Budget Briefing

Meeting report

FOREIGN AFFAIRS PORTFOLIO COMMITTEE
1 March 2000
FOREIGN AFFAIRS BUDGET BRIEFING

Documents handed out:
Director General's introductory remarks
Presentation on budget (abridged version of document without graphs and diagrams)
Vote 11: Department of Foreign Affairs budget

SUMMARY
There is effectively R90m less for this year's budget, taking into account the new function the department is taking on from the Public Works Department - looking after all diplomatic properties. Disappointment was expressed about the lack of funds in light of the President's wish to make the 21^st century the African century.

MINUTES
Mr J Matsila (Deputy Director General in the Department) gave apologies for the absence of the Director General, Mr S Pityana, and read out the Director General's introductory remarks regarding the budget vote.

Mr T Moir, the Department's Chief Director: Finance and Logistical Administration, presented the budget allocation for 2000/2001. He highlighted the budgetary problems experienced by the department, which were due to the continued effects of the exchange rate losses experienced in the 1998/1999 financial year. Last year's net deficit due to these losses was R 58m. Furthermore, it was likely that the coming year would see a continuation of these budgetary problems due to exchange rate losses with an expected over-spending of R50m by the close of the financial year. The total deficit last year was approximately R90m. As a result, the department's functions on the ground had been severely impacted. Some missions had been closed and 141 posts had to be cut, in order to carry through the department's savings initiatives. The coming year could expect a similar trend.

On the face of it this year's budget of R1325m shows an increase of R98m from the previous year, but in real terms this is not the case. Two new functions have been taken over by the department, namely the responsibility for foreign properties and the responsibility for the President's and Deputy President's household, both of which were previously looked after by the Public Works Department. These two new functions will cost the department some R68m, leaving the net increase, an apparent R30m. However this net increase must cover salary increases of 5.6%, a 3% allowance for further exchange rates losses, the cost of opening up two new missions and an increased United Nations peacekeeping role, which will cost R40m. All of these costs together mean that the department effectively has R90m less then the previous year.

Mr Moir pointed out that the 3% loss allowed for due to exchange rate losses had in fact already been taken up by depreciation of the Rand before the financial year had even begun. The amount that this might eventually cost by the end of the year could represent a very serious problem indeed.

Mr Moir gave a detailed break-down of the budget for the coming year (see abridged document).

Discussion
(Q) Why should the Foreign Affairs Committee be responsible for the President's houses? Secondly, has the R40m UN allotment for peacekeeping already been supplied?

Mr Moir said that the UN fees are compulsory and are costs that have been budgeted for at the UN. The President's homes are used for purposes of foreign heads of state visits. It will be more efficient if all expenses relating to diplomatic households fell under the same department.

(Q) Where is the budget item to cover the cost of the two new missions?

Mr Moir replied that there were indeed functional pressures to open two new missions but there was no budgetary capacity to do so. He said that they would overspend their budget allocation if they proceeded with the two new missions.

(Q) A committee member commended the Department for tackling the budget in light of the chronic problem of deficiencies in the budget. He was concerned that expenses were being incurred by members of other departments on the Foreign Affairs budget. He suggested that an interdepartmental committee be assigned to address these peripheral expenses.

Mr C Eglin (DP) urged that a letter be drafted quantifying this problem and pointing out that the lack of funds for Foreign Affairs directly acts as a prejudice to SA internationally.

Mr Moir replied that a costing system had focused on the indirect costs incurred by the Department of Trade & Industry and paid out of the Foreign Affairs budget. This was worked out at R30m a few years ago. He said that it is not cost-effective to try to work out this figure on an ongoing basis and reclaim funds from other departments.

(Q) The Department was asked to spell out their new added function in greater detail.

Mr Moir responded that the Department will be responsible for diplomatic properties in totality. They have a memorandum of understanding with the Public Works Department to obtain repair services and architects. These residences hold visiting state guests. The number of delegations that SA has had to receive in the past ten years has increased. To go outside for hosting these would cost much more.

(Q) The Department was asked what they would advise now in the light of the tightened budget and worsening exchange rates. What should the Portfolio Committee's recommendations be to Treasury on the budget. Are the issues being addressed?

Mr Moir stated that the Treasury was asked in 95/96 to give leeway, use prevailing exchange rates and year final calculation to predict exchange rates. The idea worked well initially, but in the last two years a problem has resulted where we have been questioned about how much of each currency we were purchasing. Another proposal was to buy our foreign currency a year ahead to hedge but Finance refused.

