In this virtual meeting, the Committee received a briefing from the Parliamentary Budget Office (PBO) on Zero-Based Budgeting (ZBB).
The PBO highlighted that some of ZBB’s advantages are its well justified methodology and alignment to strategy; and it improves public support through perceived increases in transparency and accountability. Some of its disadvantages are that it is costly, complex and time consuming as it has to be rebuilt from scratch. It is also a prioritization process that may be problematic for departments with intangible outputs that make it difficult to attach a monetary value to.
The PBO informed Members about international experiences with ZBB in China, Nigeria, South Korea and the United States. In all these cases, countries struggled with its implementation. Some of the challenges of implementing ZBB in full include: it did not fit well with existing budget process influenced by political priorities and varying time considerations; the lack of technical, human and other resource requirements for the successful implementation of ZBB. The PBO is of the view that if government is to implement ZBB successfully, the following complementary measures would be required: additional specialised training of personnel; employment of additional specialised personnel budgeting for additional cost and time attached to ZBB; appropriate cost-benefit analysis; alignment of current government monitoring and evaluation mechanisms to ZBB.
During the discussion, Members of the Committee raised concerns over the Minister’s motivation for implementing given South Africa’s failed with ZBB between 1996 and 2000, the capacity challenges and the poor international experiences. Members were also particularly concerned with the long list of disadvantages and government’s decision to focus on the budgeting method instead of problems of monitoring, evaluation and oversight in the current system. The Committee agreed that issues with the current system such as capacity, monitoring and evaluation and fruitless expenditure need to be attended. Members asked about the involvement of communities in the budgeting process, to ensure community needs are met, accountability and speedy service delivery.
The Chairperson welcomed everyone in attendance. He expressed condolences to the ANC and family and friends of the late ANC MP Advocate Hishaam Mohamed. He noted apologies from Ms M Dikgale (ANC) who is in another meeting, and Ms D Peters (ANC) is not well.
Briefing by the Parliamentary Budget Office (PBO)
Dr Dumisani Jantjies, Deputy Director: Finance, PBO, explained that the briefing provides an overview of Zero Based Budgeting (ZBB) for consideration with regard to government’s proposal to implement ZBB. It offers some views on public management reforms in South Africa, and the role of the Constitution, the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA) in the budget process. It also presents international experiences from countries that have attempted to implement ZBB, including many challenges that led many to abandon implementation of strict ZBB.
Over the years, South Africa has implemented public management reforms, including performance budgeting. Government Institutions are still to implement and monitor the implementation of these reforms. The Constitution provides a budget framework, while the PFMA and the MFMA provide budget processes. The common government budget approaches already in use include, incremental budgeting, activity based costing and zero-based budgeting.
Dr Jantjies elaborated on the background informing the call for a new approach for public sector reform in South Africa, and the use of the budget as a policy instrument. He listed the common government budget challenges such as the limited inter-departmental collaboration in the budgeting process, and the poor quality or unavailability of real-time service delivery data.
ZBB involves an in-depth examination of all the activities typical to government departments, including service delivery, investment and economic development. The World Bank’s report on ZBB found it to be an inwardly focused process that could be used to underline the priorities of managers, allotting less time and attention to mapping decisions that account for the preferences and priorities related to service delivery. In many instances, ZBB and Incremental based budgeting are used together, where goods and service use incremental budgeting, and payment for capital assets, transfers and subsidies use ZBB. The current consolidated expenditure budget provides for further opportunity for ZBB, but limited to goods and services (13.6% of consolidated expenditure). The alternative would be for Government and Parliament to implement strict monitoring and evaluation systems.
The ZBB approach rose to prominence in the 1970s, with widespread implementation of it attempted across the world. Such attempts failed, however, some elements of ZBB remains in parts of the budget process across the world. While doubts remain about its plausibility for implementation, interest in ZBB continue to increase. Dr Jantjies highlighted the advantages and disadvantages of ZBB. Some of the advantages are that it a method that is well justified and aligned to strategy, and it improves public support through perceived increases in transparency and accountability. Some of the disadvantages are that it is costly, complex and time consuming as it has to be rebuilt from scratch. It is also a prioritization process that may be problematic for departments with intangible outputs that make it difficult to attach a monetary value to. South Africa’s ZBB experiences show the following:
- The need to review the budget system through regular monitoring and evaluation, as the operational expenditure from previous years may already include inefficiencies and wasteful amounts;
- It highlights the concerns raised by the Auditor General South Africa (AGSA), that the lack of sufficient financial management, budget control and performance capacity in both government and municipalities has led to irregular and fruitless and wasteful expenditure.
