement had no legal standing to form part of the budget process, at the time of the 2014/15 MTEF process. The Bill proposed the appropriation of an amount in rands that is equivalent to US$150 million (at the applicable rate of exchange at the time of payment) out of the National Revenue Fund. The proposed appropriation is deficit neutral since it is conditional on the payment into the National Revenue Fund of the required proceeds from the sale of state assets in the 2015/16 financial year. Treasury submitted inputs to the MTEF process for the Bank’s capital contributions for the 2016/17 fiscal year and beyond. Future contributions will follow the normal budget process.
Finance Bill: briefing by National Treasury
Ms Gillian Wilson, Chief Director at Treasury, said the Bill is aimed at implementing the recommendations of the Standing Committee on Public Accounts on unauthorised expenditure and funding mechanism. The recommendations were adopted by the National Assembly on 23 June 2015. The Bill provided for the authorisation of national government unauthorised expenditure arising from the 2004/05, 2007/08, 2008/09 and 2010/11 financial years. The Bill followed the procedure for authorisation of unauthorised expenditure as outlined in section 34(1)(a) and (b) of the Public Finance Management Act,1999 (PFMA).
She discussed the treatment of unauthorised expenditure incurred by two of the four affected national departments mentioned in the Bill: The Presidency (2008/09 and 2010/11) and the Department of Women, Children and People with Disabilities (DWCPD) (2010/11) which would be appropriated as direct charge against the National Revenue Fund to cover the overspending.
▪ The Presidency had overspent its 2008/09 budget of R316.7 million by R14.5 million or 4.6%. This was in respect of expenditure incurred for: hosting of the National Orders and Awards Ceremony, legal fees, travel and subsistence and related expenses incurred for the mediation in Zimbabwe, leave gratuity payments made to former Deputy President, hosting of the National Disability Summit; United Nations Conventions and the creation of additional Ministries in the Presidency.
In 2010/11, the Presidency had overspent its budget of R812 million by R28.4 million or 3.5%. This was in respect of expenditure incurred for: accruals carried forward from the 2009/10 financial year, creation of additional Ministries for National Planning, and Performance, Monitoring and Evaluation, following the government restructuring process of 2010, legal fees, travel and subsistence due to increasing international commitments by the principals in conflict resolution processes on the continent which were not planned for and fell outside of the adjustments budget process, computer services to address additional capacity requirements emanating from new ministries as well as costs relating to the Presidential hotline, leave gratuities obligations and municipal transfers for vehicle licences.
Department of Women, Children and People with Disabilities (DWCPD)
▪ In terms of 2010/11 unauthorised expenditure for the DWCPD, since the inception of the department, the budget for the DWCPD had been growing in real terms. The understanding with the DWCPD had been that it should spend within its budget, and manage its budget pressures through the budget process. However, the DWCPD overspent its 2010/11 budget of R106.192 million by R3.728 million or 4%. The unauthorised expenditure was in respect of R674 000 for international travel and accommodation, R2.594 million for the celebration of National Women’s Day, and R460 554 in telecommunications related expenses. The Standing Committee on Public Accounts (SCOPA) had recommended that the unauthorised expenditure be financed as a direct charge against the National Revenue Fund. However, the DWCPD no longer existed, so the additional funding recommended by the SCOPA would be allocated to its successor - the Department of Women.
Social Grants for Department for Social Development
▪ In 2007/08, DSD had under-spent by R37.7m. However, there was over-spending against the Comprehensive Social Security Programme of R24.1m which caused an unauthorised expenditure; this was driven by over spending on social grants. DSD had over-spent their social assistance budget (R62.45 billion) by R26 million in 2007/08. This amounted to 0.04%.
