Date: 25/02/2004
Source: North West Provincial Government
Title: M Kuscus: North West Appropriation Bill 2004/2005
NORTH WEST BUDGET SPEECH - MEC OF FINANCE, MARTIN KUSCUS 25 February 2004
INTRODUCTION
Honourable Speaker
Honourable Premier
Honourable Members of this House
Distinguished Guests
Ladies and Gentlemen.
It is indeed a great pleasure and with a profound sense of gratitude that I rise in this house to present the provincial budget. To me it is indeed a milestone to present my tenth consecutive budget but more importantly in that the budget coincides with the period towards celebrating our first ten years of freedom. I have been privileged to be part of the first decade of freedom that has been characterised by the most dramatic political and democratic transition in the history of South Africa. I am, Honourable Speaker, ever reminded of this privilege by the words of Booker T Washington:
"I have learned that success is to be measured not so much by the position that one has reached in life as by the obstacles which one has overcome while trying to succeed"
Although many challenges remain, we have seen remarkable developments in our country. Our freedoms have expanded and we have created a more just society where human dignity has been restored and opportunities created to maximize our people's potential.
It is befitting at this point in time to reflect on this critical question. How will history judge this first decade of freedom?
THE BUDGET A MEANS TOWARDS FREEDOM
Over the last decade the central issue that confronted this Government has been how to translate political freedom into socio-economic freedom?
The renowned Austrian economist Ludwig Von Mises pointed out more than a century ago that:
"Economics is not about things and tangible material objects; it's about people, their meanings and actions".
The North West socio-economic environment is not an island, but an integral part of the South African economy. The forces that have shaped the national economy over the last ten years have also had a determining effect on socio-economic outcomes in the North West. Therefore, I would be grateful if you allow me to just give a brief overview of the highlights of ten years in the life of our young democratic economy. As I will stress, Mr. Speaker, this overview tells a story of how a combination of remarkable resilience, courage, determination and also decisive leadership in a volatile world economy, has placed this young nation of ours on an upward trajectory of economic development.
George Santayana once said: " Those who cannot remember the past are condemned to repeat it".
In 1994, this government inherited a dysfunctional, racially based, unsustainable and downright immoral economic system. High poverty, unemployment, exclusion, low economic growth, disinvestments, low productivity, low business confidence, high government debt, high inflation and a bloated government bureaucracy were amongst the problems inherited.
After 27 April 1994, this government, basing its socio-economic interventions on the Reconstruction and Development Programme (RDP), commenced in earnest to address the people's basic needs and to implement a developmental state. The key aims of the RDP are to address income poverty, skills poverty and asset poverty.
Thus, income poverty was addressed over the past ten years, primarily through a reorientation of spending in the government budget. For instance, expenditure on social grants has risen from R10 billion in 1994 to R34,8 billion in 2003 with almost 7 million people benefiting directly.
Skills poverty was addressed through a thorough reform of the education sector from one that was racially based by opening up the doors of learning to all our people on an equal footing. Education is in South Africa, as in this province, the largest expenditure item on the budget. We have seen positive results from our investment in people. The literacy rate improved from 83% in 1996 to 89% in 2001 according to the 2001 Census.
The general matric pass rate in our country has also improved from 54% in 1996 to 70,5% in 2003. Our educational sector has more learners than ever. From 1 January 2004, right on our doorstep, the North West University came into being as a result of a merger of the University of North West and Potchefstroom University to create the 5th largest university in South Africa.
As far as asset poverty is concerned, land and housing programmes have been implemented which had made a huge difference in the lives of our people since 1994. For example, over the past ten years almost 2 million housing subsidies were approved, 1,6 million houses were built and 1,8 million hectares of land have been redistributed to about 140 000 households. About R48 billion in housing assets have been transferred to the people since 1994.
Honourable Speaker, as far back as 1958 former President Nelson Mandela stated in an article written for the journal Liberation, "Our Struggle Needs Many Tactics". Since 1994 Government not only adopted and implemented the Reconstruction and Development Programme to meet the basic needs of our people but also commenced with a programme - or tactic - of macro-economic stabilisation. Our record in this regard has been exemplary. The International Monetary Fund and other international bodies have on many occasions commended the macro-economic policies and successes of this government. This is reflected in the continued upward ratings afforded to our country by independent international credit rating agencies. It is no wonder that our country's international credit rating was upgraded no less than 5 times in only 18 months during 2001-2002! After 27 April 1994, our new democratic government inherited a very unstable and unsustainable macro-economic situation. As stressed by President Mbeki in his State of the Nation address earlier this year, inflation was in double-digits, with the budget deficit at 9,5% of Gross Domestic Product and government debt approaching 64% of Gross Domestic Product. We subsequently brought the budget deficit down to 1% in the 2002/03 financial year and government debt to around 35%. We also achieved single digit inflation, at around 4% currently the lowest in many decades.