Some of the challenges of implementing ZBB in full include: it did not fit well with existing budget process influenced by political priorities and varying time considerations; the lack of technical, human and other resource requirements for the successful implementation of ZBB.
Dr Jantjies elaborated on the International experiences of ZBB, highlighting the case of China in the 1990s, Nigeria in 2016, South Korea in the 1980s, and the United States (US) in the 1970s. In all cases, countries faced challenges in implementing ZBB. He pointed out that if government is to implement ZBB successfully, complementary measures would be required including:
- Additional specialised training of personnel
- Employment of additional specialised personnel
- Budgeting for additional cost and time attached to ZBB
- Appropriate cost-benefit analysis
- Alignment of current government monitoring and evaluation mechanisms to ZBB.
Dr Jantjies highlighted some of the risks of implementation in the form of Departments possibly facing constraints that limit their ability to complete ZBB within a budget cycle. This is due to: the availability of personnel to drive the process internally; capacity to maintain the government’s budget for multiple purposes (economic and social development, service delivery and redress climate and environmental challenges); lack of real time performance information or service delivery data affecting budgets; and the inability to implement ZBB in a medium-term government framework aligned to service delivery performance.
Mr A Shaik-Emam (NFP) asked about the possibility of involving communities in monitoring politicians during the budgeting process, to ensure accountability and timely service delivery. How did the PBO believe ZBB will succeed whilst government is still dealing with issues of capacity, failure to ensure consequence management and the process where political parties appoint the officials?
Dr Seeraj Mohamed, Deputy Director: Economics, PBO, agreed with a grassroots-based budgeting process that involves communities, as there are currently concerns on whether people’s needs are being met. People are not very involved. A shift away from a shopping list approach towards developing a constitution-based checklists, to see if enough attention is being given to the public’s needs, would be better.
Dr Nelia Orlandi, Deputy Director: Policy, PBO, stated that current planning should involve communities. All municipal Integrated Development Planning (IDP) must be informed by communities.
Mr O Mathafa (ANC) asked for clarity on whether the ZBB entails departments providing a shopping list with their plans and costs. Therefore, funds would follow programmes that are implementation-ready. This would be a good approach that would reduce fiscal dumping. He asked if the current structure of Departments are geared to facilitate this new approach. Would ZBB be responsive enough to the requirements of the District Development Model (DDM) budgeting? How have countries that have used ZBB resolved disputes between Treasury and departments? How can the needs between various departments be balanced? How can the risk of poor expenditure due to the conservative attitude of entities or departments, be mitigated?
Dr Mohamed stated that when countries are going through problems, such as a recession, they discuss ZBB more. Treasuries move towards savings and doing things more effectively.
Dr Jantjies replied that the shopping list items of the budgets are to drive for the kind of society the constitutions strives for. Therefore, it should address issues of inequality, service delivery and such.
Mr D Joseph (DA) asked what is wrong with the current budget process and system. What motivated the Minister’s move towards ZBB? Is the lack of a separation of powers between politicians and administration one of the reasons there may be a struggle to implement ZBB in South Africa? He supported the idea of looking into alternatives to ZBB because of capacity issues. He highlighted the need to have some State Owned Entities (SOE) boards that generate money instead of pouring billions into the entities. For instance, Denel must generate money with its products. Does the constitution have to be amended so that ZBB can be implemented? Is a public process required before it can be implemented? How much time is needed to implement a ZBB system?
Dr Mohamed replied that ZBB is a method, not a principle that is constitutionally enshrined. The methodology for implementing the budget is separate from legislation. Literature on the experiences of other countries with ZBB shows that, unless in an ideal world, it is not something that can be fully achieved. The question is how much of it can be practically used. The current system already uses some of it and so how much more of it can be used at different levels of government is the approach. He added that PBO is waiting on Treasury’s report to hear more on what the Minister of Finance’s motivation is for the move.
The PBO is of the view that the best time to implement the ZBB would be when the economy is not under unconstraint, and there is more time and resources that can go towards implementation. Moving to ZBB now might be too much given that government is doing so many things during the pandemic.
Ms N Ntlangwini (EFF) stated the current system is based on a neo-liberal approach and there is a need to find new ways that work for the South African government and ensure fast service delivery. She pledged support for the ZBB, as it would force departments to do proper planning and budgeting for projects, and reduce corruption. She highlighted that the COVID-19 pandemic has exposed how individuals in projects can loot.
