Collaborative Africa Budget Reform Initiative (CABRI): Adoption; Fiscal & Financial Commission & Division of Revenue Bill 2008:

Meeting report

Collaborative Africa Budget Reform Initiative (CABRI): National Treasury (NT) Presentation
Ms Lesley Fisher, Director: Budget Reform, NT, tabled the CABRI document, and hoped that the Committee would adopt the agreement, as it was an important initiative that was only open to African countries.

She explained that CABRI was a professional network of senior budget officials and was formed by South Africa, Mozambique and Uganda. CABRI aimed to become the common voice in international debate and to develop approaches, procedures and practices for managing of public finance systems. It also promoted peer learning, training and research in Public Finance Management (PFM). The initiative was identified by the G8 as a key vehicle for implementation of the Good Financial Governance Action Plan in Africa.

CABRI participated in both regional and international collaborations. The institution co-hosted, with the G20 and the NT, the African Policy Seminar on fiscal elements of growth and development. Also, there was a joint CABRI and World Bank Institute training programme on budget management and public financial accountability.

CABRI’s main objective was to achieve legal status and to become a legal body. A draft memorandum of understanding formed the basis of the existing structure of the informal network. Having a legal status enabled financial and legal independence from any national government and other regional bodies. The legal agreement would also support the funding arrangement, which would allow the establishment to receive membership fees and donor funding. It would also enable formal engagement and cooperation with regional and international bodies.

The international agreement recognised the establishment of CABRI, its autonomy and legal status. It also recognised the institution’s objectives and functions. The six founding members were Ghana, Kenya, Mali, Rwanda, Senegal and South Africa. Membership was open to all African countries. New members would join through accession and pay membership fees based on a three-tier nominal fee structure. If twenty-nine member countries joined, this would represent 63.9% of CABRI’s budget for the financial year 2007/2008.

According to the Hosting Agreement, South Africa would be the permanent host of the CABRI Secretariat. An agreement was to be concluded between the Government of South Africa and CABRI as soon as the institution was legally established with clear stipulations on privileges, immunities, immigration, tax exemptions, disputes, amendments and inviolability of office.

It was recommended that Parliament ratify the CABRI agreement in the three official languages (English, French and Portuguese), and note South Africa’s commitment to host CABRI and the annual financial contribution payable by South Africa.

Discussion
Mr B Mkhaliphi (ANC, Mpumalanga) needed clarification concerning the financial and legal independence of CABRI from South Africa. He also noted that CABRI was reliant on donor funding.

Ms Fisher answered that the CABRI Secretariat would be based in South Africa, even though it was an African initiative. The institution would not be completely separate from the South African Government, as the Government would become a member of CABRI. They did not want to give the impression that South Africa was more important than the other member countries. Donor funding did not allow for a lot of movement. It was a struggle, as donations tended to be once off and therefore produced a lot of uncertainty.   

Mr E Sogoni (ANC, Gauteng) noted that six countries would found CABRI but that Uganda and Mozambique were not amongst the recognised founding members. He wanted to know why they were not recognised as founding members. The institution promoted good governance, which was a good initiative. The Member asked how the initiative related to other similar processes and thinking.

Ms Fisher stated that it would be a while before CABRI achieved legal independence because it would have to go through a long process for approval in Cabinet. Those involved in the institution decided that there would be six countries as founders. The six founding countries that were named at the time were countries that were able to ratify the agreement. Uganda and Mozambique would still be able to adopt the agreement and be recognised as founding members, but they had indicated that they were not able to ratify the agreement by the due date in order to become founding members.

Ms Fisher said that one of CABRI’s objectives was to liaise with all structures. They did not want to duplicate other initiatives, as the institution’s objectives were unique.

Mr A Manyosi (ANC, Eastern Cape) wanted to know what the implications were for the national Government.

Ms Fisher replied that there would be peer learning, discussions and programmes but that there were no obligations on the government.