Due to the under-spending in other sub-programmes in programme 2, the total under-spending amounted to R24.1m. In 2007/08, the Social Assistance Transfers allocation was specifically and exclusively appropriated through the Appropriation Act 2007/08. Due to this classification, virement rules could not be applied to reduce the social grant overspending. Therefore, even though there was an overall under-spending against the vote budget, and an over-spending of R24.12mn against the Programme 2 budget, the amount classified as unauthorised expenditure for 2007/08 was R26.17m. Overspending in the social assistance budget was under the Old Age, Foster Care, Care Dependency and the Child Support Grant. Of these, the main driver of over-spending was the Child Support Grant (CSG). This could be attributed to CSG’s age extension policy. In 2005/06, the CSG age-eligibility was extended from 11 year olds up until 14 years old. Hence, between 2004/05 and 2005/06, the CSG eligible population grew by 2.9 million. This led to large fluctuations and unpredictability in CSG beneficiary numbers. There were 2.2 m additional CSG beneficiaries that came onto the system over the course of 2005/06 and 2006/07. In 2007/08, an additional 360 000 CSG beneficiaries came onto the system. The CSG take-up rate in 2007/08 was 82%; the highest since 2004/05 till 2012/13. The CSG take-up rate in the previous year, 2006/07, was 78.6% and in the subsequent year, 2008/09, declined to 80.1%. Thus, in terms of CSG take-up, 2007/08 was an anomaly of a year. Furthermore, there were large fluctuations in reported CSG beneficiaries (Source Feb 2008 IYM), leading to uncertainty on year-end CSG numbers. Additionally, R166 million was back-paid to Eastern Cape and Free State in April 2007.
The social grants programme was demand driven. The behavioural aspect of the programme made it unpredictable. Apart from the behaviour related to the take up of social grants, the accumulation of back pay, application complexities and external risks were all needed to be factored into projections. Variation of 1% in such a model was generally acceptable. Over-spending of R26 million against a budget of R63 billion in 2007/08 was a 0.04% variation.
The recommendation was that the overspending could not directly be related to any negligence or lack of oversight and thus could not be recovered from any person. Approval ought to be granted in terms of section 34(1) of the PFMA to authorise the over expenditure as a direct charge against the National Revenue Fund (NRF). This could be approved with funding. Furthermore, additional systems were now in place which included: the three main stakeholders, South Africa Social Security Agency (SASSA), DSD and Treasury, each run their own independent projections to monitor social grants expenditure; quarterly projection meetings held between SASSA, DSD and Treasury; monthly model updates; quarterly expenditure reports; adjustment factor incorporated into model to try and accommodate non-demographic driven factors such as back pay and other administrative complexities.
Department of Trade and Industry (DTI)
▪ Mr Owen Willcox, Chief Director: Economic Services at Treasury, stated that the DTI’s unauthorised expenditure were in respect of four broad categories: compensation in terms of Bilateral Investment Treaty (BIT) (R6.1 m), staff debts that had been written off (R0.1m), General Export Incentive Scheme debts (GIES) written off (R31.1m), and other debts written off (R.02m). The total amount of unauthorised expenditure was R37.3m. Treasury had argued that the unauthorised expenditure was beyond the department’s reasonable control. However, SCOPA had recommended a direct charge against the National Revenue Fund.
In respect of DTI’s unauthorised expenditure as regards compensation in terms of BIT, the DTI was the custodian of the BITs, therefore court rulings against the state were paid from the DTI allocation. Pumlani Lodge had argued that the value of their investment declined because of high crime rates. The Tribunal had found the State liable and awarded damages of R6.5 m plus interest. DTI finally paid out R15.7m, which included the award, interest and legal fees. The award was paid from voted funds. The interest was the unauthorised amount (R6.1m).
As regards DTI’s unauthorised expenditure for staff debts that had been written off, this was in terms of salary overpayments and bursary debts. The debts could not be recovered because staff had resigned or retired. The debts were written off because: the debtors could not be traced, recovery would be uneconomical, and recovery would cause undue hardship.
In respect of DTI’s unauthorised expenditure concerning GIES debts that had been written off, it was to be noted that the GIES was used to boost exports and evade sanctions. The scheme had loose documentary requirements and required firms to keep records for 5 years. However, subsequent audit found over-claiming and raised debtors. 22 debtors did not repay the full amount and debts were written off. 14 settlement offers had been accepted for a lesser amount to avoid litigation. Five companies could not be traced and two companies had no assets.
