The Standing Committee on Appropriations met virtually with National Treasury to discuss the implementation of the South African Economic Reconstruction and Recovery Plan and Operation Vulindlela. Present in the meeting was Deputy Minister of Finance, Dr David Masondo, and the National Treasury delegation. Two reports were presented by National Treasury, one on economic recovery and the other on Operation Vulindlela.
National Treasury said the situation had worsened in the country. The country’s performance according to all economic indicators was performing poorly. The budget outcomes for 2021 indicated that the budget deficit had increased. This was worsened by the fact that government spending had increased significantly. National Treasury explained that, between 2006 and 2007, the country experienced stability in the economy. However, the 2008 global financial crisis disturbed this stability. Despite being affected by this crisis, government had continued to spend like in the previous years. This put a lot of pressure on the economy, considering that it was not receiving sufficient revenue. As a result, it accumulated debt, which in effect also accrued interest. At present, government was spending more on debt service cost than on health services. In fact, the reports showed that South Africa’s debt was above the emerging market average by 15%. Other factors that were adding to the country’s fiscal pressures were the COVID-19 pandemic, debt of State-Owned Enterprises, and the wage agreement bill anticipated to cost R20 billion – an amount above the designated compensation ceilings.
National Treasury presented a few strategies that were geared towards mitigating these problems. These, however, were short-term. They sought to balance the immediate need for support to the economy. These included controlling non-interest expenditure growth, providing continued support to the economy and public health services, three-month extensions of the special COVID-19 social relief of distress grant, and providing up to R10.3 billion to the vaccine rollout for the current year and over the next two years.
National Treasury also stated that its role in the Economic Reconstruction and Recovery Plan included supporting distressed state enterprises; where appropriate, supporting households through the COVID-19 grant; strengthening transparency of procurement systems in public sector, and implementing measures to improve state procurement. Operation Vulindlela, on the other hand, was a programme that it actively participated in under the leadership of the present. It focused on high impact reforms geared towards facilitating economic growth. Its five main desired outcomes were to stabilise the supply of electricity, reduce cost and increase the quality of digital communications, achieve sustainable water supply, develop a competitive and efficient freight transport system, and finally, to develop a visa regime that attracts skills and grows tourism.
The Committee welcomed the report but Members were concerned by how much the economy had deteriorated. One Member asked why South Africa in all economic indicators was performing dismally. Others asked why there were only short-term solutions. The Committee also expressed concerns about the implementation of reforms. They asked if it was possible for Operation Vulindlela to help departments set priorities on which reforms to prioritise. Finally, there was immense interest among Committee Members to know about the strategies that National Treasury was using to reduce financial leakages like illicit financial flows.
Opening Remarks by the Chairperson
The Chairperson opened the virtual meeting, welcoming the Committee, the Deputy Minister of Finance (DM), Dr David Masondo, National Treasury (NT), the supporting staff of the Committee and everyone present in the meeting. He said that NT was going to discuss the Economic Reconstruction and Recovery Plan (ERRP) as well as Operation Vulindlela (OV). He pointed out that the Committee was also looking forward to an update on the issues raised around NT’s budget consolidation – what were its implications and how far had this process gone. He welcomed apologies from Mr N Kwankwa (UDM), Mr X Qayiso (ANC), and Mr Sifiso Magagula (Parliamentary Content Advisor). He then invited the DM to pass his opening remarks.
The DM thanked the Chairperson and the Committee for inviting NT to present its work and progress. He explained that the ERRP was a programme led by the President. NT’s role in this programme included the facilitation of structural reforms under OV, which is an initiative between NT and the President. He reminded the Committee that structural reforms were one of the President’s priorities articulated in his State of Nation Address in 2021. OV was therefore an initiative to assist structural reforms and to unlock the supply side constraints on the South African economy. This was crucial considering that the economy, prior to the COVID-19 pandemic, was not growing since the 2008 global financial crisis. This caused supply side constraints. These included not being able to supply reliable, consistent and affordable electricity not only to households but businesses at large. This made it difficult to absorb people into employment.