Mr X Qayiso (ANC) asked whether the relationship between economic growth and the implementation of ZBB in slide 13, implies that positive economic growth is a favourable condition for implementation. In slide 16, why are there more disadvantages listed than advantages of ZBB? What context does PBO propose the ZBB system will thrive in? He pointed out that ZBB was implemented then stopped in South Africa, between 1994 and 2000. Why was this the case? Why did the United States (US) Federal Government attempt ZBB and then stop it? How will the ZBB fit in the framework of the ANC manifesto?
Dr Jantjies replied that the literature on the 1996 to 2001 project revealed that the Apartheid government lacked a base for expanding services to the wider society. There was a need for a new budget system and so the ZBB was considered. However, the realisation of how much service delivery was required and the cost resulted in the ZBB not being implemented fully. At the time, government did not have money to materialise it, and the country was also in debt. The PBO can do more research on the specifics of why it was scrapped and submit it to the Committee. The literature shows that in a growing economy, there is no need to cut expenditure for system reform and improvement. This would be favourable for implementation. The list of disadvantages is a reflection of the literature. There has been a lot of challenges with implementation. This is why some countries have stopped using ZBB. Slide 13 lists some of the reasons why the US struggled with implementing ZBB.
Dr Mohamed replied that the experience in the US and South Korea is that ZBB is treated as a long term vision. Periodically, there is a reset of the budget process to align with the long term vision. This may not be practical for us and the alternative would be to set up institutions to periodically maintain the budget process so that it becomes a cumulative process, instead of resetting each year.
He added that implementing a ZBB system in the 1996 post-apartheid era would be challenging, given the Bantustan fragmentation. Government is still struggling with the levels of fragmentation in how responsibilities are given and how budgets are transferred. There is still piece-meal implementation at provincial and other levels. It is still a work-in-progress.
Mr Qayiso stated that the long list of disadvantages should not be reduced to mere literature. Does the PFMA not allow Treasury to deal with issues of resource management?
The Chairperson added that the Minister should also elaborate on how the new approach would achieve some of the manifesto objectives.
Dr Jantjies stated that the disadvantages highlight the risks that have made it difficult for other countries to realise the objectives of the ZBB approach and its implementation. The risks are worth having in mind when considering implementing ZBB. The PFMA does provide guidance on how to deal with management issues according to principalities. The accounting office is given a huge responsibility over internal controls to avoid irregularities and fruitless expenditure.
Dr Orlandi stated that the PFMA was introduced in 1999/2000 and brought in a management and performance based system. This overlaps with the time in which ZBB was stopped and could be one of the reasons as a replacement.
The Chairperson stated that the proposed system chases an ideal world. ZBB is based on assessing the performance of the previous year in planning for the next. How can the performance of the previous year be assessed before starting the budget process for the coming year? For example, we are in the middle of 2020; however, the budget planning for 2021/2022 has already started. The challenges currently faced by government are less about the budget method and more about monitoring, evaluation and oversight. Performance audit is critical to see the impact of the approach. Regardless of how much has been budgeted for, it is important that resources are used efficiently. It also boils down to project management such as the challenges seen in Eskom. He proposed that in future, PBO put a problem statement upfront which the ZBB is trying to solve. He raised concerns over the implementation of ZBB becoming a field day for consultants in departments with a lack of results. Government spends a lot of money trying to train people instead of focusing on solving service delivery challenges. He suggested focusing more on the problems.
Dr Jantjies replied that the Minister of Finance and NT have announced that the ZBB concept paper is being finalised. It will address some of the concerns raised by members such as the timeline, problem statement, the progress so far and what implementing the ZBB tries to address. There are already instances of ZBB being used in the current system.
He agreed with the remark that it chases an ideal world. A World Bank report states that the use of ZBB in the public sector is an ideal world. He agreed that there is a need to deal with inefficiencies in the current system. There is an existing monitoring and evaluation system that needs to be attended to. Identifying the problems in the current system and fixing this could be done in a shorter period of time as opposed to taking the longer route.
Dr Orlandi agreed with the Chairperson that departments should already be looking at past performance and the current situation to inform planning and budgeting for the next year. Whilst planning for the next year’s budget, auditing for the previous year is also happening. The three stages in the budget process involves implementing, auditing the past and planning for the coming year. Currently, departments are submitting draft budgets and should base the new budget on the current situation and not what was done in February. Departments also submit adjustments budget during this time of year, which tends to show large shifts. This raises concerns on the credibility of the initial budgets, if multiple shifts are required in the adjustment budgets. For instance, one department’s priority was to expand its Emergency Room (ER) services. It increased its fleet of ambulances for ER services yet it did not increase its fuel budget. This was not a credible budget and required shifting funds from stationery towards fuel. The same trend happens with the compensation budget. This requires looking into how Treasury does its budget analysis and whether the analysis includes looking into the details of the shifts, checking if the draft performance plans are aligned to the new performance plans and are the new performance plans suited to the current situation in the department or sector.
