The Committee was informed by National Treasury (NT) of the quarterly expenditures by national departments and their entities, indicating those that had overspent and underspent and the ways that Treasury had tried to intervene. Of great concern was that most departments had underspent their budgets, because if money was available it had to be spent to assist the communities in need. Underspending was unacceptable in the context of poverty, high unemployment and crime.
Poor spending was generally related to inadequate planning with respect to procurement, the execution of capital projects, poor human resource management resulting in unfilled vacant funded positions, poor management of contracts with service providers, and unnecessary delays in processing payments to service providers. Overall, the challenges reflected poor management and a lack of consequence management.
Particular concern was directed at the Department of Public Works (DPW), because its role was critical to the efficiency of other departments. It was decided that the Committee would meet with the various departments and entities which were facing challenges with their spending patterns, to hold them accountable and propose effective intervention. It was also decided that in future meetings, when National Treasury presented financial statistics, the Department of Planning, Monitoring and Evaluation should also be invited to report on service delivery.
In the second session of the meeting, the Parliamentary Budget Office described the status of the implementation of the National Development Plan (NDP), and presented a quarterly economic brief. In essence, there was slow progress in the implementation of the NDP, but when integrated with standard government processes its implementation would improve.
The quarterly economic brief indicated how the growth and changes in the finance sector had affected global and domestic aggregate demand, which was fundamental in understanding the macro economy. The statistics showed that poverty, unemployment and inequality remain widespread in South Africa. Treasury said it was worried by the fact that the South African Social Security Agency (SASSA) was not using the previous biometric system and was not implementing the means test threshold according to the grants properly, which meant that it was starting to project billions of rands in overspending.
The Committee Members raised a wide range of concerns, most of which were related to the way in which ordinary people on the ground were affected by the economy and policy decisions.
The Chairperson said the main purpose of the meeting would be to look at the implications of underspending and overspending in the broad socioeconomic outcome that the Standing Committee on Appropriations was trying to achieve. National Treasury (NT) would inform the Committee of which public entities underspent and overspent and the Committee’s task was to deal with the implications of a budget not being met.
Mr Dondo Mogajane, Director General (DG): National Treasury, said the NT team would inform the Committee of the 2019/20 Quarter one spending outcomes and to also look at some public entities. There were four colleagues from the Public Finance Department, which was essentially a Department within Treasury that was responsible for overseeing spending patterns for national Departments and their public entities. Dr Mark Blecher, Chief Director: National Treasury, was responsible for Health and Social Development; Ms Julia de Bruyn, Chief Director: National Treasury, was responsible for both Basic and Higher Education; Dr Mampho Modise, Deputy Director-General: National Treasury, was responsible for Public Finance; and Ms Gillian Wilson, Chief Director: National Treasury, was responsible for Central Administration and Governance, Finance Administration. The National Treasury team was able to engage with specific questions that the Department may have, based on the performance of provincial departments and their spending, but mainly from a delivery point of view. Where questions may have not been answered, the Department of Planning Monitoring and Evaluation (DPME) also play a role as they were responsible for outcomes, and they had outcome facilitators who match their colleagues from Treasury to look at specific departments. The NT team would still try their best to inform the Committee of the spending outcomes for the first quarter.
The Chairperson said that the Committee had spent a lot of time engaging with Mr Mogajane and his team, and he felt that the Committee was in very capable hands.
2019/20 Quarter 1 Spending Outcomes
Dr Modise addressed each department and the reasons for their underspending, as well as some interventions that Treasury had done in the first quarter to try and help them improve their spending patterns. Since it was the first quarter, Treasury would monitor the departments closely, but they did not think that intervention was required for most departments yet. They would monitor them and if the performance was not improving, then they would look the interventions they proposed.
The preliminary data for the first quarter of 2019/20 showed that spending amounting to R201.4 billion, an underspending of R7 billion. The expenditure represented 22.9% of the appropriated amount of R880.7 billion for the full fiscal year of 2019/20.
The following Departments had underspent their budgets:
- Social Development (2.5 per cent).
This had been due to lower than expected beneficiaries for the child support grant, and the South African Social Security Agency (SASSA) transfer for June was only authorised on the system in July, and would reflect in the July expenditure.
- Cooperative Governance and Traditional Affairs (41.4 per cent):
There had been slow implementation of the Annual Procurement Plan, fewer claims on the Municipal Systems Improvement grant, and slower spending on the goods and services component of the Community Works Programme.
Public Finance (PF) had requested the Department to submit a mitigation plan to improve the spending on the Community Works Programme. This was not a concern now, as it was the first quarter of the financial year. Expenditure was projected to increase in the next quarter following the finalisation of their plans.
- International Relations and Cooperation (13.9 per cent):
There had been non-payment (on interest and rent on land) of the unitary fee in programme 1 for the Head Office building, and non-payment of the membership contribution (transfers and subsidies) to the Southern African Development Community (SADC) in Programme 5.
The PF had provided an analysis of spending to the Department in the form of a feedback letter and would continue to monitor spending in these areas in the coming months. The Department had started identifying these areas and planned to resolve them, which may lead to improved spending in the second quarter.
- Planning, Monitoring and Evaluation (7.7 per cent):
This department had experienced delays in the processing of invoices from the period of April to June 2019 for payment of the Department’s office accommodation, delays in receiving invoices for its computer services from the State and Information Technology Agency (SITA), and delays in filling vacant positions, which had also resulted in some underspending in their compensation of employees’ budget.
The PF had cautioned the Department on misalignment of spending against allocated funds and advised it to take measures to avoid over/underspending
- Public Enterprises (27.4 per cent):
There had been delays in the commencement of planned projects and filling vacant posts.
The Department had been advised to expedite procurement at the commencement of projects and the filling of posts in the critical programme. Spending on the items would be monitored monthly to determine if it was aligned to the projected spending.
- Statistics South Africa (13.5 per cent):
This had been due to delays in the filling of positions related to Census 2021, delays in receiving invoices for office rental from the Department of Public Works (DPW), delays in receiving invoices for consultants that were contracted for benchmarking and rebasing the gross domestic product (GDP) estimates, and delays in supply chain management (SCM) processes regarding the maintenance of server and storage facilities, and the procurement of switches and security information and event management software.
The PF had cautioned the Department on the misalignment of spending against allocated funds and advised the Department to take measures to avoid over/underspending. It must, however, be indicated that the net underspending under the Department’s compensation of employees was mainly related to the census. The Department continued to overspend on its permanent staff establishment.
- Correctional Services (12.2 per cent):
There had been delays in filling funded vacancies, and there were outstanding invoices from the DPW for accommodation charges and municipal services.
Bilateral meetings had been held, encouraging the Department to improve on its enlisted strategy.
- Independent Police Investigative Directorate (18.0 per cent):
There were funded but unfilled vacant posts and outstanding invoices from service providers (ABSA for fuel and property payments).
The DPSA had not yet approved the new organisational structure, and thereafter the posts would be filled.
- Justice and Constitutional Development (6.3 per cent)
The underexpenditure was due to outstanding invoices for municipal services and leases, as well as DPW committing less expenditure on court infrastructural projects.
The Department was encouraged to consider making virements from payments for capital assets in order to address other priorities such as the replacement of old laptops and computers. In addition, the DPW should allow the Department to do its own maintenance.
- Office of the Chief Justice and Judicial Administration (8.3 per cent):
This had resulted from outstanding invoices for fleet and information communication technology (ICT) services from service providers. Invoices submitted were incorrect and disputed by the Department. Once these were finalised, the Department would process the payments.