The DM also mentioned that NT, together with the President, had managed to raise the licensing threshold for embedded generation to 100 Mega Watts (MW). However, there were still some challenges in other areas like telecommunication and water. With telecommunication, he said NT was delayed by the court processes due to other actors not being happy with the process. Effort was being put to resolve this matter out of court in order to save time. On the other hand, he said work was underway with the Department of Water Affairs (DWA), and that with the directive of the President, work was being done to reduce the turnaround time for the approval of the licences from almost a year to 90 days. Having said that, he explained that NT did not implement these reforms. The departments assigned for these reforms were the implementers. He then invited the Director-General (DG) for NT, Mr Dondo Mogajane, as well as Mr Sean Phillips, to present.
Briefing by National Treasury
- The budget outcomes for 2021 indicated a 11% budget deficit of the country’s GDP. This was about R552 billion.
- The main budget revenue, expenditure and deficit was much worse than the 2020 Budget estimates. This highlighted the impact of the CoVID-19 pandemic on public finances and the economy.
- High government spending – four percent above inflation for almost a decade.
- South Africa’s debt was above the emerging market average by 15%.
- The point of departure for fiscal policy was from this weakened position.
- In comparison with a wide range of other developing countries, South Africa’s average primary balance over the last 10 years fell in the middle of the distribution.
- South Africa’s three-year increase in debt to GDP was among the largest.
- Slide Four also showed that South Africa was leading in terms of projected debt in the future.
- Fiscal distress was mounting in developing countries. This worsened the situation for South Africa.
- Although the main budget primary deficit was projected to narrow, NT stated that there were challenges which made this impossible.
- Expenditure increased in the country’s good years of 2006 and 2007. However, after the global financial crisis, the government continued to spend despite not collecting sufficient revenue.
- The country did not recover from the 2006 and 2007 high expenditure.
- This meant that its borrowing needs and requirements increased.
- The strategy sought to balance the immediate need for support to the economy during the pandemic with ongoing efforts to close the pre-existing budget deficit.
- To narrow the deficit, and to stabilise the debt-to-GDP ratio by controlling non-interest expenditure growth.
- To provide continued support to the economy and public health services in the short term, without adding to long-term spending pressures.
- To improve the composition of spending.
- However, significant risks remained. These included the persistent COVID-19 pandemic, increased number of State-Owned Enterprises (SOEs) requesting additional funding, and the wage agreement risks.
- It was anticipated that the wage agreement was going to cost around R20 billion, and this was above the compensation ceilings tabled in February.
- Given this scenario, NT suggested that there were other areas that needed to slow down wage growth.
Medium-Term Spending Priorities
- Over half of allocations were directed towards learning and culture, health, and social development functions over the medium term.
- Debt-service costs, estimated at R916 billion over the MTEF period, were the third largest spending item by function.
- The severity of this was demonstrated by the fact that it was above what the government spent on health services.
How Budget 2021 Supports Economic Growth
- Budget 2021 presented an improved debt-to-GDP outlook relative to the 2020 Medium-Term Budget Policy Statement (MTBPS), which could take pressure off interest rates, reduce crowding out, and improve investor sentiment.
- NT said it was providing short-term support to the economy. This included funding for crucial health and employment interventions support the economic recovery.
- Three-month extensions of the special COVID-19 social relief of distress grant and the Unemployment Insurance Fund’s Temporary Employer/Employee Relief Scheme, and funding for the public employment initiative and for provincial hospitals in 2021/22.
- Up to R10.3 billion was channelled to the vaccine rollout for the current year and over the next two years.
- NT stressed that the roll-out was a priority because it enabled the economy to open up. This, in turn, allowed the economy to collect revenue.
- The contingency reserve increases from R5 billion to R12 billion in 2021/22, given uncertainty around vaccination campaign costs. These interventions did not add to longer-term expenditure.
National Treasury’s Role in the ERRP
- Strengthen transparency of procurement systems in public sector and implement measures to improve state procurement;
- Improve of support to firms through the Credit Guarantee Scheme (CGS);
- Support to households through the COVID grant;
- Implementation of employment tax incentives;
- Implement measures to strengthen the Public Private Partnership (PPP) Framework;
- Ensure fiscal prudence, including the management of wage bill and ensuring value for money;
- Increase support to Small, Medium and Micro Enterprises (SMMEs) through more appropriate financing products;
- Support for distressed SOEs where appropriate;
- Facilitate access to domestic savings for greater investment into non-consumptive public expenditure;
- Increase use or sourcing of green climate finance to fund just transition.