He calculated that the Department will have to manage exactly R32m less in nominal terms excluding exchange rate losses. He said that the Department has managed a 25% savings by means of increased efficiency. The numbers of missions have mostly remained unchanged in the current year, but what could not be anticipated was the expense of the software systems needed to facilitate implementation of the Public Finance Management Act. In addition there was no budget item for the International Expo in Hanover.

(Q) What is the Hanover Expo and who is sharing the cost?

It was explained that this technology fair is held in Germany from June-October and presents South African with an ideal opportunity for the private sector to showcase itself. R30 million has already been raised by the private sector. Mr Moir said that this is a bone of contention because fundamentally the expenses should be DTI's responsibility. If it is decided that DTI is responsible, then they must incur costs of R8 million.

(Q) Dr Eglin asked if the transfer of buildings from the Public Works to the Foreign Affairs Department was in fact more efficient? Has money merely shifted between departments?

Mr Moir responded that they were more efficient in managing them. He agreed that money has shifted, however, they can move faster than Public Works and make sounder decisions when purchasing property.

(Q) Ms Fatima Hajaij (ANC) asked how the missions were hampered in operational capacity? Secondly, what has the budget allocated for conflict resolution and prevention?

Mr Moir stated that the first question was difficult to answer. Missions cannot all facilitate the same 13 themes. Some might only focus on five. We need a financial system that can segregate between the themes. An average mission has five people - two are purely political positions and are specialists. Certain missions can identify priorities. If we have a more sophisticated financial system than we can differentiate.

There has been no geographic allocation of resources for conflict resolution and the Department will wait until the need arises.

(Q) The Department was asked if they have a foreign asset register and do trade missions pay for the use of Foreign Affairs missions overseas?

Mr Moir replied that the sales of six properties have been identified but there are formalities to go through before these sales can be concluded. Public Works had a national initiative to draw up an Asset Register in SA but this was not done for overseas assets. Foreign Affairs must do this now that it has taken over this function. Payment by other departments for use of their missions is difficult to work out especially when dealing with indirect costs. It should not be too heavy a burden to bear if the department is given sufficient funds.

(Q) The Department should look ahead: SA's international role is improving and increasing. How can it obtain a better budget allocation from the Treasury?

Mr Moir said that he likes to define the Department's needs three years in advance although this can be hard. The Medium Term Expenditure Framework tries to accommodate this. The budget allocation all boils down to national priorities: to what extent does Foreign Affairs need these funds more than other areas?

(Q) With the disposal of the six properties, where would the proceeds be going?

Mr Moir said that any sale of property is revenue. Constitutionally, the money goes to the Exchequer. The Department does not have any clear access. He said that they would like changes in this regard.

In conclusion, Mr I Coovadia, Chief Director of Administration in the Department, highlighted his alarm about the budget decrease in the light of President Mbeki's remarks that the 21^st century will be the century of Africa and the "African Renaissance". South Africa is being impeded in playing an active role in global matters. He reminded the committee that Foreign Affairs are expected to perform without the necessary resources.

Appendix 1:

Director General's introductory remarks

 

THE PARLIAMENTARY PORTFOLIO COMMITTEE ON FOREIGN AFFAIRS REGARDING THE BUDGET VOTE OF THE DEPARTMENT OF FOREIGN AFFAIRS FOR THE YEAR 2000/2001

1 MARCH 2000, CAPE TOWN

Chair, members of the Portfolio Committee,

I have had the privilege of interacting with Parliament on budget votes over the past 5 years, but this will be my first with regards to foreign relations matters. I am confident that after today's briefing your support will be as strong as ever.

My new area of responsibility, while daunting and challenging, is very exciting. Democratic South Africa is still in the process of finalising all the elements of its international relations. The management of this rollout is therefore in itself an exiting process.

Looking towards the coming year, our major theme is two-fold. Firstly to translate the political direction that has been set over the recent past into a complete strategic plan for the department, including concluding all the necessary internal processes to ensure sustainability of delivery and compatibility with broader government goals.

Secondly, to ensure as effective as possible a service to the Government and people of South Africa on matters related to international affairs and foreign relations.

Achieving the targets set for either of these focus areas would be impossible without the availability of the requisite resources, and their proper management. The main focus of my presentation to you today is therefore to provide you with a broad oversight of the key elements of our work programme, and the funding requirements thereof.

I would also like to use this opportunity to report back to this Committee on developments over the past year related to the budgetary problems highlighted by the previous Director General during his 1999 briefing session.