Mr Sogoni enquired if there was a mechanism in place to ensure that founding members actually subscribed to CABRI, or if it was sufficient to just be a member. He asked how would CABRI ensure that members followed the initiative.

Ms Fisher told the Committee that CABRI did not have the autonomy to ensure that members followed the initiative. She hoped that the member States would see the benefit of joining the institution. CABRI hoped to provide an incentive to join through having discussions and demonstrations in forums.

The Chairperson noted that there was a major problem in African countries with donor funding, and thus a lack of revenue. He thought that CABRI would show that African countries could grow as a result of collaboration.

Mr Sogoni proposed acceptance of the CABRI proposal, and Mr D Botha (ANC) seconded it.

Members resolved to recommend adoption of the CABRI agreement.

Financial and Fiscal Commission issue: National Treasury Presentation
The Chairperson noted that one of the members of the Financial and Fiscal Commission (FFC) was the Chairperson of the Audit Committee. The Chairperson was not convinced that the person was independent of the Commission, even though the FFC said that the Commission had not employed him. Members had requested legal clarification, and he asked National Treasury to comment on the matter..

Ms Jo-Ann Ferreira (Legal Advisor) stated that in a number of other institutions, a person who was involved in an accounting authority was allowed to participate in other committees as long as the person was not a chairperson or employed in an executive position. She noted that in previous instances, this had become a problem.

Mr Lungisa Fuzile, Deputy Director General: Intergovernmental Relations, NT, suggested that the mandate of the Committee should encourage similar institutions to look outside their own institutions when considering people for member positions, especially with regard to the position of Chairperson. It was his opinion that it would be better to find another person who was completely independent of the FFC.

Discussion
Mr Botha stated that the issue was raised previously with the FFC but that they saw the person as independent because he was not employed in a management position.

The Chairperson said that the Committee and the NT would discuss the issue further at the workshop that would be held so that the NT could continue with its presentation.

Division of Revenue Bill (DORB) Presentation
Mr Lungisa Fuzile informed the Committee that clauses of the Division of Revenue Bill had been taken out. These related to accreditation, following discussions that were held with the Department of Housing. There were parts in the Division of Revenue Bill that were intended to clarify what accreditation was and the steps that could be taken to achieve it. The clauses were originally included to infuse a sense of urgency so that accreditation was accelerated. Over the past few years, however, very little was done and therefore the Act was seen as ineffective. However, a sense of comfort was achieved with the inclusion of the clauses for preparation. It was agreed that provisions would be included in the Bill that saw to a set of projects for municipalities that, if implemented, would immediately deal with the problems encountered with the Accreditation clauses.

Mr Kenneth Brown, Chief Director: Intergovernmental Policy, NT, discussed changes to the 2007 Division of Revenue Act (DoRA). The technical changes to the Act improved the readability of the wording in the Bill, the alignment of the different sections and further facilitated implementation. All provisions that provided for the management of grants made to low capacity municipalities by provinces or other municipalities were deleted.

With regard to Accreditation, he reiterated that the 2007 provisions were removed. The changes made in the current Bill also extended reporting requirements. Provinces using public entities to deliver functions would have to report on transfers and expenditures. The provisions that related to the Municipal Infrastructure Grant (MIG) were amended to extend the reporting obligations of municipalities. They must now include reporting on non-financial performance. There was also now a reporting obligation on the transferring national departments to report monthly to the NT and other national departments that had an interest in the grant, in respect of implementation of the grant

The conditions of the 2010 FIFA World Cup Stadiums Development Grant were extended. Municipalities would have to ensure, by June 2008, that any financial obligations for the construction or upgrading of the stadiums and supporting infrastructure expenditure were quantified and no longer negotiable. Changes were made to the duties of the Provincial Treasuries. Information published as part of the budget documentation of the province was extended to include detailed housing allocations to municipalities and schools, and the budgets of provincial hospitals. A new requirement was the alignment with municipal Integrated Development Plans (IDP’s) in respect of infrastructure plans.

The NT could stop an allocation and authorise the intervening transferring national officer to spend the allocation on behalf of a province if the province under-performed.