Operation Vulindlela (OV)
- NT described OV as a “delivery unit” approach to support Cabinet and the President to accelerate the implementation of priority structural reforms.
- NT emphasised that it was not a new plan but a programme to initiate effective implementation of reforms approved by the Cabinet.
- The programme was limited to high-impact reforms to revive economic growth in the short and medium term.
- NT explained that OV did not change responsibility. Reforms were implemented by the relevant ministries and departments.
- OV was responsible for identifying challenges and identifying reforms to deal with them.
- It provided the President and the Cabinet with a critical assessment of the implementation of reforms independent of the reform implementers.
- OV essentially avoided heavy supervision and monitoring of departments and the imposition of demanding reporting requirements.
- It offered support and provided coordination where it was necessary.
- The five desired outcomes of OV were 1) to stabilise the supply of electricity, 2) reduce cost and increase the quality of digital communications, 3) achieve sustainable water supply, 4) develop a competitive and efficient freight transport system, and finally, 5) to develop a visa regime that attracts skills and grows tourism.
Progress with Reforms
- Raising of licensing threshold for embedded generation to 100 MW
- Phased switch-off of analogue signal by end of March 2022
- Revival of blue and green drop water quality assessments
- Establishment of National Water Resource Infrastructure Agency
- Roll-out of e-visa system to 14 countries
- Publication of Critical Skills List and comprehensive review of the policy framework for attracting skills.
OV Priority Reforms
- These reforms were in the five desired outcomes of the programme.
The Electricity Sector
- Increasing the role of independent power producers
- Unbundling Eskom into generation, transmission, and distribution entities
- Improving Energy Availability Factor of Eskom plants
- Addressing institutional inefficiencies in municipal electricity distribution management.
- Implementing emergency procurement of 2 000 MW of power
- Lifting licensing the threshold embedded generation
- Enforcing municipal distribution licensing conditions
- Reviewing municipal fiscal framework to remove electricity sales as one of the major contributors to municipal revenues to cross-subsidise other municipal functions.
Digital Communication Sector
- Increasing available spectrum
- Migrating from analogue to digital TV
- Finalising policy and policy direction on rapid deployment of electronic communications networks and facilities.
- Holding spectrum auction
- Completing the migration process
- Finalising policy
- Issuing regulations under policy
- Streamlining the approval of wayleave applications at municipal level.
- Improving water-use licensing processes;
- Revising the water quality monitoring system, and establishing an independent economic regulator for water;
- Finalising a revised raw water pricing strategy;
- Establishing a national water resource infrastructure agency;
- Addressing institutional inefficiencies in municipal water services.
- Reviewing water-use licensing processes and implementing improvements;
- Improving regulation in the water and sanitation sector, with measures to increase transparency in oversights of municipal performance in the short term;
- Finalising the revised raw-water pricing strategy, and obtaining the necessary approvals;
- Developing the business case and legislation for the agency;
- Implementing comprehensive national programmes to support municipalities to improve water and sanitation services.
Freight Transport Sector
- Corporatising the Transnet National Ports Authority (TNPA)
- Improving efficiencies in ports
- Implementing policy for third party access to freight rail lines.
- Appointing an interim board;
- Appointing a full board;
- Operational improvements within TNPA and Transient Port Terminals (TPT);
- Increasing competition in port operations;
- Attaining commercial separation of Transnet Freight Rail (TFR) into operations and infrastructure;
- Implementing third-party access on freight lines.
- Improving regulatory frameworks and processes for issuing work permits for scarce skills and for skilled immigration;
- Implementing e-Visa and visa waivers for tourism.
- Carrying out reviews of regulatory frameworks and processes
- Adjusting regulatory frameworks
- Designing and implementing process improvements
- Implementing full rollout of e-Visa system.
The Chairperson welcomed the presentations and said they gave the Committee a broad overview of what was happening in the economy. They also defined NT’s role in the OV, and that of the sectors involved in the programme. This helped the Committee to prepare adequate questions when it met with these various sectors in the future. He then opened the floor for discussion.