Chair,

During 1999 South Africa hosted the Commonwealth Summit (CHOGM) for which R39 million was additionally made available. However, any such project places a high burden on the limited capacity of the Department. We were instructed to take over the households functions from the Office of the Presidency together with the existing budget of approx. 3,7m and staff, and obtained the control and maintenance of foreign properties function (approx. R64m) from the Department of Public Works. While welcoming these moves to promote rational administration, an undoubted extra burden has been placed on the Department.

At the same time, the foreign exchange losses suffered by the Department, and about which you have heard so much in the past, have again not been compensated for. I therefore found the article which appeared in the Citizen on 24^th last stating in a bold heading that 'foreign Affairs gets an extra R100m' particularly unfortunate, as it perpetuates the myth around our budget. In reality our budget is again reduced by at least R90m, after having provided for exchange rate depreciation of a further 3 %.

The net effect being that the Department is struggling to find, indeed finds it impossible to find in some cases, enough money on its allocated budget to allow for operational activities to continue in some sections.

This is an issue which we are obliged to bring to the attention of Parliament, as our interactions with our colleagues at the Departments of Finance and State Expenditure appear to bear no fruit, and I cannot stand by and see our operational capacity being eroded at the same time as the President expects so much of us.

Chair,

Turning to the current year, let me highlight for you the issues that my Department will be engaged with in pursuit of the interests of our country.

BILATERAL AND MULTILATERAL WORK:

Our almost 90 bilateral missions and the geographic desks at head office are primarily concerned with developing the political relations between South Africa and the countries of their accreditation to the benefit of our country.

This is done in two ways.

On the one hand through activities planned for the year focused on the key themes identified at the Vaal Heads of Mission Conference: namely WEALTH CREATION incorporating Globalization, Trade and Investment, Tourism Science and Technology, Environmental matters, Development Aid and Finance, Arts, Culture and Sport, Human Resource Development and Education, and SECURITY incorporating Crime, Conflict Prevention and Resolution, Disarmament, Migration and Human Rights.

This has allowed us the measure of focus and consistency needed in today's complex and inter-related world.

On the other hand, by ensuring the success, inter alia through proper preparations, of the following activities:

-Conferences to be hosted in South Africa -e.g. Int. Conference on Racism 2001, OAU Summit 2003;

-The elections of candidatures (individuals or the country) to international bodies, e.g. SA membership of ECOSOC, SA membership of Commission on Human Rights, membership of individuals to international bodies at the UN, OAU and elsewhere;

-The attendance of and participation in a myriad of international conferences aimed at setting the international rules of engagement between countries, e.g. UNCTAD X, WTO, South Summit, Millennium Assembly, NAM, various technical bodies;

-The negotiation of and ratification of International Treaties and Conventions;

-Developing policy positions on priority or new foreign relations issues, e.g. humanitarian intervention;

-The investigation of or opening of new missions, e.g. Kingston, Jamaica, Kigali. Rwanda, Shanghai, China;

-The investigation of and appointment of non-residential Ambassadors or of Honorary Consuls, particularly in Africa and the Middle East;

-The holding of Joint and Bi-national Commissions with various countries, e.g the UK, Germany, China, India, Egypt, Nigeria;

-The negotiation, finalization and signing of bilateral agreements, e.g. avoidance of double taxation, trade and investment protection;

-The incoming visits by foreign dignitaries; as well as

-The outgoing visits by the President, Deputy President, Minister and Deputy Minister and senior foreign affairs officials. In this regard also support to the overseas visits of other Ministers and South Africans of note.

Chair,

For the next year the Department will ensure that all of its activities are further geared towards contributing to the attainment of our national goals, our goals for Africa and our goals for the African Renaissance.

In this regard the prevention of conflict and the peaceful resolution of disputes, primarily in Africa, remains a cornerstone of our work. We cannot underestimate the time and resources which will be required of us to contribute to bringing the situations in the DRC, Burundi, the alarming spread of the Angola dispute, the Comores and other flash points to an end.

I am looking at how best to increase our capacity in this area.

We will also be strengthening our relations throughout the Continent in all other fields to aid the momentum of development on the Continent.

This must inevitably lead to the opening of more residential missions on the African Continent.

We will continue to work bilaterally, through SADC, the OAU, the UN and other bodies to promote the ideals for the real development of our Continent. In this regard the reform of international institutions leading to their democratisation remains a focus for us.

