Informal Settlements Upgrading Grant: National Treasury & Department of Human Settlements briefing; with Minister

NCOP Appropriations

10 August 2022
Chairperson: Ms D Mahlangu (ANC, Mpumalanga)
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Meeting Summary


The Select Committee on Appropriations was briefed in a virtual meeting by National Treasury and the Department of Human Settlements on the Informal Settlements Upgrading Partnership Grant for provinces.

Members enquired about the inconsistency in the reports emanating from those provinces which reported on the spending of the budgets allocated to them, and how this could be resolved. Comments were also made regarding the transfer of funds being recorded as an expenditure item, despite not being so, the Department's mechanism to ensure coherence between municipal Integrated Development Plans (IDPs) and plans at the provincial and the national levels, and the delays in planning approvals by municipalities. The Committee was of the view that it was desirable to have coherent project implementation between the national, provincial and municipal spheres of government.

Members expressed concern over the non-compliance with the transfer of funds, confusion caused by the funding allocation model provided by the Division of Revenue Act (DORA), the implications of the misaligned budget cycles between the local, provincial and national governments, the under-spending of the grant and the possible risk of fiscal dumping, the zero spending of the grant in the Eastern Cape despite its service delivery challenges, and illegal land invasions.

They sought clarity on which sphere of government received the Informal Settlements Upgrading Grant, since the DORA stated that the grant should be given at the local level, but the spending should be reflected at the provincial level.

The Committee was of the view that the agencies and municipalities administering funding should be invited to appear before it to account for their expenditures and deliverables.

Meeting report

The Chairperson acknowledged the presence on the virtual platform of Minister of Human Settlements, Mmamoloko Kubayi, provincial Members of the Executive Councils (MECs), as well as officials from National Treasury and the Department of Human Settlements, and welcomed them to the Select Committee.

Informal Settlements Upgrading Grant: Briefing by National Treasury

Mr Emmanuel Pillay, Director: Provincial Budget Analysis, presented a report on the Informal Settlements Upgrading Partnership Grant (ISUPG) for the first quarter of the 2022/23 financial year.

The ISUPG was introduced as a window within the Human Settlements Development Grant (HSDG) in 2019/20. The window was intended to serve as a planning and preparation platform, before it was established as a standalone grant.

The allocation windows per province for the 2019/20 and 2020/21 financial years, and the performance of the grant for the 2020/21 and 2021/22 financial years, were provided.

The challenges of the grant and recommendations were made to the Select Committee.

Mr Pillay said the grant had been introduced in provincial Human Settlements departments as a development grant aimed at using funding to intensify efforts to upgrade informal settlements. The grant aimed to provide the means for households to receive water, electricity and sanitation services, and to supply informal settlements with public lighting, roads, stormwater drainage systems and refuse removal.

National Treasury had noted that five provinces had not submitted their 2021/22 evaluation reports on this grant, as required by the Division of Revenue. The Committee, meanwhile, was concerned with the inconsistencies in the reports emanating from those provinces which had reported on their spending of the budgets allocated to them.

For 2021/22, the Eastern Cape, Free State, Limpopo, Mpumalanga, Western Cape and Northern Cape were some of the provinces that had recorded under-spending on their allocated grants. The Western Cape and Gauteng would return R109 million in unspent funds to National Treasury.

(More details are shown in the presentation slides.)

Informal Settlements Upgrading Grant: Briefing by Department of Human Settlements

Minister's comments

Minister Kubayi gave brief opening remarks, acknowledging the presentation made by the National Treasury.

She highlighted the discrepancy of the grants within the grant system in the Department of Human Settlements (DHS). To resolve the issue, she had written to the Minister of Finance requesting a review of the current grant system. She said the current grant system did not help the Department perform better, was too constrained and was highly prone to leakages. For instance, it was able to send grants to municipalities where they would use the funds to prioritise certain services over those essential services deemed to be part of the human rights-related services, such as having clean water and bulk services etc.

The DHS was ensuring an alignment between the performance of metros and provinces.

The Minister expressed her concern about the capacity of certain municipalities regarding their turnover time for the approval for township establishment.