The most remarkable is that these achievements were realised against the backdrop of an extremely challenging and volatile period in the international economy. The year 2003 was not a calm year. In fact, quite the contrary. This time our young democracy had to weather the economic turbulence caused by the war in Iraq and the outbreak of the Severe Acute Respiratory Syndrome (SARS) epidemic which impacted negatively on the tourism industry. Moreover the Rand strengthened significantly; weakness in the world economy caused a reduction in the demand for South African exports. As a result growth slowed down in 2003 to an annualised 11/2 per cent in the first half of 2003. The slowdown was most severely felt in manufacturing and in the primary sectors, with real output stagnating or contracting in each of these sectors during the first half of 2003. Despite this downturn, positive news was announced on 16 May 2003 when the net open foreign-currency position (NOFP) of the Reserve Bank recorded its first-ever positive balance, having been in an oversold dollar position of more than US$23 billion as recently as 1998. Finally, Honourable Speaker, let us note, as outlined by the Honourable Finance Minister in his Budget Speech on 18 February 2004, that the forecast for economic growth in 2004 is looking positive, with Gross Domestic Product expected to increase by 2,9% during 2004 and accelerate further to 3,6 and 4% in the next two years.
AN OVERVIEW OF THE NORTH WEST ECONOMY 1994 - 2004
In outlining the major forces that have shaped the South African economy over the past decade, I have stated that the North West, being an integral part of the South African economy, has been significantly affected by all these events. However, it is vital to keep in mind that the eventual effect of these events on our provincial economy will either be softened or amplified, depending on the structure of our economy. Therefore it is important to remember that the provincial economy differs significantly from the national economy in that mining and agriculture dominates our economic output. Mining alone contributes 46% to total gross value added in North West so that any changes in commodity prices, exchange rates and input costs will have a larger than proportional impact on the province. Although agriculture's direct contribution to our provincial economy is only about 5%, it directly employs 11% of the workforce, and is indirectly responsible for supporting manufacturing, which contributes 7% to our economy, and trade, which contributes 10% to gross value added and 22% to employment. Many of our towns and municipalities are significantly dependent on the agricultural sector. Between 1994 and 2004 both the mining and agricultural sectors in our economy had mixed fortunes. However, the sound macro-economic management at national level and the creation of a myriad of supporting economic development policies and institutions in the North West Province had resulted in our economy weathering much of these storms to achieve net positive growth over the last ten years. In this regard then, I wish to emphasise that the North West Province has been growing positively over the past ten years, and despite the difficult national and international environment, we have succeeded in escaping a recession. Statistics released by Statistics South Africa in November last year, indicates that the North West Province achieved positive growth rates in every year since 1995, except in 1998 when we had a marginal decline in output due to the Asian Crisis, and 2001 when our economy stood still due to the onset of the global recession. According to Statistics South Africa, the average economic growth rate in the province between 1995 and 2002 was 1,8%. It should be noted that this positive growth, exceeding our population growth rate which is 1,3%, took place in a very volatile external environment, wherein our largest economic sectors, such as mining and agriculture, are dependent on forces outside our control, such as world commodity prices and the weather.
The year 2002, as was pointed out earlier, was a good year for South Africa, with rising exports and record increases in tourism. These sources of growth were also the type of sources which benefited the North West, given our resource and tourism bases. Consequently we achieved an economic growth rate of 2,03% in 2002, according to Statistics South Africa. This was the highest growth rate since 1996. The general upward trend in economic growth since 1998 suggests that we have turned the corner and that our economy is set for expanded growth in the years to come. There is absolutely no question of a recession in North West as some have erroneously and maliciously tried to make out.
It is further worth mentioning that according to Global Insight Southern Africa in their December 2003 Regional Economic Focus, an annual growth rate of over 3 - 3,5% is realistic over the next 4 - 5 years in the North West Province. Since we took up office in 1994 our concern about our Province's over -reliance on mining in terms of employment creation is well documented. We are glad to report that through very astute interventions over the last decade, we have succeeded to reverse the trend. Figures from Statistics South Africa indicate that in 1996 about 22% of our labour force was employed in mining as against 16% in 2002. However the trade, catering and accommodation sector (the bulk of them being the SMMEs) has grown from 14% to 22% of employment during the same period. The province's efforts of entrepreneurial and SMME development especially in the tourism sector had clearly paid off. During the period 1996 to 2002, according to Statistics South Africa, 101 000 net new jobs were created with consistent growth in all sectors excluding mining and households.