With preparation for the next financial year and the 2010/2011 financial years, the section was amended and extended to facilitate better planning. Those receiving Municipal Infrastructure Grants (MIGs) were required to prepare infrastructure plans. Provinces receiving the Integrated Housing and Human Settlement Development allocation were to agree to allocations with municipalities identified by the transferring national officer in consultation with the NT prior to the commencement of the next financial year.

The Division of Revenue Bill would be tabled in the National Assembly and go to the NCOP thereafter. The Bill held 49 clauses and 7 schedules as well as a memo on the objectives.

Schedule 1 of the Bill focused on the Division of Revenue between the three spheres of Government. Schedule 2 looked at provincial equitable shares amongst the nine provinces. Schedule 3 focused on Local Government equitable shares amongst 283 municipalities. Schedule 4 focused on other transfers to provinces and municipalities supplementing programmes. Schedule 5 looked at specific purpose allocations to provinces. Schedule 6 focused on specific purpose allocations to municipalities and schedule 7 looked at allocations in kind to municipalities.

With the Provincial Fiscal Framework, billions were added to the provincial share and personnel adjustments were made. Provincial priorities included education, health, social development, roads, agriculture and Small, Medium and Micro Enterprises (SMME) development as well as housing and human settlements.

Changes were made to the provincial equitable share formula. It was updated with the latest available data and the structure of the formula remained unaffected. Impact of the updates would be phased in over the next three years.

Local Government priorities consisted of increasing the equitable share envelope, improving infrastructure and the MIG, enhancing funding of capacity-building initiatives in the area of financial management and further adjustments to ensure the readiness of the host cities for the 2010 FIFA World Cup.

Discussion
The Chair thanked the NT for the comprehensive report and commented that the Division of Revenue (DoR) had matured as a document and seemed to be stricter.

Mr Sogoni focused on the NT’s interaction with the different provinces. He wondered about the budget process of drawing up the DoR and the provinces involvement in it. It was his opinion that there was not much understanding of the laws and not much involvement from the provinces. It was understood that municipalities would deliver houses but the capacity for the units was an issue. He asked what exactly this exclusion would mean.

Mr Sogoni noted that special attention was given for health and infrastructure as well as maintenance. Funding would come from provinces’ equitable share. He asked if there were agreements in place to ensure that provinces prioritised infrastructure as well as the maintenance in respect to health as well as other structures.

Mr Brown said that they were interacting with the provincial treasuries and the respective departments within the provinces for each and every sector. Discussions were held on a continuous basis to decide what the priorities were. Improving education was very important. Departments decided on the priorities, and budgets were reported to the Treasury in draft form. The budget and the priorities were then presented. National Treasury played an advisory role to Provincial Treasuries and encouraged them to reassess their priorities and finalise their budget.

Mr Fuzile stated that rules would have to be introduced with maintenance functions. It was his opinion that it was a mind-set problem and the issue would have serious consideration.

Mr Manyosi looked at accreditation of municipalities. He asked what the impacts would be of removing the accreditation clauses. He also wanted to know if municipalities had the capacity to present plans for their state of readiness to the Treasury. With changes made to the Act, he enquired how it would impact on the delivery of housing. Also, with base-line revisions, he asked to what extent would the Treasury be willing to engage with provinces and Committees to clarify the subject. He was not quite sure about the responses to the FFC proposal and the actions that would be taken in the financial year. It was noted that the Treasury was trying to improve on maintenance but the Member suggested that they try to compel municipalities to do the same. Provincial departments’ capacity to spend their budgets reflected on the Conditional Grants and their equitable share. He asked about the extent to which the NT could intervene in spending issues.

Ms Ferreira stated that the accreditation clause was always ineffective and thus the Act was changed completely. Removal of the clause did not impact on municipalities. The Treasury looked at the Housing Act and improved on it.

Mr Fuzile informed Members that there were support structures in place to assist municipalities with readiness issues. Unfortunately, municipalities did not make use of the services.