Internationally, we will be also be using our positions as Chair of the NANI and of the Commonwealth to promote the objectives of the countries of the South, as we continue to do at the United Nations.

The coming year also provides us with a variety of international events to push South

Africa's programme, including the South Summit, the Euro-Africa Summit, the SinoAfrica event, the Millennium Assembly of the WNGA, the Hanover 2000 Exhibition, the World Aids Conference to name but a few. Indeed UNCTAD X, the UNSC week on Africa and the CCDCSA meeting in Pretoria are early examples of progress already made.

We will be focusing on measures to assist in the combating of emerging global threats such as terrorism, trans-national crime syndicates, money laundering and narcotic and drug flows.

Nationally we will use the Cluster Committees to enhance the efficiency and effectiveness of our activities and governmental coordination on international affairs.

For me the effective operation of this last matter is of critical importance to our ability to succeed on all others.

Chair,

In closing I would merely state that you have our fullest cooperation, and request your fullest support for our efforts.

(As amended by Mr T Moir, 1 March 2000]

BRIEFING TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON FOREIGN AFFAIRS ON THE BUDGET VOTE - NO 11: WEDNESDAY, 1 MARCH 2000

The names of the participants received by the CTO are as follows:

1. Mr SM Pityana, Director General [to attend depending on DG's cluster];

2. Mr AS Minty: Deputy Director General: Multilateral [will attend depending on meeting of DG's Cluster and the meeting with the Brazilian Foreign Minister]

3. Mr JM Matsila, Deputy Director General: Asia and Middle East and Acting Deputy Director General: Europe and the Americas [will attend until 12 before meeting with Brazilian Foreign Minist er]

4. Mr I Coovadia - Acting Deputy Director General: Administration;

5. Mr TW Moir - Chief Director: Finance and Logistical Administration

6. Dr Pandelani Mathoma, Chief Director: Southern Africa(Africa Branch);

7. Mr LB Labuschagne, Chief Director: Asia and Oceania;

8. Mr GJ Grobler, Chief Director: Europe;

Appendix 2:

Presentation on budget (abridged version of document without graphs and diagrams)

R'000

Main Estimate: 2000/2001 - 1,325,213

Voted: 1999/2000 - 1,226,662

Increase - 98,551

The net increase is due to:

INCREASES

Function shifts from:

* Public Works

* Presidency

Salary Bill (carry through cost & new proposals)

Exchange rate loss provision

Contributions towards International Organisations

Rentals of Chanceries and official residences

Cost of living adjustments

Locally Recruited Personnel

DECREASES

Purchase and maintenance of equipment and furniture

Other running costs (admin., stores, miscellaneous)

 

PROGRAMME 1: ADMINISTRATION

R'000

Main Estimate - 122,989

Voted: 1999/2000 - 119,781

Increase - 3,208

The net increase is due to:

INCREASES

Higher salary bill providing for carry through cost of July 1999 increases and new proposals in July 2000

Higher cost for professional services to deploy new information technology

DECREASES

General reduction in costs on publications, printing and other inventories

PROGRAMME 2: FOREIGN RELATIONS

 

R' 000

Main Estimate - 977,697

Voted: 1999/2000 - 952,830

Increase - 24 ,867

The net increase is due to:

INCREASES

Exchange rate loss provision for the devaluation of the Rand against foreign currencies

Higher salary bill providing for carry through cost of July 1999 increases and new proposals in July 2000

Provision for cost of living adjustments of locally recruited personnel's salaries abroad

Increase of rentals for the Chanceries and official residences abroad

DECREASES

Reductions of transport, subsistence and other administrative expenditure

Purchase and maintenance of equipment, furniture and other assets

General reduction in inventories and miscellaneous expenditure

 

PROGRAMME 3

SUPPORTING SERVICES:

FOREIGN REPRESENTATION

R' 000

Main Estimate - 224,527

Voted: 1999/2000 - 154,051

Increase - 70,476

The net increase is due to:

INCREASES

Higher salary bill providing for carry through cost of July 1999 increases and new proposals in July 2000 and expanded establishment taken over for new function

Increased contributions towards International Organizations for peacekeeping operations

Function shift from Public Works in respect of Land and Buildings abroad

Provision for Professional services for Land and buildings function taken over

Function shift of Presidential households taken over from the Offices of the President and Deputy President

 

DECREASES

Downscaling on administrative expenditure

Payments in terms of DipIomatic Immunities and Privileges Act as well as recoverable rental