- Agriculture, Forestry and Fisheries (21.2 per cent):
There were delayed transfers to the Land Bank under the blended finance programme, as a result of the programmers’ review which was currently conducted. The outcome of the Blended Finance Programme’s review was expected to provide improvement in challenges currently faced by the programme, therefore improving spending going forward. The had also been slow expenditure on goods and services due to suppliers’ outstanding invoices.
- Energy (7.1 per cent):
Lower transfers to private enterprises for the Integrated National Electrification Programme (INEP) Non-Grid electrification were due to delays in finalising the terms of reference and the procurement process for the appointment of service providers.
PF had advised that the Department must align their approvals for the contractual agreements of the service providers to be within the respective financial year.
- Labour (8.7 per cent):
There were delays in invoicing by service providers for the procurement of cars for the Departmental fleet in the provinces, and delays in the issuing of invoices for office accommodation leases and municipal service charges by the DPW.
The delivery of cars would take place in the next quarter, but delays in the invoicing by DPW requires intervention as this has been a problem for several years.
- Science and Technology (19.8 per cent):
This was due to slow spending in the Research, Development and Support, and Socio-economic Innovation Partnerships programmes. The Department had withheld payments to the University of the North West, the University of KwaZulu-Natal and the National Research Foundation owing to a failure to submit progress reports, which were prerequisites for approving further drawdowns of appropriated funds. Once the agencies and universities complied with the requirements, spending would speed up. There had also been substantial delays in the rollout of the Innovation for Inclusive Development project under the Technology Innovation Agency. The delays emanated from material deviations in the project implementation, which had expanded the content and scope of project beyond and what had been contractually agreed upon.
The Department had been advised to put measures in place to improve disbursements of funds and align actual expenditure with planned expenditure in the next in-year monitoring expenditure report. The Department should place more stringent measures in monitoring its Departmental agencies
- Small Business Development (19.4 per cent):
Small and medium enterprises had submitted claims that were not compliant with the guidelines and requirements for funds to be disbursed, and slowed the processing of applications.
The Department was advised to provide training or support after approval of applications to ensure that successful applicants were familiar with compliance requirements. This was a worry, because the slow spending happened on a yearly basis and was based on the same reasons, despite proposals to improve compliance.
- Telecommunications and Postal Services (11.4 per cent):
There were outstanding invoices for the broadband project, since there were delays in the service activations by the service providers. Because services at these sites were not operational, no payments had been made.
The PF expects services to be activated in the next quarter, as work was underway to activate these services, following which payments would be made.
- Transport (1.7 per cent):
This had been due to the revision of the capital transfer payment schedule for the Passenger Rail Agency of South Africa (PRASA) and delays in projects such as the establishment of the Interim Rail Economics Regulator, the development of the National Rail Safety Bill and the review of the Branch-line Strategy. There had been lower than expected demand for taxi scrapping and delays in projects such as the implementation of Shova Kalula bicycles, the upgrade of the National Land Transport Information System and the implementation of Integrated Public Transport Networks in district municipalities.
The PF indicated to the Department that a series of meetings to understand consistent underspending in certain programmes would be set up in August to find a suitable solution.
- Water and Sanitation (18.6 per cent):
There had been non-payment of invoices that needed to be certified, verified and approved on both the indirect portions (Schedule 6B) of the Regional Bank, Infrastructure and the Water Services Infrastructure grants for work done on behalf of the Department. Expenditure was projected to increase in the next quarter due to the finalisation of these invoices.
- Trade and Industry (20.2 per cent):
Companies had not been able to meet compliance requirements for funds to be disbursed.
A proposal had been made to the Department to provide support and to review the guidelines for respective incentive programmes, with conditions included when approving applications for funding, and to determine the exact clauses of non-compliance
- Arts and Culture (15.2 per cent):
The transfer to the National Youth Development Agency (NYDA) for the Young Patriot’s project was delayed because of an outstanding tax clearance certificate, while capacity constraints in the legal services unit of the Department affected the finalisation of contracts with beneficiaries responsible for the implementation of the “Women and People with Disability” project. The slow spending under transfers and subsidies on non-profit institutions and other transfers to private enterprises was mainly in the Cultural and Creative Industries Development sub-programme due to Mzansi Golden Economy beneficiaries failing to submit final expenditure reports as per the contractual agreements. The spending on the Community Library Services Grant was lower than projected due to payment delays, as business plans from provinces were not signed off due to incompleteness.
- Rural Development and Land Reform (11.0 per cent):
There were delays in the finalisation of recapitalisation and development projects caused by the service providers’ inability to deliver procured items on time. Also, the Department could not disburse its Blended Finance contribution to the Land Bank due to disagreements on Land Bank’s criteria for selecting beneficiaries.
The National Treasury would engage both institutions in order to help find a solution. Slow progress on the recapitalisation and development programme was negatively affecting productivity of land reform beneficiaries, therefore intervention was essential.
- Sport and Recreation South Africa (6.0 per cent):
This had resulted from outstanding invoices for the winter school sport championships, the incorrect spending projections for the African Games (which had been done for June instead of August when the Games would take place), and a delay in appointing a supplier for outdoor gyms and multipurpose courts. These matters had been noted in the monthly expenditure feedback, and this spending would take place in the next quarter
The following Departments had recorded overspending for the first quarter
- Defence and Military Veterans (-3.4 per cent):
This was because the compensation of employees ceiling did not support the current personnel numbers of the Department.
PF was still awaiting the rejuvenation strategy from the Department
- Economic Development (-0.2 per cent):
This was attributed to accruals on legal services and accommodation costs.
The Department was advised to find alternative ways to carry out its mandate without incurring unbudgeted legal costs and to ensure that invoices were processed timely. It was also advised to implement cost containment on non-core items to prevent over expenditure during the remainder of the year.
- Environmental Affairs (-1.8 per cent):
There had to be upfront payment of the transfer amount to SANParks in April 2019 to subsidise the construction of road infrastructure and a pontoon in the Richtersveld and spending towards the Combating Wildlife Crime Initiatives. Payments were also made earlier than projected in the month of April 2019 towards the Expanded Public Works Programme (EPWP): Natural Resource Management to subsidise backing from the previous financial year.
The finalisation of service agreements had resulted in the acceleration of service delivery and expenditure in the opening months of the financial year. The Department was advised to adjust expenditure in the subsequent months of the financial year, in line with approved drawings.
- Mineral Resources (-3.2 per cent):
This had been due to office accommodation that had been inadequately catered for.
Close monitoring of the Department’s spending would be done throughout the financial year, and it would be advised of possible reprioritisation areas. The Department was expected to implement cost saving measures and reprioritise to the pressure areas (operating leases).
- Women (-2.2 per cent):
There had been payment of ministerial foreign travel claims related to 2017/18. These had been received from the Department of International Relations and Cooperation (DIRCO) only towards the end of 2018/19, and could not be paid on time.
The Department had confirmed that it had cleared most of the outstanding payments related to foreign travel. It would effect the necessary shifts in the budget during the Adjusted Estimates of National Expenditure (AENE) process. This would not result in overspending for the financial year.
- Human Settlements (-10.8 per cent):
There had been larger than estimated transfers to provinces and municipalities for the Human Settlements and Urban Settlements Development Grants respectively. This was due to the adjustments made to the respective payment schedules related to monthly conditional grants transfers, which was different to the original drawings schedule.
The Department would need to align the payment schedules and drawings schedules.
In general, many of the reasons for poor spending related to the following:
- Issues with the Department of Public Works (DPW) – late invoicing for property payments and municipal charges, disputes with the DPW on actual invoices received.