Although a discussion had begun to take place in the sector, she commented that the allocation of the fund was discriminatory towards semi-urban and rural areas.

Context and background

Dr Zoleka Sokopo, Chief Director: Human Settlements Strategy, DHS, provided a broad background and context of the informal settlements upgrading programme and its partnership grant.

The planning and development process of the programme was outlined. The process included:

  • Phase one: Pre-feasibility;
  • Phase 2: Preplanning studies, detailed planning design, land, bulk and interim services;
  • Phase 3: permanent municipal engineering services.

The non-financial performance of the programme in provinces and municipalities was provided. She reported that 610 informal settlements were upgraded by provinces and 674 were upgraded by metros in 2021/22. A total of 21 075 sites were provided with electricity, water and sanitation by provinces and a total of 3 596 were provided by metros in 2021/22.

As of 31 March 2022, the financial performance of the programme indicated that:

  • Four provinces (Eastern Cape, Free State, KwaZulu-Natal and Northern Cape) had reported  100%  spending of their respective budgets;
  • The Northern Cape had reported 100% expenditure after receiving additional funding amounting to R60 million;
  • Mpumalanga, Northwest Provinces and the Western Cape spent more than 90% of their total allocations;
  • Despite the R20m stopped, Limpopo still managed to spend only 58% of its reduced budget.
  • Northwest Province had a commitment of R65m, which was more than the R22m available, and had therefore requested the provincial treasury (PT) to repurpose R43m from the HSDG to ISUG. A rollover application had been submitted to NT.


The Chairperson said the Western Cape needed to confirm the outstanding figures on the ISUP grant.

She asked National Treasury what the main causes for the inconsistency in the reporting were, and what both departments and provincial departments were doing to address the identified inconsistencies.

The Chairperson noted that the transfer of funds to housing agencies was being recorded as an expenditure item in the Department's book. She was also aware that this was not necessarily an expenditure.

On behalf of the Committee, she recommended that the Department invite those agencies to which funds had been transferred, to appear before the Committee so that it could assess their expenditures and deliverables.

She expressed her concern over the non-compliance of provinces in transferring funds to housing agencies, and asked the Department if there were measures to mitigate such risks.

She wanted more details on the Department's efforts to ensure the coherence between the municipal Integrated Development Plan (IDP) and plans at the provincial and national levels, as she observed that those two processes were often misaligned.

She emphasised that the Department of Human Settlements was responsible not only for building houses, but also for ensuring the availability of basic services around those settlements.

Mr D Ryder (DA, Gauteng) said the Division of the Revenue Act (DORA) indicated that the grant was given at the local government level, yet the spending was reflected at the provincial level. He asked the Department which level of government got the fund.

He complained that the Committee received the presentation way too late, which had given Members little time to deliberate and make useful inputs.

He believed that the funding allocation and operation model of the DORA was problematic. It stated that the ISUG was a local government grant, but it was managed by provinces, except for metros.

He found the substantial under-spending of the grant extremely worrying, and questioned whether it was possible that provinces did not know how to spend that money. He was of the view that metros should be given more autonomy over the management of the grant so that there would be more time and resources for provinces to assist smaller municipalities. He even suggested an accreditation process for a grant like this.

He agreed with the officials on the negative consequence of the mismatch between budget cycles of local government concerning those of the provincial and national governments.

He asked Minister Kubayi what the Department tried to achieve with this grant.

Mr E Njadu (ANC, Western Cape) noted the human settlement backlog across the country. He asked the Department, as well as its provincial counterparts, what had been done by provincial departments of Cooperative Governance and Traditional Affairs (COGTAs) to ensure inter-governmental relationships were tightened, with no unnecessary delays in processes such as reporting, approval of plans, etc.

He pointed out that under-spending would often lead to wastage or fiscal dumping, and asked the Department if there was a strategy to mitigate this issue.

The Chairperson expressed her grave concern about the Eastern Cape's zero spending on its grant, despite the many service delivery challenges faced by the province. If other provinces could spend 80% or more of their grants, she wanted to know what the national Department planned to do with the Eastern Cape. She pointed out that non-spending of funds posed the risk of fiscal dumping at the end of a financial year. The provincial government may spend the money for the sake of spending, but did not benefit the community.