OUR FISCAL STANCE AND ITS IMPACT
I have stated on many occasions in this House that the budget is a key instrument through which Government's intentions are articulated to achieve its goals and objectives. Over the past ten years the provincial budgets have become government's key vehicle in addressing the needs of our people. Our budget increased by 156,2% over the last decade at an average rate of 17,4% per annum. Our success in impacting positively on the lives of our people was facilitated by an expansionary fiscal stance. The share of social expenditure as a percentage of the total budget increased from 62% to 80% over the last ten years. This translated into the following:
* Allocations to Education grew by 203,4% at an annual average increase of 22% resulting into the building of 2 533 new classrooms, 356 specialised function rooms and 104 administrative blocks. Per capita spending on Education increased from R1 921 in 1994 to R5 969 in 2004.
* Health spending has grown from R1,038 billion in 1994 to R2,599 billion an increase of 150,4% making health care more accessible to our people as indicated by patient visits of 2 536 913 in 1999 against 8 212 583 visits in 2003 to our Primary Health Care facilities, an increase of 224%. Hospital treatment accounted for 187 269 patients in 1999 and 227 347 patients in 2003, an increase of 21%.
* Welfare grants grew from R879,9 million in 1994 to R4,046 billion - an increase of 359,8%. During this period old age grant beneficiaries grew from 54 214 to 186 429, whilst the child support grant beneficiaries grew from a meagre 2000 in the 1998/99 financial year to 543 099 in 2003/04.
* Since 1994 to date a total amount of R404,3 million has been allocated to our Primary School Nutrition Programme feeding on average 339 000 learners per day in 1 100 schools.
In terms of Infrastructure our budget grew from 2% in 1994 to 8% of the total budget. In total R5,018 billion has been committed to infrastructure over the last ten years of democracy. Since 1994 we have completed 125 276 housing units. Thousands of job opportunities and economic empowerment of Previously Disadvantaged Individuals have been realised through this massive investment in infrastructure.
Since 1994 the manner in which government has budgeted and spent has made the fiscal stability and sustainability, mentioned in the previous section, possible. Central to this is the Medium Term Expenditure Framework that has allowed for integrated planning of and good control over government expenditure. The efficiency of spending has not only been improved through public financial management reforms, but major strides were also made towards the improvement of our systems and internal controls. Some of our successes to date: * Developed a well functioning financial service from the dysfunctional and chaotic structure inherited from the former regime, not forgetting that we recovered a four-year accounting backlog, which we have inherited from that regime.
* Assembled and developed a highly skilled and professional managerial cadre that gives strategic direction and advice on fiscal matters to the North West Province.
* Produced balanced budgets for the last six years in succession. * Developed a range of top class financial systems for revenue and expenditure control e.g. commitment register, cash flow management, asset management, centralised creditors payment, electronic cashbook system, to name but a few.
* Designed and implemented an elaborate financial management capacity building programme towards implementation of the Public Finance Management Act to narrow the skills gap in the Province. This project is the first of its kind in the country where about seven hundred officials are currently being trained simultaneously.
* Established a well-run Internal Audit unit overseen by an Audit Committee made up of external experts. This greatly enhanced the quality of financial reporting. In the previous year the province received seven unqualified reports, six qualified reports and not a single disclaimer.
* Revamped the whole Provincial procurement system through a new approach of supply chain management. This translated into higher levels of economic empowerment, better value-for-money and enhanced integrity in the process. We disbursed an amount of R15 billion from 1994 to date for the procurement of goods and services. Of this amount 60% was procured from suppliers designated as Historically Disadvantaged Individuals and SMMES.
* We managed to reduce personnel costs as a percentage of the budget from 61% in 1994 to 49% in 2004; freeing up more money for critical development spending.
* Implemented a highly successful anti-corruption strategy through e.g. a strong forensic audit unit, cheque clearing centre and risk management plans. Our current conviction rate is 90%. In the Presidential Report of 2002 by the South African Institute of Government Auditors it is stated: "North West Province has the highest fraud awareness factor and also the lowest incidence factor". Since 1994 four hundred and twenty five fraud and corruption cases with a value of R35,1 million have been reported for investigation. Of the reported amount only R 4,6 million represented actual loss, some of which has been recovered.