- Issues with the State Information Technology Agency – for the invoicing of ICT hardware payments.
Within departments, there was:
- Poor planning with respect to procurement.
- Poor planning and execution of capital projects.
- Poor HR management – for instance, the time taken to fill vacant funded positions.
- Poor management of contracts with implementing agents and service providers.
- Unnecessary delays in processing payments for work done by implementing agents and service providers.
Mr D Joseph (DA) referred to the Independent Police Investigative Directorate (IPID), and said that the DPSA had not yet approved its new organisational structure. He asked how long it would take to get the new organisational structure in place. He then referred to the overspending of the Defense and Military Veterans, and asked if this meant that even at the end of the financial year, going into the first term, if there had been unfunded budget activities related to this Department. If they were unfunded and they continued to overspend, then it would be a serious problem to address.
Mr A Sarupen (DA) asked why the state did not have a facility that allowed a department to check the tax status of any of its suppliers with the South African Revenue Service (SARS), and if there were any plans in place to sort out the delays in payments to suppliers.
Mr A Shaik Emam (NFP) mentioned that the Committee was promoting good governance, calling for payments to be made within 30 days, yet there were many Departments that had not been paying their invoices, and he did not agree that the problem lay with the service providers. He asked how this issue would be addressed, because the Committee had already dealt with this issue with National Treasury. He recalled that National Treasury was meant to give the Committee an update on those repeat offenders that had not been paying. A commission had investigated and found that it was the departments’ fault for various reasons, and the fault was not with the service providers. National Treasury was meant to present a report on those non-compliant, repeat offenders who did not pay people on time. He was concerned that DIRCO had not paid the SADC, as there was usually an advance payment. He also requested an update on the issue of the Integrated Financial Management System (IFMS), in terms of the money that was spent and an update on its development.
Mr Shaik Emam said that the Departments were supposed to conduct their affairs effectively throughout the year, but he suspects very poor planning. The first quarter had been almost a standstill, with most of the money not being spent. He questioned whether work was being done, and if they had not planned well in advance, this was an ongoing process. He questioned how the departments were functioning with so many unfilled vacancies.
Mr O Mathafa (ANC) commented that there were a number of instances where National Treasury had said that they would be making recommendations year on year, without success. He asked how they as a Committee and Parliament could assist National Treasury to get a response to the recommendations that they made, because it could not be normal for them to keep on making recommendations that were ignored and every quarter the same issues arose. He suggested that the departments could appear before the Committee and give an indication on how they were responding to challenges, particularly with regard to underspending.
It was worrying that the Department of Public Works was supposed to be an enabler, but it appeared as an obstacle to efficiency that cut across various departments. With all the problems that were manifested due to the inefficiencies in the co-functions of the DPW, he asked if those functions could be moved elsewhere. Departments may be able to expedite those functions if they were removed from the DPW and put in those Departments.
With Small Business Development, there was generally a problem of outdated processes in government which needed to be addressed. If the processes were difficult for beneficiaries to apply for support from Small Business Development in 2019, it clearly meant that the long-term objectives would not be met. He questioned why there was not a system where everything that was done was modernised, like being done electronically, which could also address the challenge of procurement processes that were delayed due to invoicing. With reference to issue of late payments of invoices, he recalled that at the last joint meeting of the Appropriations Committee and the Auditor General (AG), the AG had indicated that non-payment of invoices within 30 days was tantamount to misconduct. It was a requirement by law that invoices must be paid in 30 days. The issue was that some of the underspending was because of late payments of invoices -- what was National Treasury doing to ensure that consequences were meted out to those who continuously did not comply with that requirement?
Ms E Peters (ANC) referred to the issue of poor planning in all respects, be it human resources (HR) matters, project management or procurement issues. National Treasury should put their foot down in terms of what could and should be done and how they engaged with the various Ministers of the Departments to emphasise the particular issues identified. Lke Mr Mathafa, whe was worried about the DPW seemingly being the biggest culprit in the challenges of accommodation and invoicing, and believed that this was probably one of the departments that should be engaged with. The non-payment of municipal services was also the result of Public Works and their counterparts at the provincial level. These matters needed to be attended to and it should be established how much the DPW owed the municipalities.
With regard to Trade and Industry (DTI), the Land Bank and Small Business Development, it was painful that beneficiaries had a lack of support, and did not understand what to do to comply. This meant that the departments were not making it easy for the beneficiaries to qualify and benefit from the grants and support programmes. She referred to the Department of Transport being delayed in projects such as the Interim Rail Economic Regulator, the development of the National Rail Safety Bill and the review of the Branch-line Strategy, and remarked that it was one branch within this department that had all these challenges. The Branch-line Strategy, in particular, needed to be finalised and implemented because it would revive the small towns and local economy that had been spoken about for the last 11 to 15 years.
She questioned why it took so long for the Department of Energy (DoE) to finalise the terms of reference and procurement process for the appointment of service providers. People were living in the dark, shacks were being burned down every day and people were unable to have a good quality of life because of the lack of access to electrification. The Integrated National Electrification Programme (INEP) was meant to make it possible for people to have a decent life. These issues made one emotional because officials were sitting in offices and enjoying life while people were suffering. The Committee and National Treasury needed to help people to have a decent life.
Ms R Komane (EFF) expressed her worry about the unfilled vacant positions and also the payment delays due to non-compliance. She questioned what the departments could do to ensure that payments of invoices would be paid in due time. With Cooperative Governance and Traditional Affairs (CoGTA), it was also worrying to see that municipalities were non-compliant, and she questioned what needed to be done to ensure that they were compliant, because if they were not then the people on the ground were the ones that suffered, not the municipalities themselves. With the low spending on the Community Works Programme (CWP), the cause for concern was that the municipalities’ Integrated Development Plans (IDPs) were not aligned to the CWP’s business plans, so there was no convergence and they could not spend. She emphasised that municipalities and all programmes should prioritise service delivery.
Ms M Dikgale (ANC) said that the Committee and National Treasury were representing God in what they did, and that angels did not rest. She questioned what Treasury was doing to assist the vulnerable and poor people on the ground. It had been good only at reporting to the Committee about underspending and overspending, but there was no plan as to how these people could really be assisted. She remarked that poverty struck people in the rural areas. With the Department of Social Development and its underspending, she suggested that instead they should have overspent because important projects were not being funded, even though the money was there. The money should have assisted people.
She questioned if National Treasury took their departments to do oversight visits on the ground to see what was happening in their constituencies every day. They were trying to prevent and deal with crime, but if the vulnerable went to school with an empty stomach and found out that there was nothing to assist them, did the Treasury think those learners would be able to concentrate? They would not be able to concentrate, but the money was there -- it was not right.
She expressed her disappointment at the meetings and presentations that sought to assist people on the ground, but there had been no change. Since she had joined the Committee, there had been nothing to enjoy. There were always problems after problems, and they were always debating budgets that were meant to assist people, but at the end of the day the outcome was underspending. They needed strict measures to assist these Departments to work.
Mr Joseph remarked that there were more stakeholders than just the Committee and National Treasury --there were the municipalities, there were the national departments, and there were people who were paid big money to do what had to be done. In response to the concerns raised by Ms Dikgale, he asked where the Committee and National Treasury should focus to get the real change that they wanted.
Mr Shaik Emam said that National Treasury needs to provide them, as the oversight Committee, with more information so that they could put pressure on the departments, such as naming the repeat offenders.
A Member questioned why the Department of Energy had delayed in appointing service providers, especially since the DoE had such a critical responsibility.