Mr Z Mlenzana (ANC) welcomed the presentations and applauded the Department for being detailed. He echoed the Chairperson’s observation that the two reports armed the Committee with sufficient information to engage other departments in the future. However, he stressed that there was always a challenge with oversight. This was based on the observation that NT did not hold a superior status to other departments, as it was also equally a department. The question, therefore, was: how did it intend to ensure that the OV programme was implemented accordingly? He also asked if it was possible for NT to assist departments in the prioritisation of projects. This would be accompanied by a system where NT disbursed funds based on what was a priority, unlike before when funds were indiscriminately provided to departments.
Ms D Peters (ANC) thanked the DM and NT for the presentations. Although she said they were enlightening, they were equally worrying. Why was South Africa in all economic indicators performing dismally? What needed to be done to change the scenario? She said even the current unemployment statistics indicated that South Africa “was a haven for unemployment”. If there was a solution, why was it not being implemented? She asked if this information was being provided to the President in order for him to make informed decisions.
She referred to slide nine and asked the DG to clarify which SOEs needed money, how many they were, and how much they needed. She suggested the use of a “traffic light” legend, previously used by NT, in the presentation to symbolise the state of SOEs. This would help the Committee identify which SOEs were in the “amber” or “red” categories, and those that did not demand a lot of attention.
Ms Peters also asked why there were delays in the operationalisation of the Presidential SOE Council. In addition, she asked what had happened to the “Green Economy” initiative in response to the DG’s assertion that there was an increase in sourcing green climate finance to fund just transition (slide nine). Where there any benefits derived from this programme? She further expressed scepticism about Treasury’s suggestions to review and merge SOEs, and to create additional agencies. The Department of Energy in the past tried this strategy, with the establishment of the Electricity Distribution Industry Holdings but failed. It did not work because municipalities and provinces, alike, were resisting it. It was therefore important for NT to update the Committee on its decision around this matter. She was also concerned by delays in the water and freight transport reforms. Haulage trucks continued to damage roads across the country amidst promises that freight would be moved to rail transport. This was particularly worrying, considering that the country was nearing its “Vision 2030” target yet policies from as far as 2005 were still in draft phase. Did these reforms have timeframes? Finally, she asked if the Department of Transport and the Department of Public Enterprises turf issues had been resolved.
Ms N Hlonyana (EFF) welcomed the presentations and echoed Mr Mlenzana’s observation that it was detailed. However, on the question of fiscal distress, she challenged the notion of comparing South Africa with other countries. South Africa could not be compared with other countries because it was well endowed with natural resources. She said the country was failing to maximise its resources, and believed that focusing on this natural wealth could earn South Africa a lot of revenue. She said it was worrying how the solutions provided for the country’s revenue deficit by Treasury were short-term. Were there any long-term solutions to decrease debt and increase revenue?
Price fixing by Independent Power Producers (IPPs) was another cause for concern. When it was Eskom, this was not a concern because the objective was clear that the entity sought to do what was best for the country and not its profit margins. What then was being done to avoid price fixing by IPPs? She also suggested that, in order for OV to succeed, NT had to find a way to “coerce” departments. She also said that government had to stop auctioning the country’s resources. It had become a norm that public property was sold to private entities. Instead, viable solutions had to be found to help the country “to move from the negative to the positive”.
Finally, she said the Contingency Fund set aside for the country was very small. She was doubtful that it would be sufficient when unforeseen crises like war and natural disasters befell the country.
Ms M Dikgale (ANC) greeted everyone and welcomed the presentation. She began by commending the Department’s role in facilitating the COVID-19 vaccine roll-out plan so efficiently. Her following points were on electricity and water. Firstly, she said the billing system was a “nightmare” and that everyone was complaining about it. Similarly, poor water services were causing distress in Polokwane. She said there were boreholes that had been neglected and the people of rural Polokwane were now dependant of water trucks to deliver water. These, in some instances, were not reliable and people were left stranded without water. She then pleaded with the DM to consider incorporating this water problem in OV.