MEDIUM TERM EXPENDITURE FRAMEWORK
Revenuur
Our own revenue was adversely affected by the reduction of gambling revenue from R219 million in 1994 to a mere R21,8 million in 2004, a decrease of 90%, this being occasioned by the opening up of the industry in neighbouring provinces. This drastic reduction of gambling revenue challenged us to look at alternative ways of increasing own revenue. I am pleased to report today that over the same period revenue from motor vehicle licenses increased from R39,8 million to R131,9 million per annum. Hospital fees also increased during this period from R3,7 million to R19,2 million per annum. Our endeavours gained momentum in the financial year 2002/03 when for the first time in almost eight years we collected 14% more than budgeted own revenue. For the current year we are on target to collect 10% more revenue than last year's actual amount. Collection of own revenue will further be enhanced by the revised Revenue Policy. Key features of this policy are that it addresses the manner in which Provincial Revenue should be handled, prescribes the format in which the collection of revenue should be reported and deals with debt management. Total revenue is budgeted at R15, 233 billion, an increase of R1,56 billion or 11,4%. It increases to R16,9 billion in 2005/06 and R18,3 billion in 2006/07.
The breakdown is as follows:
* National transfers amounts to R14,862 billion of which the equitable share is R13,271 billion and conditional grants R1,591 billion.
* Own Revenue accounts for R371 million of our revenue target.
Expenditure
Social Cluster
The budget for the social cluster is R12,113 billion and accounts for 80% of the total budget. The expenditure on the social cluster increases to R13,672 billion in 2005/06 and R14,922 billion in 2006/07.
The social cluster budget has been allocated as follows:
Social Services, Arts, Culture and Sport receive an allocation of R4 183 billion, an increase of R626,4 million or 18% over last year's figure. This amount accounts for 28% of the total budget. A large percentage of the increase will be to extend the Child Support Grant for poor children between ages 7 to 14 at a cost of R416,2 million.
Education is budgeted at R5,331 billion, an increase of R483,7 million or 10% over its previous year level. This allocation accounts for 35% of the total budget. This amount will be utilised for inter alia:
* Intensification of infrastructure development including sanitation and maintenance at a cost of R175 million.
* Introducing transport for children in rural areas at a cost of R13 million. * Improving the delivery of learner support material at a cost of R120 million.
Health is budgeted at R2,599 billion and this amount reflects an increase of R237,4 million or 10% over its last year figure. The share of the health budget is 17% of the total budget. Two important programmes have been introduced:
- Attract and retain scarce health professionals in rural areas through an incentive scheme. To this end an amount of R28 million has been budgeted increasing to R37 million and R47 million in the financial years 2005/06 and 2006/07 respectively.
- Implement the Operational Plan for comprehensive HIV and AIDS Care. An amount of R70,981 million has been provided for this purpose. This amount increases to R100,9 million in 2005/06 and to R142,3 million in 2006/07.
Economic Development and Infrastructure Cluster
The budget of this cluster amounts to R2,195 billion. This amount increases to R2,308 billion in 2005/06 and R2,481 billion in the 2006/07 financial year.
The budget is allocated as follows:
Economic Development and Tourism receives an amount of R187,4 million.
Key programmes include:
* Implementation of the North West Economic Development and Industrialisation Strategy (NWEDIS) to the tone of R30 million.
* Securing the Mafikeng IDZ status.
* Promoting Black Economic Empowerment.
* Increase the province's market share in tourism.
* Facilitate SMME development.
Roads and Public Works is allocated an amount of R838,986 million. This amount increases to R890,523 million in 2005/06 and R950,215 million in 2006/07. The bulk of the allocation for this year will be utilised for the construction of 147 kilometres of new roads, gravelling of 197 kilometres of existing roads and resealing 536 kilometres of tarred roads. The Housing Subsidy Grant amounts to R421,378 million. This amount increases to R458,406 million in 2005/06 and to R485,910 million in 2006/07. For the 2004/05 financial year 18 000 new houses will be built.
Transport receives a budget of R596,999 million. This amount includes an amount of R244,291 million in respect of commuter subsidies.
Agricultural services have been budgeted at R394 million. This amount increases to R430,6 million in the 2005/06 and to R475 million in the 2006/07 financial year. One of the identified weaknesses in our land restitution programme is post settlement support. To this end an amount of R30 million has been provided to support resettled communities by enhancing their socio-economic position. R100 million will be provided for in the two outer years of the Medium Term Expenditure Framework to accelerate our efforts. A further amount of R26,9 million has been provided through a conditional grant for the Comprehensive Agriculture Support Programme to facilitate agricultural development.
Governance and Administration Cluster
This cluster is allocated an amount of R623,4 million. This amount increases to R640,8 million in 2005/06 and to R675 million in 2006/07.
Safety and Liaison receives a budget of R19,862 million. This amount increases to R21,136 million in 2005/06 and R22,215 million in 2006/07. This will go a long way to assist in creating a successful partnership between the South African Police Services, local governments and other criminal justice departments to achieve peace and stability in the province.
Local Government has been allocated an amount of R162 million.
Given our constitutional responsibility to strengthen the local sphere of government, the department will be extensively involved in: * Building capacity at Local Government level, especially on financial management.