The Chairperson commented that the reasons for underspending remained varied, but he questioned how to distinguish between the real and fictional reasons thereof. He believed that there was a lot of fiction in the reasons given for underspending. The biggest problem in the departments was project management, which was critical in regard to budgeting, planning and making sure that they executed the project according to the budget. All of these things fell under project management, so he proposed that they focus on project management and the people who were meant to execute those programmes and projects. There were a lot of budgets for employees, but people were not being employed into those positions, despite very high levels of unemployment. Since there were budgets for it, people should be employed. It was not rocket science.
Fiscal dumping was unacceptable, and proper planning was needed. When the departments submit budget proposals to National Treasury, they should also be required to submit a plan. They should have a plan before they were allocated a budget. The same applied to the Portfolio Committee on Police, where positions were funded but police were not being employed, despite very high crime rates in the country.
The implications of the underspending on goods and services, and service providers not being paid, were huge. He suggested that government and state-owned enterprises (SOEs) were taking advantage of small business providers by not paying them on time, and using their money for cash flow management purposes, whereas big service providers were paid on time or else they were taken to court. It was incumbent on the Committee and National Treasury to protect those small service providers, so better strategies of intervention were required. The Chairperson requests of the Director General, National Treasury to address these issues the next time that they met.
With regards to the underspending in agriculture, for instance, especially with blended finance, which was a product that government had come up with to help small emergent farmers, it was blended in that it was a loan and a grant. The Land Bank had indicated that some of the projects coming from the emerging farmers were very risky, so in order to de-risk those projects, those farmers needed to be assisted. The Department of Agriculture should come in to engage with the Committee. Agriculture was a sector the government had identified which would enable economic growth in the country, but if there was underspending that would not be possible. Yet again, there was money available but those in need -- small emergent farmers -- were not being assisted. It was not acceptable.
The issue with the Department of Public Works was that other departments were dependent on them to execute and do what they were supposed to do. It was a problem that other departments were struggling to do their work because of the issues within the DPW, so a model was needed to address this issue.
Overall, there had been an underspending of R7 billion, and this money should have been circulating in the economy to deal with the problems that the country was facing, such as stunted growth and high levels of unemployment, yet R7 billion had not been spent and the implications at the macro-level was huge. The National Treasury needed to point the Committee towards an intervention.
Mr X Qayiso (ANC) questioned how National Treasury could appropriate money to departments that had continuously not presented organisational structures, without any remedial and consequence management being applied. Why did Treasury allow them to appropriate money and not present their organisational structures, indicating what people they needed to employ, because vacant positions were not being filled continuously, quarter after quarter, and they continued with business as usual. The situation needed to be improved through consequence management. There had to be deadlines and consequences. PRASA should also be one of the departments to engage with the Committee.
National Treasury’s response
Mr Mogajane said that as he listened to the Committee Members, it had become clear that the Treasury and the Committee had lost each other for a number of years in those conversations. He suggested that perhaps they, as public finance, had been wrong and would need to change the approach in which the Committee would like information. For instance, it was currently a quarterly report based on spending by the departments, but some Committee Members were correct in saying that maybe those departments should come before the Committee to explain themselves. In listening to the questions, the Committee expects the public finance team, perhaps rightfully so, to take responsibility and answer questions that were essentially the responsibility of the executive authority and the accounting officer of a department. He implied that it was the responsibility of the departments themselves to ensure that they abided by the laws and regulations, and pay their suppliers within 30 days. It was expected that on a monthly basis, the Minister and DG within those respective departments should be able to ask the questions about the departments to their accounting officer. The chief financial officer (CFO) of that particular department should be able to answer as to why they did not pay their suppliers in due time.
Mr Mogajane said that as the accounting officer of Treasury himself, he gets a monthly report from his CFO and finance team, where he could question why people were not being paid and give written warnings, and that way in future the system could function. If he did not do so, then the Minister of Finance could hold him responsible when suppliers had not been paid within 30 days. However, the Committee questioned Treasury as to why the departments were not paying their suppliers within 30 days, although Treasury themselves could do only so much, as they already had very robust engagements in the Departments that they engage with. That was why they had presented the summary on each Department, indicating why they were not doing what they were meant to do. Public Finance exercised their oversight role on those Departments in collaboration with the DPME.
In response to the issue of the Community Works Programme (CWP), he said he had met the Minister of CoGTA yesterday, and they had discussed this issue. The model of service delivery did not work as it was, in that non-governmental organisations (NGOs) were given money when they were interested in making profits. The Minister and her team were reworking on the CWP to make it more impactful,. Her team was setting up a proposal to present to Dr Modise’s team, to really modify the project in order for it to have a high impact and create more sustainable job opportunities in decent work.
Ms Peters remarked that she was even more worried after listening to Mr Mogajane’s response. If there had been failures, they should have been escalated to the Minister of Finance. The DG had implied that they should have the patience to allow those bureaucratic channels of conveying information to continue. Some of the questions had also been opportunistic because he was the DG of the National Treasury. The way that he had said the Committee should engage with issues was worrisome – that the issues conveyed in the presentation were not meant to be raised, and even National Treasury’s own interventions that they had proposed. She requested the DG to bear with the Committee. Perhaps his expectations were too much, but the Committee Members were public representatives and the information that they would convey to the departments would also be conveyed to other role players and stakeholders, even with the DPME process, because the DPME was also meant to be monitoring the impact.
Mr Shaik Emam said that National Treasury had a responsibility, as custodians of the funds, that when there was under- or over-spending, they received a report and interrogated it, and that they get a response and provide it to the Committee. It sounded as if that was where National Treasury’s responsibility stopped. As the oversight Committee, they have the responsibility of interrogating right from the top to the bottom, to the root causes of what was going on. He questioned again how much information Treasury could give the Committee so that they could interrogate it, because it was the Committee’s responsibility to follow the money and follow the budget.
He questioned the little amount of information provided by Treasury, and asked if the Committee should invite the respective departments themselves and interrogate them, whether at the national, provincial or local level, or on the ground, to find out who was underspending and why they were doing so. He requested that Treasury should provide more information about their interrogation of the Departments, because everything that Treasury had presented to the Committee had been the same as they had been getting for the last ten to 15 years. The same people were doing the same things -- not spending. It was a futile exercise, coming to meetings like this to hear the same issues. The Committee could not do much because they did not have the information, Treasury could not do much as it was not in their mandate. How could they change this so that the Committee could play a more meaningful role in dealing with the challenges so that departments could start spending, and ensure consequence management so that the challenges did not continue?
A Member commented that the presentation had been born out of the discussions that the Committee had had. It was a detailed synopsis of what had happened within each department. He reminded Treasury that not all of the departments came to engage with the Committee, but it was Treasury themselves. Treasury had been requested to provide detailed information of the extent of their engagements with those departments, but what had been those department’s responses? What would be done after the meeting would be to prioritise which departments should be held accountable and meet with the Committee. However, if Treasury said that they had tried their best to deal with the departments, then there was not much being done, and they had not illustrated an effort in trying to guide those departments, which in effect was harming the role of the oversight Committee. The Committee did not just want to browse over the issues, but to dig deeper.
Ms Dikgale said that Treasury was meant to put pressure on the departments with regard to their spending. She asked who was responsible for the underspending and overspending of the departments, because if it was not the responsibility of Treasury, then it appeared as if all Treasury did was to make presentations, and the Committee should not ask questions.