With the Housing Conditional Grant, funding was increased substantially. However, the Department and the Treasury would need to address long term planning. Proper infrastructure was needed as well as schools and hospitals. It was Mr Brown’s opinion that the housing issue could be solved with a differentiated approach and an effective long-term plan, as money alone would not solve the problem. It was suggested that time frames be introduced to indicate the point at which problems were to be solved.

Mr Fuzile suggested that discussions be held that focused on the best approach to the Housing Act. It was a major policy issue, as there was a tendency for provinces not to exhaust their housing grants. This could be an indication that some provinces did not need a large housing grant.

Mr Brown used the example of schools to respond to maintenance questions. He stated that maintenance issues should be dealt with directly by the school authorities and not by the municipalities, as the schools knew what needed to be maintained and would be more efficient. Of course, checks and balances would be put in place to ensure that the process worked properly and that the money would be spent.

Mr Fuzile told members that Section 26(2) was introduced in to the DoR Bill that allowed the National Department to step in and take control of spending if the municipality was found to be under spending.  

Mr Z Kolweni (ANC, North West) noted that the Treasury contemplated providing an opportunity for municipalities to borrow money. He asked what criteria were used in deciding who could borrow. He asked if there was the possibility of developing some form of control to check on the Municipal Infrastructure Grant (MIG) and other grants.

Mr Brown noted that the criteria used to determine borrowing were taken from the Public Finance Management Act (PFMA).

Mr Brown said that it was the Treasuries’ responsibility to monitor spending by provinces according to the PFMA. All the information that was received from the Provincial Treasuries was taken into account.

The Chairperson stated that Section 39 of the DoR Bill was critical and discussions should be held with the Provincial Treasury. Capacity problems within the Treasury would also be checked. There seemed to be an issue of non-compliance between the National and Provincial Treasuries.  

The Chairperson noted that MIG was increased substantially over the past few years; however, the municipalities had decreased their share. Infrastructure had suffered. Municipalities that possessed the resources would have to improve infrastructure immediately.

Mr Mkhaliphi focused on the ability of beneficiaries to spend the money allocated to them. Allocations to municipalities and conditional grants were meant to augment what municipalities wanted to do, but some municipalities did not have a way of creating their own revenue.

Mr Botha commented that he was glad that attention was given to the maintenance of assets. Provinces were constructing new buildings but the older structures were collapsing. With regard to District municipalities, some municipalities were not receiving money when funds were transferred.

Mr Fuzile stated that it could be useful to introduce payment schedules to counter the problem of municipalities not receiving funds on time. Municipalities should ask the relevant departments for the payment schedules or for a written report on the steps that would be taken for payments and transfers. This would ensure that transfers were made.

On many occasions, District Municipalities would approach the Local Municipalities and ask them to perform certain services. A problem was encountered when District Municipalities refused to pay the Local Municipalities and they were forced to continue with the service. This problem would need to be resolved.

The Chairperson asked if the DoR Bill resolved demarcation issues. He enquired about the approach used for the Occupation Specific Dispensation (OSD) and how a decision was formed concerning the allocations. The Committee welcomed Clause 39, which included planning as part of the law. The Accreditation clause would have to be looked at and capacity would have to be improved in order for municipalities to develop. Schedule 4 grants were worrying, as it was difficult to see CASP outcomes clearly. Grants had to be phased in to equitable share, however, monitoring would be difficult.

Mr Fuzile stated that there were no demarcation issues. The OSD issue related to the open-endedness of the OSD rules. An element of mischief and opportunism was experienced with loose definitions and rules. Schedule 4 grants posed a problem, as they were of a unique nature. A firmer support system was needed with financial systems. Departments were told to report on the projects funded by grants.

Ms Ferreira informed the Committee that Section 42 was always included in DoRA. The section dealt with cost implications and built on intergovernmental relations.  

The Chairperson informed the Committee that they were out of time today and that the discussion would have to be continued at the workshop.  The National Treasury was advised to return with amendments to the PFMA.

The meeting was adjourned.