* Implementing the Disaster Management Act.
* Accelerating housing delivery by building capacity at local government level.
The Department of Finance is allocated an amount of R211,877 million. This amount increases to R233,727 million in 2005/06 and to R237,391 million in 2006/07. Some of the programmes to be introduced by the department include:
* Implementing the National Chart of Accounts.
* Complete the roll out of procurement reform.
* Bridging the knowledge gap between accrual accounting and cash accounting.
The Office of the Premier has been allocated an amount of R144,536 million. This amount increases to R148,125 million in 2005/06 and R154,928 million in 2006/07. The office will continue its effort towards the refinement and management of the Provincial Project Management Information System (proMIS) as well as the development and promotion of the poverty relief and "Batho Pele on Wheels" concepts.
The Office of the Legislature has been allocated an amount of R85,111 million. Due to the once off payment of the cost of the legislature building this amount will reduce to R75,918 million in 2005/06 and increase to R81,439 million in 2006/07.
Our massive investment in social services, economic development and infrastructure as outlined above, clearly demonstrates Government's commitment to aggressively launch an offensive against poverty and unemployment. Through an integrated and multi-pronged approach we will be able to accelerate job creation through skills development, assistance to small businesses and opportunities for self-employment. Given the labour intensity of our housing and infrastructure programmes the erroneous allegation that this Government is not creating jobs is misplaced and flies in the face of reality.
Our poverty reduction efforts are based on both a short and long term view. In the fist instance to bring immediate relief to the destitute and in the long term through economic development, comprehensive social security, land reform and improved household and community assets that will translate into sustainable livelihoods.
THE WAY FORWARD
The great philosopher Albert Schweitzer once said: "I don't know what your destiny will be, but one thing I know: the only ones among you who will be really happy are those who will have sought and found how to serve." As we are approaching our first decade of freedom this Government can without any fear of contradiction say that we are indeed happy about the achievements registered thus far through our efforts in bringing about a better life for our people. Our spending levels have increased exponentially since 1994. Indeed a greater number of people are sharing in the tax base of our country through improved service delivery, the creation of opportunities to exploit their capabilities and to free themselves from the shackles of our unfortunate past. It is however not our intention to bask in the glory of our achievements.
The critical challenge moving forward is to increase the quality and efficiency of our spending. For example, the United States and United Kingdom spend a substantially smaller percentage of their budget on education than South Africa, yet the quality of their education is ranked 107 places above South Africa's according to the latest World Competitiveness Report. The whole notion of value-for-money should increasingly pre-occupy our minds moving forward. Let me briefly cite some examples:
* One out of every three Rand spent in our Province goes into Education and the numbers have grown in real terms over the last decade. Our matric pass rate, though laudable for all intents and purposes, should not only increase quantitatively but also qualitatively; yielding the appropriate skills base to make our country globally competitive.
* We have broadened access to health care by the construction of more clinics and hospitals, however if our infant mortality rate, maternal mortality rate and our life expectancy is not improving, then the quality of our spending must be revisited; not forgetting the quality of care the public legitimately expects from us. * Major strides have been made in constructing new infrastructure but if there is not a proper balance between the creation versus maintenance of new assets this might set us up for failure.
* In as far as our massive investment in social grants is concerned, Government's noble intentions are also having the potential to create perverse incentives. The somehow discretionary approach in the approval of disability grants needs to be tightened up and monitoring mechanisms in our total grant system need to be as such that benefits do not end up in the wrong hands.
* The wage bill has been curbed to 49% of the total budget. Since this is our major cost driver I think the public is entitled to receive higher levels of service delivery. It therefore becomes imperative to deal with the aftermath of Resolution 7 and once and for all address the issue of an appropriate skills mix. Large investments have been made in capacity building programmes over the last ten years; the effectiveness of these programmes should be seriously assessed if we want to have a civil service that is more enterprising and responsive to the public's needs.
Honourable Speaker, it is my pleasure at this point in time to table the:
* North West Appropriation Bill of 2004
* The Budget Statements 1 and 2
* People's Guide to the Budget
* A copy of the Budget Speech
Constructing a budget and the subsequent management thereof is a very involved and complex process that requires the effort of a multitude of players.
It is now a matter of public knowledge that this is my last budget, as I will be exiting the political arena.
Honourable Speaker, over the last ten years Premier Popo Molefe has been to me a pillar of strength consistently providing visionary leadership. But what will always remain with me is his humility in serving the people of the North West. He indeed ignited in some of us a passion for defending our gains of freedom and democracy at all costs. This Province will forever be indebted to his legacy.
I would also like to extend my gratitude to:
* Colleagues in the Executive Council for your support in taking collective responsibility for fiscal management.