Concerning DTI’s unauthorised expenditure in respect of other debts, a dismissed DTI official had won a case against the DTI at the CCMA. R25 000 had been paid as settlement; R15 000 had been paid to the South African Labour Market and Allied Workers Union and R10 000 to the General Public Service Sectoral Bargaining Council.
Financial and Fiscal Commission submission on New Development Bank Bill
Mr Ramos Mabugu, Research Director at FFC, commenced with a summary of the NDB Bill. He stated that the NDB Bill gave effect to the BRICS Bank agreement and appropriated $150 million (approx R2.09 billion) out of the National Revenue Fund (NRF) for the 1st capital instalment to the New Development Bank (NDB). However, the amount appropriated for the 1st instalment was not included in the current 2015/16 budget as the ratification of the agreement was only finalised in July 2015. Clause 1(3) of the NDB Bill enabled the Minister of Finance to impose conditions on the appropriation to enable transparency and effective management of funds and to stop appropriation until any conditions imposed were met. Clause 1(4) provided for the reporting of the stoppage of the appropriation to the relevant Parliamentary Committees.
Mr Mabugu gave background, stating that at the 5th BRICS summit in 2013, the decision to establish the BRICS bank was announced. The FFC had briefed the Standing Committee on Finance on arguments for and against NDB on 27 May 2015 in respect of the funding and budget process, cost benefit analysis, intergovernmental fiscal relations, and other dimensions relating to the South African Reserve Bank. The NDB had its headquarters in Shanghai and a regional office in Johannesburg, however, no loan had been disbursed yet. Parliament had ratified the BRICS agreement on 18 June 2015. Furthermore, the University of Western Cape (UWC), FFC and HSRC had held an international BRICS conference in October 2015.
The initial authorised capital of NDB was $100 billion and the subscribed capital of US$50 billion. This would be divided into paid-in shares (US$10 billion) and callable shares (US$40 billion). South Africa was liable for US$2 billion in respect of paid-in shares. The amount was a direct charge on the National Revenue Fund and formed part of the national budget vote of the National Treasury. South Africa was liable for US$8 billion in callable shares. The callable shares would not be part of the budget - similar government commitments were reflected as ‘Provisions’. Provisions were defined as liabilities for which the payment date/amount was uncertain and were reflected in the statistical tables section of the annually published budget Review. The voting power of each BRICS member was equal to the subscribed shares in the capital stock of the Bank. South Africa therefore had the same voting power to other member countries.
A time schedule of when paid-in shares would be due was provided in section 1.6 of the Memorandum to the NDB Bill. Between 2015/16 and 2021/22 commitment of financing paid-in shares would amount to R27.9 billion, to be spread over seven years.
There were certain pros and cons in respect of the role of the NDB. One of the pros was that the NDB Articles of Agreement would allow the option of financing certain projects in local currencies. This would reduce systemic risks associated with FX lending to unhedged borrowers. To this end, debt issuance in local capital markets could help to avoid currency mismatch arising out of such project funding, and help to develop nascent capital markets of municipal debt. Modalities of local bond issues would also be developed in conjunction with retail investor awareness and education programmes. The second pro was the modernisation of risk management and monitoring techniques, improving the mobilisation of savings and the allocation of resources. The third pro was increased stability as this would enable a large, internationally diversified bank that was safer, with a lower probability of failure, leading to less flighty depositors.
One of the cons was that volatility might become increased. Another such con was the stability of the exchange rate and inflation rate. In the past five months, the value of the paid-in amount had escalated by R3.9 billion. Further, the large presence of NDB financial products might crowd out domestic banks that might not be able to compete for deposits with NDB. This could reduce lending to SMEs and marginal sectors and reduce the effectiveness of monetary policy.
On the budgetary implications of the NDB Bill, the amount appropriated from the NRF for the 1st instalment to the NDB would come from the sale of state assets and was due in January 2016. While likely to be budget neutral, government’s balance sheet might still be negatively affected if the return from the investment did not eventually exceed the dividend government was receiving from the sold asset. The sale of state assets was a once off cash injection and could not be called upon again to balance off future expenditure needs. The decision to sell state assets could be signalling that government was cautious about the impact of the instalment on the fiscal framework and might have reached its debt-to-GDP tolerance level.