Ms Komane reformulated the question posed by the Chairperson, asking the DG what the genuine reasons and excuses from the departments were, as mentioned in the report. There were too many excuses. Treasury had the responsibility to assist the Committee in interrogating the challenges and doing oversight. She questioned if the Committee was meant to interrogate the departments themselves in order to do oversight, although she felt that Treasury should have helped the Committee get to the solutions.
The Chairperson mentioned that there had been accruals in the departments in the previous year, and questioned how much of it had been spent. Secondly, there had been a task team composed of National Treasury and the DPME, to look at the payment of service providers, and he questioned the outcome of it. He asked if it was true that about R7.1 billion was owed to small businesses. The DG had stated that National Treasury was the custodian of the finances of the country, and that it comes before the Committee to discuss how money is appropriated to departments, but that should not be the end of the story. The question was, what had happened to the money that had been appropriated? It was problematic that the DG, the DDG and their Chief Directors were there simply to present statistics. The Committee Members were not accountants, but were there to interact with those statistics. He requested the National Treasury team to answer questions where they could and trust that they would follow up with the Departments where need be. Since National Treasury was the custodian of the country’s finances, more pressure needed to be placed on them to deal with the issues of concern.
Mr Mogajane agreed that they as National Treasury were the custodians of finance and were responsible for providing responses, and it would be sad if they merely presented. They needed to work with the Committee to follow the money. However, the issue of accountability rested with the accounting and executive officers of the departments, and those issues were separate. If there were gross mismanagement of public funds, then they would inform the Committee of which department was mismanaging the money, and that department and their Minister would need to be called before the Committee and held accountable. In response to specific issues, he mentioned that for the Integrated Financial Management System (IFMS), there had been a forensic investigation and specific recommendations made, charge sheets had been formulated by lawyers against those who had seemingly misappropriated, mismanaged, or not followed certain prescripts, so that issue was ongoing, but the disciplinary process was almost finalised.
Dr Modise referred to the report, and said that when Treasury had presented the induction last week, they had actually asked the Committee if there were any changes that needed to be made in how the information was presented. She requested that moving forward, the Committee should inform Treasury of how they would like information to be presented. It had been made clear to the Committee researchers and the Parliamentary Budget Office (PBO) that the raw information was available. She also clarified that before DPME was an established department, Treasury had had a role to look at the impact and outcomes of the spending, but now their role was limited to looking at where the money went, and it was now the responsibility of the DPME to ensure the execution of projects/programmes. She understood that the Committee was frustrated in that Treasury appeared to just come and do presentations on statistics, but at the previous meeting last week, she reminded the Committee that National Treasury had proposed that the Committee should invite both the National Treasury and the DPME on the same day, so that National Treasury could present the statistics and DPME could present on the service delivery, because that was their responsibility.
The Chairperson intervened and said that he wanted to correct any impression that there was any unease on the Committee’s part. He just requested that where they could, Treasury should answer questions, but they would also engage with the DPME.
Dr Modise continued that with regard to the accruals, the Accountant General at the National Treasury was finalising the financial statements for 2018/19, so in the second quarter, Treasury would present on the accruals of the departments. There were departments who had large accruals -- for instance, the Department of Water and Sanitation which had been reprioritising their funding to try and reduce their accruals. Treasury would present to the Committee a five-year overview of the accruals of problematic departments, as well as what strategies they have in place.
Dr Modise said that they presented only on departments that they thought needed intervention,. She grouped the Departments in terms of how they inhibited other Departments from executing their mandate, such as the Department of Public Works, which do not file their invoices on time and so inhibited other departments from doing their work. There were some departments that had said they would prefer to own and manage their own properties, but there was a policy that said all government property should be managed by the DPW.
The second group was those departments whose mandate was to enhance economic growth, such as Small Business Development, Trade and Industry (DTI), and Rural Development, where their policies and regulations make it difficult to provide finance to small businesses and black farmers fast enough, because they were tedious. Treasury had spoken to the departments and at least, the DTI had tried to simplify their regulations. Treasury had advised them to train their beneficiaries to help them adhere to the conditions. Treasury had questioned them on why they had not been dispersing funds as fast as they should.
The third group of departments that needed intervention were those which were overspending on their compensation budget, like Statistics South Africa and the Department of Defence and Military Veterans. Such departments needed to come forward to explain what type of interventions they had. Then there was the Department of Transport, whose problems lay within its entities -- for instance, the Passenger Rail Agency of SA (PRASA) and the South African National Roads Agency Limited (SANRAL) -- when in fact such entities were supposed to be self-sustaining.
Ms Julia de Bruyn, Chief Director: National Treasury, Basic and Higher Education, said that she would also be answering questions related to protection services on behalf of her colleague, and not just those on education. The question on the Independent Police Investigative Directorate (IPID) and the approval of its structure, involved just an issue of timing. They had submitted the structure to the Minister in the previous administration, so the new Minister would deal with it, which they assumed would take place shortly. What it meant was that if there was a particular structure, those people would continued to be paid, but if a new structure was wanted then the Department of Public Service and Administration (DPSA) must approve it. Once a new structure was approved then a way needed to be figured out of how to transfer people from an old structure into the new structure, which informed the timing gap.
Ms de Bruyn said it was very difficult to interrogate a department on why they had not performed as expected. In working with the Departments, her instinct is to believe them until she realises that they may have lied to her, or else it made for a difficult relationship. She assumes that they do tell the truth, but when they engage with them and get the performance dialogues with the DPME and the Department, then the truth becomes more apparent.
Regarding the unfilled vacancies, she said that there may be two scenarios. The first was when an advert was posted and thousands of applications were received, but the public service was strict in that it required each applicant to be notified that their application had been received and thereafter each application needed to be scrutinised in terms of the requirements. On the other hand, when employing people for positions like DDGs, higher levels of scrutiny were required, because one needed to ensure that the candidate recruited was responsible.
One of the Departments that Treasury had asked the Committee to call in had been the Department of Labour, which had vacant posts in the labour inspection unit. These were people who were meant to inspect occupational health and safety in workplaces and employment equity. Here they had a problem, because every time they employed a set of labour inspectors they realised that the level at which they were employing them was not the same as that for jobs they could get elsewhere, so as soon as people were recruited, they got experience and then they left. In other words, unfilled vacant positions were not always just a dereliction of duty, where departments had not bothered to put out adverts. She understood that the Committee would like them to be harder on the departments, but as Treasury they were trying to persuade the departments to do the right thing.
Ms Gillian Wilson, Chief Director: National Treasury, responded to questions around the central governance departments and also those involved with urban infrastructure. At the Department of International Relations and Cooperation (DIRCO), there had been a delay in payment to SADC. The Department receives a new scale of assessment at the beginning of every financial year, and that scale of assessment had been received late from SADC, therefore the payment had not been processed. It was important that membership fees were paid to the organisations on time.
At the DPW, there should be intervention to get the basic things right, because to develop a new model might not bring change. What Treasury advocated was that there should be a service delivery agreement between Public Works and the departments. The DPW needed to issue the invoices on time. If there were disputes between the departments and Public Works, they had to resolve those disputes within a certain period of time. The DPW was hesitant to develop those service level agreements because there were capacity constraints, but there should be service delivery standards that they had to comply with, because what Public Works does had an impact on the expenditure of different departments.
With regard to Transport, and its numerous delays in programmes, Treasury believes that this department had implemented a turnaround project to address those delays. It would give the Committee more information on how those delays would be addressed at the next meeting.
With regard to Energy, there was a problem with the solar water heater programme. The delays were related to the appointment of the contractors, there were procurement issues, and there were also delays in the contractors providing certification of the work done and the invoices.