* Honourable Z Sebekedi and A Venter, Chairpersons of the Finance and Public Accounts Standing Committees respectively.
* The Director General, Heads of Departments and Chief Executives of our Parastatals as well as their respective Chief Financial Officers for your diligence and professionalism in meeting our sometimes difficult demands during the budget cycle.
* To the Management and staff in my department whom I became so dependent upon over the last ten years, you have made me proud.
* Office of the Auditor General, Internal Audit Committee and the Tender Board, your role has enhanced our efforts towards accountability.
* To Liz and the family, thank you for your understanding, tolerance and most of all inspiration. You created the primary environment for me to be the best that I can be.
* To the general public who attended and the media, thank you for coming to share this day with us.
CONCLUSION
Honourable Speaker, we are closing the chapter of our first ten years of freedom with a sense of pride in the humble contribution we could make. The facts are up for scrutiny. In reflecting on the last decade we draw inspiration from the words of President Theodore Roosevelt who once said:
"The future belongs to the man and woman who is actually in the arena, whose face is marred by dust, sweat and blood, who strives valiantly, who errs and comes short and short again, who knows the great enthusiasms, the great devotions and spends himself/herself in a worthy cause, who at the best knows in the end the triumph of high achievements and at the worst, if he/she fails while daring greatly".
Government is firmly committed to pursue our goal to create a province in which all can experience an ever improving quality of life, enjoying human rights, with access to opportunities brought about by our hard earned freedom and bound together as a nation by our humanity. Our mandate in bringing "A BETTER LIFE FOR ALL" is not based on an unsubstantiated optimism. Over the last decade we have gained tremendous experience and insight into the task at hand and can therefore embrace the future with confidence. If we apply our collective ingenuity we know that together we can and will do more.
LET'S KEEP GOING TOWARDS THE SECOND DECADE OF FREEDOM!
I thank you, Honourable Speaker.
Issued by: North West Provincial Government
25 February 2004
Source: North West Provincial Government (http://www.nwpg.gov.za)
Source: North West Provincial Government
Title: M Kuscus: North West Appropriation Bill 2004/2005
NORTH WEST BUDGET SPEECH - MEC OF FINANCE, MARTIN KUSCUS 25 February 2004
INTRODUCTION
Honourable Speaker
Honourable Premier
Honourable Members of this House
Distinguished Guests
Ladies and Gentlemen.
It is indeed a great pleasure and with a profound sense of gratitude that I rise in this house to present the provincial budget. To me it is indeed a milestone to present my tenth consecutive budget but more importantly in that the budget coincides with the period towards celebrating our first ten years of freedom. I have been privileged to be part of the first decade of freedom that has been characterised by the most dramatic political and democratic transition in the history of South Africa. I am, Honourable Speaker, ever reminded of this privilege by the words of Booker T Washington:
"I have learned that success is to be measured not so much by the position that one has reached in life as by the obstacles which one has overcome while trying to succeed"
Although many challenges remain, we have seen remarkable developments in our country. Our freedoms have expanded and we have created a more just society where human dignity has been restored and opportunities created to maximize our people's potential.
It is befitting at this point in time to reflect on this critical question. How will history judge this first decade of freedom?
THE BUDGET A MEANS TOWARDS FREEDOM
Over the last decade the central issue that confronted this Government has been how to translate political freedom into socio-economic freedom?
The renowned Austrian economist Ludwig Von Mises pointed out more than a century ago that:
"Economics is not about things and tangible material objects; it's about people, their meanings and actions".
The North West socio-economic environment is not an island, but an integral part of the South African economy. The forces that have shaped the national economy over the last ten years have also had a determining effect on socio-economic outcomes in the North West. Therefore, I would be grateful if you allow me to just give a brief overview of the highlights of ten years in the life of our young democratic economy. As I will stress, Mr. Speaker, this overview tells a story of how a combination of remarkable resilience, courage, determination and also decisive leadership in a volatile world economy, has placed this young nation of ours on an upward trajectory of economic development.
George Santayana once said: " Those who cannot remember the past are condemned to repeat it".
In 1994, this government inherited a dysfunctional, racially based, unsustainable and downright immoral economic system. High poverty, unemployment, exclusion, low economic growth, disinvestments, low productivity, low business confidence, high government debt, high inflation and a bloated government bureaucracy were amongst the problems inherited.
After 27 April 1994, this government, basing its socio-economic interventions on the Reconstruction and Development Programme (RDP), commenced in earnest to address the people's basic needs and to implement a developmental state. The key aims of the RDP are to address income poverty, skills poverty and asset poverty.
Thus, income poverty was addressed over the past ten years, primarily through a reorientation of spending in the government budget. For instance, expenditure on social grants has risen from R10 billion in 1994 to R34,8 billion in 2003 with almost 7 million people benefiting directly.