She agreed that evaluation should not take 5-6 years, but should happen immediately. The performance of activities should be translated into performance indicators and targets, which should then be monitored. If there is a lack of performance, then the activities must be reconsidered. An example is the financial performance of municipalities. Municipalities receive a lot of grants towards continuous training and internship programs, however, there is a lack of improvement or change. Where should the line be drawn to do things differently? Government is struggling to draw the line and do things differently, whether be it reducing training or cutting workshops.
Dr Orlandi highlighted that there are a lot of oversight institutions responsible for monitoring and evaluation.
National departments transfer almost 70% of their money to other organisations to implement services. Therefore, national departments have a big responsibility to do oversight. In-year monitoring is one of the most important monitoring tools government has.
Mr Shaik-Emam requested clarity on why the entire budget process for the next year cannot be done in the previous year? For instance, the entire 2021 budget process should be completed in 2020, so that implantation and tenders can be immediately kickstarted in the next year. He added that he hopes this is not the Minister’s way of trying to implement budget cuts but rather ensure better value for money.
Dr Orlandi stated that planning for the following year can start immediately. When it will be complete depends on the processes that municipalities implement.
Mr Joseph asked what the outcomes of the budget are when it comes to service delivery. Regarding what is happening in the current systems requires government to move faster with the processing of the Procurement Amendment Bill, to ensure accountability and more separation of power. The internal controls of budgeting must be more precise.
Ms Ntlangwini asked when Treasury will brief the Committee on the Minister’s statement.
The Chairperson stated that Treasury must engage the Committee, with PBO, on the reason for the move, the challenges, and what is Treasury moving towards. He added that most of the budget goes towards departments such as education, health and social development, which have semi-fixed employment costs. He raised concerns over how budget changes would be implemented in this regard.
Dr Orlandi stated that the aforementioned departments transfer all funds through conditional grants. Salaries make up the base cost, however, the grants are conditional with specific performance indicators. The challenge is that the conditional grants are not linked with any targets for the next year. If departments could submit business plans of the conditional grants it would make monitoring easier for the Committee. Alternatively, the departments can report back to the Committee on the progress and implementation of conditional grants. She announced that the new Medium Term Strategic Framework (MTFS) has been published and contains over 500 indicators. The job of researchers and monitors is to ensure the indicators are implemented in departments.
Mr Joseph pointed out that the presentation gives research on other countries’ experience with ZBB in the 1970s. What is the latest research on what can be done with ZBB? He added that in 2010, government showed that it can produce results and so it can be done.
Dr Jantjies replied that the latest research shows a growth in discussions on ZBB. The PBOs’s research also speaks on the recent case of Nigeria from 2016. He agreed that there is an opportunity for government to get efficiency.
The Chairperson asked if the country’s performance is a function of its budgeting method. ?
Dr Jantjies stated that there is a correlation, however, a direct causal relation is not so obvious and would have to be looked into.
Dr Orlandi stated that the Auditor General (AG) is still not doing real performance audits. It is instead doing compliance audits. For instance checking if a strategic plan was submitted is not a real performance audit. One should consider if it is getting value for money with the AG in this regard.
Dr Mohamed added that it is not so much the method of budgeting.
Adoption of Meeting minutes
The Chairperson proposed the adoption of the Committee meeting minutes for 21 July, 24 July and 28 July 2020.
Mr Joseph moved for the adoption of the meeting minutes of 21 July 2020.
Mr Qayiso seconded the motion.
The meeting minutes were adopted.
Mr Qayiso moved for the adoption of the meeting minutes of 24 July 2020.
Mr Joseph seconded the motion.
The meeting minutes were adopted.
Mr Jospeh moved for the adoption of the meeting minutes of 28 July 2020
Mr Mathafa seconded the motion.
The meeting minutes were adopted.
The Chairperson, in closing, announced a follow-up meeting with Eskom next week. He requested members to go over the letter of invitation sent to Eskom, which contains a summary of concerns raised by the Committee. He proposed that the Committee be briefed on the Public Procurement Bill and highlighted that it is important to engage with it during this stage. He thanked everyone in attendance.
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.