The overall assessment was that selling state assets to obtain the appropriated amount could be viewed as a mechanism that forced government at a political level to internalise the cost of financing new projects that were not included in the current budget. This fostered robust debate on budget neutrality of financing projects through sale of assets which otherwise would not have taken place were the project to be financed from tax money which was perceived to be free – that is, there were consequences to state selling of assets. Therefore, the cost internalisation was crucial for strengthening future fiscal sustainability. The Committee should also request for government to have measures in place to ensure the country’s ability to secure funding. This was dependent on the country's ability to "package" projects in a way which would be attractive. Government should be required to demonstrate measures taken to ensure that projects were ready for financing on a routine basis to Parliament.
The FFC’s overall conclusion was that it supported the NDB Bill and its financing through sale of non strategic state assets. While the NDB would likely have benefits beyond existing opportunities and compensate for loss of dividends, for these benefits to materialise, it would require strong oversight and scrutiny to ensure that ongoing relevance, project readiness, and constitutional values were upheld and fiscal risks were minimised (through trade-offs at a high political level).
Financial and Fiscal Commission submission on Finance Bill
Mr Mabugu gave a summary of the Finance Bill. He stated that the purpose of the Bill was to implement recommendations in the reports of the Committee on Public Accounts on authorising national government unauthorised expenditure. The recommendations had been adopted by Parliament on 23rd June 2015. A total amount of R110.22 million in unauthorised expenditure was incurred by the Presidency, Department of Women, Children and people with Disabilities, Social Development and Trade and Industry in different years. Of the total unauthorised expenditure incurred, R46.67 million referred to overspending that would result in additional allocations to votes while the remaining R63.55 million was a reimbursement to votes that previously surrendered funds to the NRF.
The FFC’s overall conclusion on the Finance Bill was that it supported the condonement of unauthorised expenditure as provided for in the Finance Bill. However, for public financial management to remain credible, the FFC emphasised that dealing with unauthorised expenditure should not be dragged out unnecessarily as executing consequences for authorised expenditure might be more difficult.
Mr A Shaik Emam (NFP) asked if the BRICS members would be able to benefit anything from the NDB in terms of borrowing from the NDB. Would such benefit encompass municipalities in South Africa being able to borrow money from the bank at a reduced interest rate on the basis that South Africa was a founding member?
He expressed concern that the sale of state assets might affect the generation of future revenue by the government considering that the sale of such assets would result in the fact that the revenue accruing from such sold assets would become extinguished. For instance, the sale of the government’s shares in Vodacom meant a termination of the revenue flowing from those assets.
He referred to the amount to be injected by the different BRICS countries into the NDB share capital and asked if the founding countries were going to contribute on an equal basis. He wondered if there would not be challenges if the countries did not be contribute on an equal basis.
He referred to the unauthorised expenditure under the Finance Bill and observed that some of the events which had led to such unauthorised expenditure were events which appeared to occur on a regular basis. Such unauthorised expenditure could be prevented by adequate and proper planning.
Mr M Figg (DA) asked what system would be applicable if more countries decided to join the BRICS members in the NDB. He asked if such new member-countries would be entitled to equal rights, most especially in respect of the contribution of money to the share capital of the NDB.
He asked when the callable shares would become due and under what circumstances.
He questioned why the Vodacom assets had been specifically disposed of, considering that the assets generated appreciable revenue. There were other state assets that could have been sold. He asked why the Vodacom shares had been classified as non-strategic assets.
On the unauthorised expenditure under the Finance Bill, he stated that that while the various projects and programmes upon which the unauthorised expenditure had been expended might be considered to be worthwhile, nevertheless, the total sum of the unauthorised expenditure resulted into an appreciable and significant sum. The economy could not continue to support such unauthorised expenditure.
Ms R Nyalunga (ANC) referred to the debts of retired staff and asked why there had been a failure to recover such debts and under what circumstances had the debts been written off. She asked why the debts could not be deducted from the benefits and entitlements of such retired staff.
On the contribution to be made by the BRICS members, Ms Phetla-Lekhethe replied that all the BRICS member countries owned equal shares in the NDB and this meant that they would contribute equally towards the share capital of the NDB.