Skills poverty was addressed through a thorough reform of the education sector from one that was racially based by opening up the doors of learning to all our people on an equal footing. Education is in South Africa, as in this province, the largest expenditure item on the budget. We have seen positive results from our investment in people. The literacy rate improved from 83% in 1996 to 89% in 2001 according to the 2001 Census.
The general matric pass rate in our country has also improved from 54% in 1996 to 70,5% in 2003. Our educational sector has more learners than ever. From 1 January 2004, right on our doorstep, the North West University came into being as a result of a merger of the University of North West and Potchefstroom University to create the 5th largest university in South Africa.
As far as asset poverty is concerned, land and housing programmes have been implemented which had made a huge difference in the lives of our people since 1994. For example, over the past ten years almost 2 million housing subsidies were approved, 1,6 million houses were built and 1,8 million hectares of land have been redistributed to about 140 000 households. About R48 billion in housing assets have been transferred to the people since 1994.
Honourable Speaker, as far back as 1958 former President Nelson Mandela stated in an article written for the journal Liberation, "Our Struggle Needs Many Tactics". Since 1994 Government not only adopted and implemented the Reconstruction and Development Programme to meet the basic needs of our people but also commenced with a programme - or tactic - of macro-economic stabilisation. Our record in this regard has been exemplary. The International Monetary Fund and other international bodies have on many occasions commended the macro-economic policies and successes of this government. This is reflected in the continued upward ratings afforded to our country by independent international credit rating agencies. It is no wonder that our country's international credit rating was upgraded no less than 5 times in only 18 months during 2001-2002! After 27 April 1994, our new democratic government inherited a very unstable and unsustainable macro-economic situation. As stressed by President Mbeki in his State of the Nation address earlier this year, inflation was in double-digits, with the budget deficit at 9,5% of Gross Domestic Product and government debt approaching 64% of Gross Domestic Product. We subsequently brought the budget deficit down to 1% in the 2002/03 financial year and government debt to around 35%. We also achieved single digit inflation, at around 4% currently the lowest in many decades.
The most remarkable is that these achievements were realised against the backdrop of an extremely challenging and volatile period in the international economy. The year 2003 was not a calm year. In fact, quite the contrary. This time our young democracy had to weather the economic turbulence caused by the war in Iraq and the outbreak of the Severe Acute Respiratory Syndrome (SARS) epidemic which impacted negatively on the tourism industry. Moreover the Rand strengthened significantly; weakness in the world economy caused a reduction in the demand for South African exports. As a result growth slowed down in 2003 to an annualised 11/2 per cent in the first half of 2003. The slowdown was most severely felt in manufacturing and in the primary sectors, with real output stagnating or contracting in each of these sectors during the first half of 2003. Despite this downturn, positive news was announced on 16 May 2003 when the net open foreign-currency position (NOFP) of the Reserve Bank recorded its first-ever positive balance, having been in an oversold dollar position of more than US$23 billion as recently as 1998. Finally, Honourable Speaker, let us note, as outlined by the Honourable Finance Minister in his Budget Speech on 18 February 2004, that the forecast for economic growth in 2004 is looking positive, with Gross Domestic Product expected to increase by 2,9% during 2004 and accelerate further to 3,6 and 4% in the next two years.
AN OVERVIEW OF THE NORTH WEST ECONOMY 1994 - 2004
In outlining the major forces that have shaped the South African economy over the past decade, I have stated that the North West, being an integral part of the South African economy, has been significantly affected by all these events. However, it is vital to keep in mind that the eventual effect of these events on our provincial economy will either be softened or amplified, depending on the structure of our economy. Therefore it is important to remember that the provincial economy differs significantly from the national economy in that mining and agriculture dominates our economic output. Mining alone contributes 46% to total gross value added in North West so that any changes in commodity prices, exchange rates and input costs will have a larger than proportional impact on the province. Although agriculture's direct contribution to our provincial economy is only about 5%, it directly employs 11% of the workforce, and is indirectly responsible for supporting manufacturing, which contributes 7% to our economy, and trade, which contributes 10% to gross value added and 22% to employment. Many of our towns and municipalities are significantly dependent on the agricultural sector. Between 1994 and 2004 both the mining and agricultural sectors in our economy had mixed fortunes. However, the sound macro-economic management at national level and the creation of a myriad of supporting economic development policies and institutions in the North West Province had resulted in our economy weathering much of these storms to achieve net positive growth over the last ten years. In this regard then, I wish to emphasise that the North West Province has been growing positively over the past ten years, and despite the difficult national and international environment, we have succeeded in escaping a recession. Statistics released by Statistics South Africa in November last year, indicates that the North West Province achieved positive growth rates in every year since 1995, except in 1998 when we had a marginal decline in output due to the Asian Crisis, and 2001 when our economy stood still due to the onset of the global recession. According to Statistics South Africa, the average economic growth rate in the province between 1995 and 2002 was 1,8%. It should be noted that this positive growth, exceeding our population growth rate which is 1,3%, took place in a very volatile external environment, wherein our largest economic sectors, such as mining and agriculture, are dependent on forces outside our control, such as world commodity prices and the weather.