Treasury's response

Ms Ogalaletseng Gaarekwe, Chief Director: Provincial Budget Analysis, National Treasury, said Treasury was reviewing all the grants. Once that process was concluded, Treasury would report back to the Committee on what work had been done.

She agreed with the Committee's suggestion to invite recipient agencies, and suggested municipalities should be included as well. She pointed out that the different starting and ending dates of financial years made it harder for Treasury to reconcile numbers and capture performance.

She clarified that the formula for conditional grants was determined by the sectors themselves, and was not aligned to the equitable share.

Mr Pillay noted Members' concern around reporting inconsistency, which was generally related to infrastructure grants. He said the causes could be threefold. Firstly, the ISUG was a relatively new grant, despite it being implemented for two years; secondly, the systems of reporting were led by the Director at the National Transferring Office, which had its deficiencies at both the national and provincial level; lastly, there was capacity issue for provinces when it came to collecting information.

Mr Jan Hattingh, Chief Director: Local Government Budget Analysis, said consolidating financial years across all three spheres of government would complicate the issue. He explained that historically there was a window over 16 months which Treasury had now managed to squeeze to nine months. If any changes were to be made to fit into the municipal process, the national budget preparation process would be undermined. In addition, the Office of the Auditor-General would not be able to cope with the workload if all financial statements of all three spheres of governments were consolidated.

From a public finance management perspective, the financial year for national and provincial government begins on 1 April and ends on 31 March in the following year, whereas the municipal financial year begins on 1 July and ends on 30 June the following year. Treasury believed the overlapping nine months left the municipalities another quarter to incur expenditure. Also, what Treasury had done was to publish preliminary numbers in terms of s32, for national and provincial governments, and s71 for municipalities, in terms of the Public Finance Management Act (PFMA). This assisted in allowing municipalities to still report to the national Department one month after the end of their financial year. By 31 August, all information would need to be submitted to the AG's office for audit purposes.

Mr Hattingh attributed the reporting delays and under-spending to the local government elections held in November 2021. It normally took a council a few months before a municipal council was constituted.

He confirmed that Treasury did allow rollovers, and that there was a procedure to be adhered to in terms of both the DORA process and Treasury's own circular. DORA allowed a rollover if a legitimate project was formalised before the end of a financial year.

He agreed with his colleague's view that entities that received transfers needed to come to the Committee for accountability.

Provincial Responses

Ms Nonceba Kontsiwe, MEC: Human Settlements, Eastern Cape, said the disagreement was over the funding agreement that was signed by the head of the Department of Human Settlements in the province and the chief executive officer (CEO) of the Housing Development Agency. Since the agreement had now been officially signed on 26 July, she expressed the hope that things would improve.

Mr Rodgers Makamu, MEC: Co-operative Governance, Human Settlements and Traditional Affairs (COGHSTA),  Limpopo Province, responded to Mr Ryder's question on the objective of the grant. He stressed that the grant would continue to be spent on building reconstruction and development programme (RDP) houses for needy households. The Department, together with implementing agencies, was now building houses, taking into consideration peoples' own wishes in the design of their houses. He therefore emphasised the absolute need to upscale the allocation for the ISUG. He attributed the non-performance to officials' poor planning, where construction would occur in places where no basic services were provided. Despite that, he assured Mr Ryder that people on the ground supported the Minister's indication to increase the grant because they needed it.

Mr Bentley Vass, MEC: COGHSTA, Northern Cape, concurred with the report as presented by the Minister, and indicated that the Northern Cape had done well with this project. The province had managed to deliver close to 7000 houses to its people. However, he highlighted the negative effects caused by possible vandalism and invasions of the upgrading process.

Mr Mxolisi Dukwana, MEC: COGTA, Free State, agreed with the concerns raised by Treasury and the Department. He said obtaining water use licences was a challenge. In his observation, the water levels in mining areas and towns were too high, which sometimes affected contractors. The cost of building materials was a concern, which affected the provincial Department's projects.

Overall, he assured the Committee that the Free State provincial department had established a social compact process to ensure that such concerns currently being experienced would not be repeated in future.