On whether new members who subsequently joined the NDB would have the same shareholding rights as BRICS members, she clarified that new members would not have equal shareholding rights with the BRICS members. She referred to Article 5 (b) of the NDB Articles of Agreement which specifically provided that new members would be allowed into the NDB on term and conditions that would be determined at the time. However, the BRICS members had not yet determined the terms and conditions under which the new members would be taken on board. BRICS members would control 55% of the shares of the NDB thereby ensuring that they had control over the NDB irrespective of the fact that new members could subsequently take up shares in the NDB.
She replied that callable shares ordinarily represented the capital that the NDB might require at any given time after the initial paid-in capital had been made by the BRICS members. The callable capital was not to be paid anytime soon and even at that it would only become payable under certain circumstances that demanded an urgent injection of funds into the NDB. In respect of some institutions such as the World Bank and the African Development Bank, there was yet to be any request for callable shares or capital by such institutions, most especially considering that these financial institutions had been in existence for some time. It was therefore logical to safely conclude that there was currently nothing that would warrant the request for callable shares or capital at the NDB. Even where such request was made for callable shares or capital, the BRICS members would have the right to decide whether they wanted to respond to such calls or not.
Mr Willcox explained that the debts of the DTI retired staff had been written off because seeking to recover such debts would result in significant hardship to those retired staff. It was upon such considerations that the decision had been taken not to recoup such debts and which had to led the debts falling under unauthorised expenditure. The decision not to recover the debts was permitted under Treasury Regulations if the recovery would expose a staff member to appreciable hardship.
Prof Nico Steytler, FFC Commissioner, addressed the question on to non-strategic assets. He stated that the usual understanding of a strategic asset should be viewed in relation to the use and importance of such an asset rather than strictly considering the asset on the basis of its potential to generate income.
Mr Mabugu expressed his agreement with the statement that unauthorised expenditure could be prevented by adequate and proper planning. He said that a process had to be put in place to deal with those who failed to take steps to prevent such unauthorised expenditure, most especially if the unauthorised expenditure was a recurring factor.
Ms S Shope-Sithole (ANC) stated that there was a need to have more details about the incidents that created the unauthorised expenditure. These details would aid the Committee in its consideration of whether the unauthorised expenditure could be regarded as justified.
Ms S Nkomo (ANC) asked which specific state assets had been sold to generate money for South Africa’s payment of its NDB share capital. She asked which institution would be the adjudicator in respect of any disagreement between the BRICS members.
Mr Shaik Emam expressed his concern with the alarming rate at which the Child Support Grant was increasing and with the amount of money that was being spent on Zimbabwe. The money had reached disturbing levels.
Mr Mabugu stated that the sale of state assets to fund the payment of the paid-up capital for the NDB could be justified from the view that one asset was being disposed in order to procure another asset. The participation of South Africa as a BRICS member should be considered as an asset which would give greater dividends than the state asset disposed of so government could fulfil its obligation to the payment of the paid-up capital to NDB. He confirmed that the Vodacom shares was the state asset that had been had been sold to generate money for South Africa’s payment of its share capital in the NDB.
Ms Phetla-Lekhethe explained that the NDB Articles of Agreement provided that any dispute arising between the BRICS members on any issue would be referred to a tribunal of three arbitrators. One such arbitrator would be appointed by the NDB, another by the country concerned, and the third could be appointed by the Board of Governors. If there was a deadlock in arriving at a unanimous decision, then a final decision would be taken by the majority of the arbitrators.
Mr Wilcox replied about the request to furnish details on the incidents that created the unauthorised expenditure, saying that a comprehensive list reflecting those DTI staff members whose debts had been written off, would be provided to the Committee.
The meeting was adjourned.
- Finance Bill presentation
- SCOPA : Social Grants 2007/08
- DTI Unauthorised Expenditure: National Treasury presentation
- New Development Bank Special Appropriation Bill [B32-2015]: National Treasury presentation
- New Development Bank Special Appropriations Bill [B32-2015] & Finance Bill [B31-2015]: FFC submission