Dr Mark Blecher, Chief Director: National Treasury, responsible for Health and Social Development, said that given the importance of economic growth, it might be useful to call in a cluster of economic sector departments where there was slow spending and who had difficulty in getting their programmes going, and speaking to them about how they would resolve their challenges.
With regard to accruals, there was an interesting experience within the health sector, where Treasury had worked with the health sector to draft the Provincial Health Action Plan. At the meetings, some of the departments who had had good relationships working with their treasuries had given a lot of details of examples of how they had tried to deal with their accruals and had shared their experiences. A lot of good had come from the project and the accruals had decline in the health sector in the past year.
Finally, with Social Development and its underspending, he encouraged the Committee to address the social development sector itself in order to address those issues. Half of the Department’s underspending was just a technical transfer to SASSA because of the shift in the contract to the SA Post Office (SAPO). They had massively underspent last year because they had not yet paid SAPO. It was considered, going forward, that with the new contract with SAPO, SASSA’s budget would be cut slightly more. Most of the services that were worrying were the welfare services in the provincial domain. There were several projects going on within Social Development, but welfare projects were very underfunded.
The Chairperson commented on Ms de Bruyn’s response, and said that the Committee looked at the budget allocations presented to them and the reasons why money was budgeted for in a Department. For that reason, the Committee would hold people accountable for what was presented to them.
Quarterly expenditure reporting on public entities
Dr Modise focused on the entities on which attention needed to be focused. These were:
- National Empowerment Fund (NEF)
The NEF was dispersing more money but was not getting repayments, so in a nutshell, the NEF was making losses. Treasury had tried to encourage them to reduce their bad debt so that they could balance the revenue that they got with the funding that they disperse.
- National Health Laboratory Services (NHLS)
There had been delays in provinces paying the entity for services rendered, but there had been progress on work relating to the new proposed payment system (Modified Capitation Model). This model proposed a shift from fee-for-service to a capitation-based model, where the NHLS was paid a fixed annual amount to provide a set basket and volume of services, which would help in payment stability.
- National Student Financial Aid Scheme (NSFAS)
The entity was overwhelmed as they needed to improve their systems to get data and allocate funding to the right students. The underspending of this entity was mainly due to them not paying the students, but this was because their systems were still a bit slow,. They were working on improving their systems and once that was done, they would spend the funds. It was not that they were underfunded -- they just needed to align the students to the funding correctly.
- Passenger Rail Agency of South Africa (PRASA)
- Road Accident Fund
Last week Treasury had been tasked to check with the Department of Transport to see if the Road Accident Fund Bill would be revived or withdrawn. It had been confirmed that the Bill would be revived.
- South African Revenue Service (SARS)
With the revamp and new commissioner of SARS, last year, Treasury had allocated about R3.5 billion to try and give them enough funding to turn the entity around. So far SARS had recorded an underspending of about R200 million for the financial year 2018/19. The money that had been allocated to them was still sufficient for a turnaround.
- The South African National Roads Agency Limited (SANRAL)
SANRAL was unable to service its debt because it could not go to the market because of the uncertainty around the Gauteng Freeway Improvement Project (GFIP), and lenders were reluctant to give them funding. A decision regarding the GFIP had to be made, and until then the problem would persist.
SANRAL operated in two distinct businesses, toll and non-toll. Treasury was trying to balance the usage of funds from the non-toll to the toll, but the worry of moving money from the non-toll to the toll to try and compensate for the GFIP was a problem, and until a decision was taken on GFIP then SANRAL would remain in financial trouble.
- South African Social Security Agency (SASSA)
There had been savings ever since the new contract with SAPO came into effect. Cash Paymaster Services (CPS), the previous contractor, had charged a higher fee per beneficiary, and this had resulted in some savings for the entity.
Ms de Bruyn said the Committee had requested that it would like access to the source data. This would be submitted to the Committee and would become part of the public record, and would be available in the public domain. She clarified that the data came from the financial systems of the departments, and if there were discrepancies and questions, Treasury would try to answer, but that the best people to answer would be the individual departments.
Mr Shaik Emam asked how National Treasury worked with the DPME when issues had been identified and handed over to them. He questioned what successes were achieved, whether they were performing and cooperating, and if there were instances where the Committee should intervene in any way. He recalled that last year they had reported that the amount paid out in Child Support Grants (CSGs) was much lower than they had projected, which seemed to be happening yearly, so he asked if they should not make those funds available somewhere else. He asked where Treasury thought the problem lay, although he felt it was a problem of lack of planning that led to the underspending.
Mr Joseph referred to the four entities – the National Empowerment Fund (NEF), NSFAS, SARS and SANRAL -- and said that it was unquestionable that the Committee should focus on those entities going forward. Since job creation was a big issue in the country, he asked which entity would help in that matter and drive job creation.
Mr Sarupen referred to NSFAS, and asked what the percentage loan payment to NSFAS was, and if it was financially sustainable. How much of the historic debt was actually recoverable? If they were not careful with NSFAS, it might collapse the entire system that was meant to provide tertiary education for poor students.
The Chairperson referred to PRASA, where the cash available at the end of the quarter had amounted to R18.2 billion, which had been R11.9 billion (188%) more than expected. Such money was meant to be dispersed into the market. He emphasised the macro-economic implications of these amounts not being spent, especially for the small business that were dependent on PRASA for employment. He said the Committee should list all of the departments and entities it would like to meet with, for them to take accountability.
Ms de Bruyn responded to the question on NSFAS, pointing out that this was a new bursary scheme and not a loan -- it did not get paid back. The entity would be as sustainable as the government was sustainable. The people who were paying back were those students who had received funding under the old rules of the scheme. There was an issue around whether those loans would be treated in the same way as other loans, and the National Credit Regulator would make a decision on that. The loan repayment was never intended to make the entity sustainable, but was meant to fund additional students. As the new bursary scheme, which was in year two, proceeded, the number of loan repayments would be fewer unless there was a policy change. The entity was not intended to fund its own operation. It got its transfers from government.
Dr Blecher responded on the CSG issue, saying that he was worried it was going in the opposite direction. Treasury had met with SASSA recently and they had been projecting massive shortfalls. There were certain controls at SASSA that seem to have become looser because they had not fully taken on some of the functions after the exit of CPS. An example was biometrics, where previously all of the people who came to get grants had their fingerprints taken by biometrics. After CPS left, some of the staff at SASSA had gone on strike and refused to do biometrics, saying that they should be paid more to do so. Until now, the biometrics had not been fully reinstated. SASSA had also had a better way of checking dormant accounts, such as in instances where someone had died, but that was not happening in the same way under the new system. Also, SASSA was not implementing the means test threshold according to the grants properly, which meant that it was starting to project billions of overspending. In previous years, they could be bailed out but now there were problems with their controls. There were also policy questions under discussion proposing that, given the fiscal climate, the CSG should be addressed differently. For instance, some countries had conditions in their grants, and other countries had family grants.
Dr Modise said National Treasury continuously worked very hard to ensure that there was a relationship with the DPME, because they were accountable. It was clear that planning was the problem, but more worrisome was the implementation of the departments’ plans. In government in general there was no consequence management for late payments to suppliers, which was constituted as misconduct, which made it very difficult to enforce the PFMA.
The entities that drove employment were direct ones that gave money to try and boost employment, like the NEFfor example, that empowers entrepreneurs to start their businesses. There were also entities which, if they did what they were supposed to do, would also contribute to significant changes in unemployment -- for example, PRASA and SANRAL, who had massive budgets -- and if they improved on their infrastructure there would be a secondary effect on employment. There were also entities that provide skills and education to try and change the nature of unemployment, such as the National Skills Fund and the Department of Tourism.