Mr O Mathafa (ANC) welcomed the presentation and agreed with other Committee Members that it was empowering. He pointed out that spending the little that the country had “wisely” was necessary to assist the Economic Reconstruction and Recovery Plan (ERRP). In addition to the areas targeted to be priorities in the presentation, he asked the DG to provide information on the areas that had been earmarked for reduction in spending. He said “clamping down on leakages” was another factor to consider when planning the country’s economic recovery. Apart from the Amendment to the Public Audit Act, little effort was being put to reduce wasteful and fruitless spending. In fact, the number of leakages was increasing annually. Therefore, there was a dire need to stop this irregular expenditure. Illicit financial flows also contributed to the country’s loss of revenue. He referred to the Global Financial Integrity (GFI) report, which showed that South Africa had lost approximately R1.7 billion between 2002 and 2011. This was 50% of the country’s budget deficit. Had illicit financial flows been curbed, the current budget deficit could have been mitigated. He asked Treasury to consider preparing a presentation on some of the measures that were put to ensure that illicit financial flows were discouraged, moving forward. He also commented on the revenue that government lost through informal “spaza shop” traders. In addition to suspicions that some of these small enterprises were not registered and foreign owned, their profits were most likely not banked formally. As a result, government missed out on tax revenue opportunities.
He also asked if there were any lessons learnt from the previous COVID-19 interventions, particularly the CGS. Most black company owners lamented that they were either rejected or ignored. He then concluded by stressing the importance of supporting township businesses in the effort to reduce unemployment in the country.
The Chairperson thanked the Committee for its feedback. He asked how close NT worked with the Department of Planning, Monitoring and Evaluation (DPME). He pointed out that underspending by different departments and entities was a concern, especially under the current constrained fiscal conditions. This had become a perennial problem, as it occurred consistently. He noted that departments always had reasons for underspending but still complained about budget cuts. As a solution, he suggested the adoption a “stick and carrot” approach, where departments that performed accordingly received a carrot and those that did not received a stick. This is because, currently, departments knew that they were going to receive their budgets, irrespective of their performance. He asked if there was a plan for the R200 billion that was “never used” for the CGS.
The Chairperson echoed Ms Peters’ comments about the dire state of SOEs in the country. A few strategies were proposed to address this and the Strategic Equitable Partners (SEP) was one of them. However, he pointed out that, instead of employing SEPs when companies were “in rescue”, the government had to consider doing this when companies were still in a normal state. He also stressed that the disposal of non-core assets had to ensure that it enhanced economic inclusion. Subsequent to this, he said that government could use its buying power to facilitate the ERRP. Giving tenders to local entities may have been expensive at times but, on a macro-scale, it created jobs for the people. It was therefore worth considering for the government to plan its budget around this kind of localisation.
The Chairperson asked NT to explain in simple terms what was meant by “the revival of blue and green drop water quality assessment”, and to explain why it was important to the economy. He also highlighted that lack of skills in the country was a recurring topic, despite the existence of Sector Education and Training Authority (SETA) facilities and money appropriated for the cause. It was time for government to devise a practical solution; one was considering using of SOEs in skills training. To support this point, he said the Apartheid government successfully used SOEs to skill the population. Perhaps a similar approach was going yield similar results in contemporary South Africa. He also said that, despite pressure on the country’s fiscus, government wanted to do everything at the same time. Unfortunately, these targets were executed half-heartedly. Was it not possible for government to prioritise its goals, i.e., draft High-Impact Interventions (HII)? This would help government to deal with every issue thoroughly, which in the end would yield better results. Finally, he echoed the need to reduce financial leakages and said that currently there was no cogent strategy to deal with this problem. He described illicit financial flows as a system of stealing South African money and agreed that it contributed significantly to the fiscal deficit. He then proposed that, in the future, NT and the South African Revenue Service (SARS) had to present on this issue to the Committee.
The DG thanked the Committee for its valuable feedback. He welcomed the Chairperson’s suggestion to invite NT and SARS in the future, and said that he was looking forward to this engagement. He pointed out that capacity at SARS was a problem. A lot of senior personnel in the entity either retired, willingly left the entity or got fired in a very short space of time. This had a direct impact on some of the financial leakages. He acknowledged the Chairperson’s concerns about disposing non-core assets but said it was difficult to execute this task at times. Although certain disposables were identified, it was not always easy to reach consensus on them. He attributed this to the lack of coercion alluded to by Ms Hlonyana. There was a need to come up with one view to decide exactly what could be classified as non-core. He agreed with Ms Peters that the future of SOEs was bleak. Using credit risk profile indicators, the number of SOEs in the “red category” were greater than those in the “green category”. He said the value of these entities had to be eroded before they could be disposed.