DHS responses

Dr Sokopo informed the Committee of the Department's activities on the upgrading of informal settlements. Its main activities fell into two areas. One was formalisation, by encouraging self-sufficiency and people building their own houses, while the other was to ensure that government provided good infrastructural facilities in the neighbourhood where those houses were built. She emphasised that informal settlement upgrading was a pipeline for housing development.

Ms Lucy Bele, Acting Chief Financial Officer, DHS, reminded the Committee that under-spending resulted from the local government elections in November 2021. It may take a few months for municipal councils to be established and even longer for coalition governments.

Commenting on the transferring of funds, she acknowledged that it was common practice for a transfer to be recorded as an expenditure item, but she conceded that it was in fact not an expenditure item and should not be recorded as such. The Department had introduced a transition guide classification of expenditure that specifically touched upon the issue, and should have been implemented in the 2021/22 financial year, but the implementation had later been deferred. On the Department's side, she assured the Committee that there were already measures in place to address the deficiency of the matter. The Department had started requesting Housing Development Agencies (HDAs) to present their opening balances, movements, and deliverables. Provinces needed to report money transferred to other organs of state. Since the HDA was an entity that fell under the jurisdiction of the Department, it had an obligation to review all of its transfers to ensure that they were all transfers done in accordance with the protocols and to the benefit of people on the ground.

Ms Bele assured the Committee that the Department had measures to deal with the non-compliance involving fiscal dumping. In 2021, it issued a circular in which s16 specifically limited the number of transfers that could be made in the last quarter of a financial year. The circular clearly stated that national and provincial departments should not make big transfers in the last quarter of a financial year. The Department was aware that many departments were not complying with the rule, and indicated that there would be a new recommendation for this financial year to complement that rule. She acknowledged that most provinces were still uncomfortable with those adjustments.

Minister's comments

Minister Kubayi appreciated the inputs made by National Treasury on grants. She was happy that Treasury had provided clarity that the movement of funds was within the Department's control at the beginning of a financial year, since it had often been advised by Treasury not to do certain things because of the imbalance it might cause in terms of budget.

She acknowledged Mr Hattingh's view on the potential risk of complicating the budget cycles, but pointed out that adhering to the current system, was impeding service delivery for the Department. Government needed to decide whether its objective was to comply with Treasury's regulations to make its operation easier or to benefit South Africa's people.

For instance, in the City of Johannesburg and Gauteng Provincial Government, there were projects that would genuinely benefit people on the ground. However, because of this disjuncture in budget cycles, there was a lack of synchronisation in the actions between the two spheres of government, leading to provinces often having to re-allocate the money. Such things were particularly common among coalition municipal governments. In some instances, establishing a council would result in political parties trading off with the provincial departments of Human Settlements on service delivery objectives.

Minister Kubayi highlighted the negative impact of the current illegal occupation of land, and urged municipalities to take charge and tackle the matter. Where situations allowed, she affirmed that the Department would also provide support to assist. She was firm in the view that the government should use the courts to hold the instigators accountable, because some of the ideas -- such as illegally building houses nearby a high voltage area, or near a river bank -- could result in the loss of lives.

Mr Ryder appreciated the positive comments that the Minister and officials had made. Regarding the restructuring of grants, it was important for the Committee to invite the Minister back to the Committee after her bilateral discussions with Treasury.

He expressed his understanding of the conundrum caused by the misalignment in budget cycles.

He highlighted the negative impact caused by land invasions, and appreciated the Minister's assurance that the national Department would support municipalities in dealing with the matter. He believed that government's regulations had indirectly assisted people in committing land invasions. Given the number of homeless people erecting their own establishments anywhere they liked, he asked the Minister if there was space in the ISUG to procure land.

Minister Kubayi responded that the Department did provide for the acquisition of land. For instance, the government had just decided to turn 14 000 hectares of public land into human settlements. The government was engaging with relevant infrastructural agencies and funding entities such as the Development Bank of Southern Africa to fast-track and improve the Department's capacity to provide social housing.

Adoption of minutes

The Committee minutes dated 3 August were adopted.

The meeting was adjourned.

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