Mr Shaik Emam said the Committee wanted to help and find solutions to the problems that existed. Based on the crisis moving into Social Development, he suggested that this should be dealt with urgently by meeting with the Department.
Dr Modise requested that in future, when National Treasury meets with the Committee, the DPME should also be invited,so that they could follow the money and also look at the output.
The Chairperson noted that whenever National Treasury presented their reports, they should be accompanied by the DPME.
Mr Sarupen requested that in the second quarter report there should also be an outline of how infrastructure spending was going across government.
Dr Modise said that Treasury would provide the outline on national infrastructure.
Mr Shaik Emam said that the other two entities that had serious challenges were the Independent Development Trust (IDT) and the National Youth Development Agency (NYDA), and suggested they should interrogate that at the next meeting to address the high unemployment amongst the youth.
The Chairperson said that they would list the Departments and entities that they were to meet and accommodate them in a programme.
Implementation of National Development Plan: Current status
Ms Nelia Orlandi, Policy Analyst: Parliamentary Budget Office (PBO), said that in terms of the National Development Plan (NDP), one of the PBO’s mandates was to do policy analysis. The NDP work had started with a whole series of analysis since 2014, where the PBO had analysed and assessed the following:
- The progress made in 2014/15;
- The alignment of the Medium Term Strategic Framework (MTSF), which was the first five-year implementation plan of the NDP;
- The alignment of the budget with the medium-term strategic framework;
- The reporting systems for performance monitoring and evaluation in government;
- The integration of the medium-term strategic framework into annual performance plans;
- The alignment of the activities of the medium-term strategic framework with the challenges that had been identified by the NDP.
Findings from the previous analysis were:
- The programme of action report showed slow progress in the implementation of the NDP;
- The MTSF responds to the proposal of the NDP;
- There were challenges with intergovernmental planning and budgeting;
- Reporting on the NDP was outside of the standard reporting of government processes, so performance on the NDP was not audited;
- The suitability of budget programme structures for the integration of the NDP needed to be reviewed. In specific departments, budget programme structures were not suitable for the NDP to be implemented.
Only a few of the outcomes were addressed due to the lack of information for 2018/19. The Committee would be briefed on the arrival of the new MTSF, where there was now a framework for the analysis of the NDP in terms of context, content, capacity and control.
First Quarter 2019 Quarterly Economic Brief
Ms Fatsani Banda, Economist, and Mr Siphethelo Simelane, Finance Analyst, from the PBO, addressed the global historical trends and outlook.
The discussion of the Great Recession and its post crisis provided a context for understanding how the global economy was performing, as well as how South Africa was performing. 2018 had pointed to worrying issues in the global economy. The Trump tax changes had supported short-term growth in the US that kept global growth at 3.6% in 2018, which did have its own effect in developing countries in that it created financial market volatility and sharp market corrections.
Growth in 2019 was expected at 3.3% by the International Monetary Fund (IMF), and 3.2% by the Organisation for Economic Cooperation and Development (OECD), but growth expectations for 2019 had already been revised downwards. Global growth across the world had been constrained owing to risks to the global outlook. These included ongoing trade disputes, financial stress and volatility, poor European performance, the Brexit fallout, and political instability in Europe and elsewhere.
The PBO described the South African macroeconomic picture in terms of its GDP per capita and income distribution, expenditure on GDP, the current account, unemployment, inflation and changes in monetary policy, and sovereign risk. They said that many developed countries currently had very low interest rates and some even had negative interest rates on bonds. Emerging market bonds now attract more buyers and yields had improved (rates had dropped). The yield on SA government debt had also improved (interest rates had declined), but had worsened in July after the announcement of additional fiscal support for Eskom and because lower than estimated revenue collection may prompt more debt issuance this year.
Regarding South Africa’s credit rating, Fitch -- which rates SA sovereign debt negative -- had changed its outlook from stable to negative. Moody’s was the only ratings agency that still rated sovereign domestic currency debt as investment grade. A downward revision from Moody’s would see SA move to sub-investment grade, and trigger a sell-off of SA government bonds by foreign institutional investors
The PBO’s conclusion was that the South African economy was faced with a severe problem of low aggregate demand. The factors influencing aggregate demand were:
- Household consumption had been constrained over the past decade because poor households suffered from high levels of poverty and unemployment;
- Affluent households remained highly indebted after their pre-global financial crisis binge;
- Private and public investment had been insufficient to support growth and dent unemployment;
- Government fiscal consolidation over an extended period had constrained its spending and investment;
- Low global demand since the crisis had affected SA’s exports
As a result:, the PBO expects household consumption, private business fixed investment and exports to remain constrained, and a weak global economy may very likely exert further downward pressure on South Africa’s economic performance. The government’s consumption and investment spending choices may have a very important and large impact not only on public finances, but on the economy as a whole.
The Chairperson said that the main focus should be to look at the constraints and problems in the economy. He questioned the PBO on what should be done for the economy to get out of this situation.
Mr Sarupen suggested that the DPME should also come in to engage on the NDP, to explain how they were aligning budgets and annual performance plans (APPs) to NDP outcomes across the government. He wondered if the NDP had not just become a wish-list, where it was a good document but had had slow implementation. With regard to the mismatch in the labour market and structural unemployment, the reality was when one had a large base of low-skilled population, manufacturing was essential, and to have a manufacturing decline over a long-period of time was quite disturbing.
Essential to manufacturing was steel, and one could not produce things without steel and timber in manufacturing. For instance, ArcelorMittal was the greatest beneficiary of corporate welfare in this country. When times were good for ArcelorMittal, they had insisted that the state give them import parity pricing which had hurt local manufacturing, because it had allowed them to sell steel at a far higher price than their production costs, and they had made massive profits. Now, when times were bad and it would be cheaper to import, they had demanded tariffs, and they had cut 2 000 jobs. Corporate welfare was not something any government should be doing. The Committee should start asking hard questions to the DTI about the corporate favours that had been accorded to ArcelorMittal that had destroyed manufacturing in this country, both in past due to import parity pricing, and now due to tariffs. A few thousand jobs at ArcelorMittal had been saved at the expense of tens or hundreds of thousands of manufacturing jobs. It was a hard question to ask about why one company was being propped up at the expense of the entire manufacturing economy and at the expense of people who needed jobs. It was a very serious matter.
Mr Sarupen’s biggest concern with all the future indicators was that while the global recovery after 2008 had been strong across the African continent, with a handful of exceptions, South Africa had missed the boat for the last ten years. He did not know if there was enough fiscal space to sustain a countercyclical fiscal policy in the case of a global downturn. He questioned what the response would be in the context of a downturn, when there was no fiscal space. He said the biggest indicator was gross fixed capital formation, in that the South African economy tended to grow and create jobs when gross fixed capital formation was strong. Questions needed to be asked, such as how to fix gross fixed capital formation.
A Committee Member referred to sovereign risk, and asked what advice the PBO could offer regarding the State Owned Companies’ (SOCs’) continuing debt escalation. He asked for the PBO’s assessment of the human resource capacity of the district municipalities, which was where things were meant to happen on the ground.