The DG said that lessons learnt from the CGS were “things that NT should not forget” as government was working towards a new credit scheme. There were various reasons why people did not get loans from the CGS. Some simply did not avail themselves and some did not qualify in terms of the ability to pay back the loans. He then posed a question to the Committee whether or not there should be grants. He said that cuts were done because of choices that were made by the government. These choices required provisions for new expenditure pressures. He explained that cutting budgets was meant to clamp down the spiralling out of control of huge budget deficits.
The DG said that, in terms of the oversight, the role that NT played was limited. He pointed out that there were legal limitations to what he could do to other departments, although there were provisional laws that granted the executive authority power to do so. Were these individuals making use of these powers? This was a question everyone in the meeting could answer. He also explained that, despite being a department like any other arm of the government, the role of NT was slightly elevated. For instance, all the DGs wrote to NT for approval.
He agreed with Ms Peters’ observation that the state of SOEs was worrying. Almost all of them were in the red category. Eskom, Denel, South African Express (SAE), South African Airways (SAA), and the Land and Agricultural Development Bank of South Africa (Land Bank) were all in the red category for various reasons. In the amber category was the Development Bank of Southern Africa (DBSA), Industrial Development Corporation (IDC), South African National Roads Limited (SANRAL), Transnet and the Trans-Caledon Tunnel Authority (TCTA). No SOEs were in the green category. This was worrying because even those in the amber category were not safe, as this was a high-risk zone. Apart from this list, there were many other SOEs that were in the red and amber category. Given this scenario, things were deteriorating for the worst. He said that the Social Security Reform report was still being finalised, and promised to update the Committee once it was ready.
The DG agreed that South Africa was not like any other country. With its resources, it had the potential to be the best in the emerging world, and to continue being the best in Africa. However, the problem was that the country’s fundamentals were not in order. All the issues discussed in the meeting (including illicit financial flows and price fixing) were part of this problem. He said this was a conversation that would be thoroughly dealt with in a meeting with the SARS present, as suggested by the Chairperson. Here, more information was going to be given on the interventions taken to deal with these problems. He said there were cluster and inter-departmental meetings geared towards coordinating with and coercing departments. This was successful, although more could be done.
He acknowledged Ms Hlonyana’s plea, and agreed that caution had to be taken to ensure that the country’s resources were safeguarded. He also agreed that the contingency fund was not sufficient if something worse would happen (terrorist attack). However, Section 16 (law not stated in detail) enabled Parliament to authorise NT to access additional funds in times of severe crisis. On the other hand, the amount of money disbursed into the contingency fund was also a matter of choice. It was a difficult choice to either put funds in the contingency reserves or programmes that could uplift the economy.
The DG replied that the question about water was critical. He said there were many reasons for the problem. These included anecdotal evidence like sabotage by service providers. Notwithstanding the role of such factors to the problem, the core reason was that government’s whole approach to water resource strategies needed to be finalised and agreed. He said it was not ideal that certain households in the townships had decided to physically dig their own water supplies because municipal water supply was not reliable. Having said that, he pointed out that NT could only ensure that the municipal infrastructure grant and the water resources development grants available. How these funds were used was the responsibility of the relevant departments. He said that the thriving informal sector was a security issue. He also described it as both a local and national government issue. For instance, the municipality had to ensure that local spazas were registered, tax compliant and in accordance with health regulations.
Ms Nomvuyo Gamu, Director: Regulation and Competition, Economic Policy Division, greeted everyone and said that the DG had covered most of the Members’ questions and comments. She responded that OV ensured that high impact interventions from the ERRP were prioritised. In essence, it drew on the power of the President to fast-track important interventions. She said NT was going to have more time to explain what “the revival of blue and green drop water quality assessment” was at the time of the budget. She explained that it had important implications on rates of carbon emission. Recently, the United Nations (UN) report on climate change revealed that Sub-Saharan Africa was “heating up faster” than the rest of the world. This potentially had dire effects on the continent’s natural ecosystems. As such, the world was shifting to less carbon intensive production methods and setting their trade policies accordingly. South Africa was one of the biggest emitter carbon dioxide in African and, with its carbon intensive production, it stood to miss out on its competitiveness. She indicated that NT was engaged with both the UN and the Presidential Climate Change Committee, looking at solutions for a just energy transition.