Mr Mathafa referred to the point made by Mr Sarupen on corporate favours, and asked the PBO if the Public Investment Corporation (PIC) was going a good job in ensuing that the money invested in local companies were protected from capital flight. Capital flight hindered the opportunity for the money to be used in assisting the country to deal with its challenges. The struggle against poverty, unemployment and inequality was persisting, because the presentation had clearly indicated that those issues were becoming worse. There appeared to have been a sharp growth related to the infrastructure investment for the soccer World Cup, and he asked if this implied that the only other time one would see such a drastic increase in the GDP would be when there was another major programme like the World Cup. This showed that the economy was dependent of government activism -- if government was not stimulating infrastructure development or not investing in the country’s own economic activity, then the private sector would hold back.
He referred to the credit extension to the private sector, and asked if this was done on their own through raising funds from commercial banks, or if it was the government lending them money. With regard to the the projects under construction indicated in the NDP presentation, he asked what the rand value of those particular projects or assets under construction were, and how were they accounted for in terms of the GDP.
Mr Qayiso said that one of the mandates that the President had emphasised was that there had to be ownership of the economy by the poor. He questioned the PBO on how they aligned this in terms of policy, or how that could be integrated into policy. The way that society had developed had required a change in the economy. There were a lot of monopolies that would not allow an ordinary township economy to emerge. He questioned the PBO on how the macroeconomic policy should be realigned.
Ms Peters said the rate of implementation of the NDP was worrisome. It implied that by 2030, South Africa would not achieve its envisioned goals. The lack of progress was an indicator of the underperformance of the different Ministers, which needed to be evaluated. Despite the need for integration, there was still contestation for space and a lack of integration. She repeated that the DPME should come before the Committee, as they were the key Department to report on the performance of the NDP and what type of support they had in place for the different Departments. They also does did site visits for the assessment and analysis of impacts, and such reports need to be presented to the Committee. The DPME, PBO and National Treasury were joined in the journey. Every aspect of the NDP needed to be evaluated to check if it was on track.
She referred to the section on Human Settlements under the outcomes of the NDP, and said that the ability to move into proper human settlements was actually being delayed. Many rural people were also gravitating to the urban areas while issues of settlement were not being addressed. She commented on the ignorance of people who were paid to do the work of government, especially with regard to the Department of Water and Sanitation.
Mr Joseph said that the illegal economy of organised crime was challenging the economy. He referred to the NDP, and said it needed to be reviewed as circumstances had changed. He questioned whether it should stick to the same targets. With regard to the National Health Insurance (NHI) scheme, he said that there were pilot projects which the presenters had not mentioned, and if there were pilot projects in some provinces then that must have contributed to the planning of the NHI itself, otherwise they would not have helped.
Regarding the quarterly economic brief and its reference to the disconnect between the financial market and the real economy, he mentioned that the big players in the economy look at the policy of the government and create a perception and measure it against how it impacts on them, so they would either shift the money outside of the country or to other portfolios where they could get it out of the country. The people that shifted money out of the country were making that money in South Africa, and it was too easy get it out of the country without penalties.
The Chairperson said his understanding of economists was that they were there to solve the problems of the people that they represented, but before being able to solve any problem, the problem first had to be diagnosed, defined and understood. The issues raised by the Committee members were those facing the people that they represented, For instance, unemployment, inequality and poverty were getting worse, and went along racial and gender lines. Some of the solutions to these issues were mostly political policy issues, but the PBO should try to address the solutions to the best of their ability. The issues that excluded the majority of South Africans were the problems that needed to be resolved.
Ms Orlandi said she was passionate about the NDP, and all the work that they as PBO did was to find the blockages that would prevent government from implementing it. An in-depth analysis had been done on the NDP with regard to its structures, systems and processes in government, and how government did their business, to see how the NDP should be integrated into the systems and processes of government. The finding at the end of the day was that the NDP must be integrated into the standard government processes, and should not be seen as an outside policy. She requested that the Committee provide the PBO an opportunity to present the entire analysis to them, and to engage in a real discussion on what the Committee could recommend to government to unlock those identified blockages that prevent the implementation of the NDP. A lot of the findings were technical findings, and the current NDP and MTSF did not take a whole of government approach. It was very much centered on the role of national governance, so it first needed to be integrated into the standard government processes before it could be properly evaluated and monitored.
Ms Banda agreed that there was definitely a grey area between policy and economics. In response to the question of fiscal space outside of fiscal consolidation, she said that over the years economic discipline had not been absolute -- ideas had changed, some had been put on the sideline and some had grown in popularity, and the cycles of ideology in the economic space had changed over time. Now social and public welfare throughout the world was a consideration in GDP or aggregate demand, and was a concern for every government. Fiscal consolidation was the narrative that like any other ideology was up for discussion -- whether there was fiscal space was up to those who had the power to affect policy, and whether fiscal consolidation served to improve demand and to improve the conditions of regular South Africans.
In the example raised in relation to Eskom, it was as if the country treated Eskom as a prodigal son, because they were the only provider of electricity in the country and there was no substitute or replacement, so it could only be hoped for it to get better. There was therefore an oversight role to play in the executive, to ensure that such SOEs stay afloat.
The PBO would try to take on a more technical analysis to see if they could track the movements of financial capital, in particular the financial movements that affect the PIC.
She agreed that big investment into the economy was heavily dependent on the government investing and the government doing big investments, such as Eskom and the World Cup.
In response to the question about the credit extension to the private sector being either through commercial banks or the government, she said that it was through commercial banks, and other countries made use of collaboration between commercial banks to ensure that they could do fixed investments.
Regarding monetary policy, the PBO’s only reference in the quarterly economic brief had been the decision made by the Monetary Policy Committee (MPC), which they had not spoken extensively about. She said that SARS could provide a more detailed response on that.
The Chairperson said that the PBO had discussed the fiscal framework very broadly, and that they also needed to consider the impact of the monetary policy for future discussion.
Mr Rashaad Amra, Economist: Parliamentary Budget Office, said that the PBO had been established to provide advice and analysis to the Appropriations Committee, specifically on money bills. When it came to monetary policy, then the interest in terms of money bills was the effect of monetary policy on inflation, because inflation determined the increase in the expenditure over time. Secondly, it affected the exchange rate, and also affected growth, so high inflation as a result of monetary policy resulted in the weakening of the rand and the weakening of purchasing power of low-income consumers, and that affected welfare. Parts of the other questions were expected to be addressed at the special appropriation presentation to the Committee on 4 September, as well as the analysis in October.
However, there were a few points to note. Firstly, with fiscal space, National Treasury had come out in 2015 and stated that the countercyclical fiscal stance taken between 1999 and 2015 had reached its limits, so there had been an explicit abandonment in the budget documents of a countercyclical fiscal stance moving towards a fiscal policy of consolidation. The PBO should rather identify the risks and benefits of that approach. The question to ask was what benefits and risks were associated with increasing the country’s debt even further. The other challenge to the country was the efficiency of spending. If it was borrowing for capital expenditure but it was paying a 200 to 300 per cent mark up for whatever reason, then it was deficient spending, so the question for the Committee was where the marginal rand was best spent.
In response to the question about an IMF bailout, he said that countries went to the IMF only when the market did not lend to them, although for South Africa this did not seem an imminent risk.
The Chairperson commented that the countercyclical fiscal stance was taken by the government at a time of economic crisis, and the private sector had not been investing into the economy. If the countercyclical stance had reached a limit in 2015, that meant that the country had had a higher debt to GDP ratio. With regard to the issue of the inefficiencies in spending, it manifested itself in many ways. Going forward the country needed to ensure that it confronted every rand borrowed and spent, and to ensure that the country itself derived the maximum benefit.
Adoption of minutes
The minutes of the meeting of 19 July were adopted.
The meeting was adjourned.
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.