Mr Edgar Shishi, Acting Head of the Budget Office, welcomed the Committee’s feedback. He said the country’s debt had increased dramatically in the past years. He added that South Africa owed about R4 trillion to various lenders in the world. Debt had become the second largest item of spending by government. In addition to this, it also attracted interest costs that similarly escalated. He said that, in 2021, the country was spending R270 billion on the interest of the debt (debt service costs). These debt service costs were a first charge. This meant that government had to pay them before it could pay anything else. This was the reason why clearing “debt overhangs” was important.
Mr Shishi attributed the accumulation of debt to three factors. The first was the country’s poor economic growth over a long period of time. OV was therefore an initiative to change this by reducing the level of spending, which was responsible for the accumulation of debt. The second was the fiscal risks. These were emanating from the “unaffordable” wage bill and SOEs. He said the contingent liabilities of government were expected to reach R1 trillion by 2022, and this was dominated by guarantees of the debt of SOEs and public entities. The solution was to address the financial distress exerted by SOEs. The third and final factor was fiscal rules. He said that everything in government was allowed to be a priority, unfortunately. There was a need to decide what was high or low priority. This would also help the government to sequence its reforms. Finally, he said underspending was evidence that problems within government departments were not entire related to money, but poor planning, management and leadership.
Mr Phillips replied that the revival of blue and green drop water quality assessment was a report done by the Department of Water and Sanitation on the quality of water and waste water services provided by municipalities and the degree to which it is losing water due to wastage through leakages and other forms. These reports used to be public and were important mechanism to hold municipalities accountable for whether their water services were improving or not. He said this had a far-reaching economic impact because there were reports of certain companies relocated away from certain municipalities due to weak water service delivery.
The DM responded that departments were equal, and when Cabinet was exercising its power, it did so as a collective, with the President as the lead. He replied that the South African economy had not been growing because business was not investing. Even before the COVID-19 pandemic, businesses were not investing. He added that there was no business willing to invest in an area with unreliable electricity supply. Structural reforms through OV sought to address this issue. The Department of Trade, Industry and Competition sought to boost local industrialisation (manufacturing) through localisation. He mentioned that, after visiting some of these local industries, it was important to encourage them to invest in new energy efficient technology. He said some of these businesses last invested in machinery in the 1970s or late 1960s. These types of machines consumed a lot of electricity, which caused production costs to go higher. This made it difficult for these businesses to compete with businesses that used energy efficient equipment in other parts of the world. He said NT was contributing actively towards the Social Security Fund. He also explained that a successful Social Security Fund was dependent on good economic growth and that this growth could only be realised through sequencing reforms.
The DM said NT appreciated the work done by banks to restructure debt for SMMEs. Banks made payment breaks to assist SMMEs that could not pay back loans. However, the payment breaks were not enough; there was a need to support SMMEs. They were very important to the country’s economic recovery plan.
The Chairperson thanked the DM and his team for responding to the Committee’s comments but asked him to address questions about government’s buying power and the problem of inadequate skilled personnel in the future. He agreed with NT’s point on the CGS and that the necessary risk management tools were meant to be applied. He also supported Mr Shishi’s point on sequencing reforms and said NT had to deal with this issue with the Executive. He echoed the importance of energy to industrial and economic growth. He said the Minister of Finance, Mr Enoch Godongwana, had proposed the re-capitalisation of Eskom in a previous meeting. Subsequent to that meeting, the Committee had played its part. It was now left to other arms of governance to fulfil this process. Finally, he said the Committee had received the Second Special Appropriation Bill. As such, the Committee was in the process of revisiting its programme in order to allow NT, or government, to intervene were it needs to. Having said that, he applauded the meeting and said it was fruitful engagement. In the next meeting, he asked that the Committee and NT had to emphasise points that were not sufficiently discussed.
The DM thanked the Chairperson for his comments and said NT had taken notes. He said NT was ready to focus on the matters raised by the Chairperson in the next meeting, and that it would be guided by the Committee when it was supposed to revisit those issues. He thanked the Committee for inviting NT to the meeting.
Before concluding the meeting, the Chairperson asked the Committee to view the proposed programme given that the Committee had received its Second Special Appropriation Bill.
The Committee Members viewed the programme and approved it.
The Chairperson thanked the Committee for engaging the NT.
The meeting was adjourned.
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