The year 2002, as was pointed out earlier, was a good year for South Africa, with rising exports and record increases in tourism. These sources of growth were also the type of sources which benefited the North West, given our resource and tourism bases. Consequently we achieved an economic growth rate of 2,03% in 2002, according to Statistics South Africa. This was the highest growth rate since 1996. The general upward trend in economic growth since 1998 suggests that we have turned the corner and that our economy is set for expanded growth in the years to come. There is absolutely no question of a recession in North West as some have erroneously and maliciously tried to make out.
It is further worth mentioning that according to Global Insight Southern Africa in their December 2003 Regional Economic Focus, an annual growth rate of over 3 - 3,5% is realistic over the next 4 - 5 years in the North West Province. Since we took up office in 1994 our concern about our Province's over -reliance on mining in terms of employment creation is well documented. We are glad to report that through very astute interventions over the last decade, we have succeeded to reverse the trend. Figures from Statistics South Africa indicate that in 1996 about 22% of our labour force was employed in mining as against 16% in 2002. However the trade, catering and accommodation sector (the bulk of them being the SMMEs) has grown from 14% to 22% of employment during the same period. The province's efforts of entrepreneurial and SMME development especially in the tourism sector had clearly paid off. During the period 1996 to 2002, according to Statistics South Africa, 101 000 net new jobs were created with consistent growth in all sectors excluding mining and households.
OUR FISCAL STANCE AND ITS IMPACT
I have stated on many occasions in this House that the budget is a key instrument through which Government's intentions are articulated to achieve its goals and objectives. Over the past ten years the provincial budgets have become government's key vehicle in addressing the needs of our people. Our budget increased by 156,2% over the last decade at an average rate of 17,4% per annum. Our success in impacting positively on the lives of our people was facilitated by an expansionary fiscal stance. The share of social expenditure as a percentage of the total budget increased from 62% to 80% over the last ten years. This translated into the following:
* Allocations to Education grew by 203,4% at an annual average increase of 22% resulting into the building of 2 533 new classrooms, 356 specialised function rooms and 104 administrative blocks. Per capita spending on Education increased from R1 921 in 1994 to R5 969 in 2004.
* Health spending has grown from R1,038 billion in 1994 to R2,599 billion an increase of 150,4% making health care more accessible to our people as indicated by patient visits of 2 536 913 in 1999 against 8 212 583 visits in 2003 to our Primary Health Care facilities, an increase of 224%. Hospital treatment accounted for 187 269 patients in 1999 and 227 347 patients in 2003, an increase of 21%.
* Welfare grants grew from R879,9 million in 1994 to R4,046 billion - an increase of 359,8%. During this period old age grant beneficiaries grew from 54 214 to 186 429, whilst the child support grant beneficiaries grew from a meagre 2000 in the 1998/99 financial year to 543 099 in 2003/04.
* Since 1994 to date a total amount of R404,3 million has been allocated to our Primary School Nutrition Programme feeding on average 339 000 learners per day in 1 100 schools.
In terms of Infrastructure our budget grew from 2% in 1994 to 8% of the total budget. In total R5,018 billion has been committed to infrastructure over the last ten years of democracy. Since 1994 we have completed 125 276 housing units. Thousands of job opportunities and economic empowerment of Previously Disadvantaged Individuals have been realised through this massive investment in infrastructure.
Since 1994 the manner in which government has budgeted and spent has made the fiscal stability and sustainability, mentioned in the previous section, possible. Central to this is the Medium Term Expenditure Framework that has allowed for integrated planning of and good control over government expenditure. The efficiency of spending has not only been improved through public financial management reforms, but major strides were also made towards the improvement of our systems and internal controls. Some of our successes to date: * Developed a well functioning financial service from the dysfunctional and chaotic structure inherited from the former regime, not forgetting that we recovered a four-year accounting backlog, which we have inherited from that regime.
* Assembled and developed a highly skilled and professional managerial cadre that gives strategic direction and advice on fiscal matters to the North West Province.
* Produced balanced budgets for the last six years in succession. * Developed a range of top class financial systems for revenue and expenditure control e.g. commitment register, cash flow management, asset management, centralised creditors payment, electronic cashbook system, to name but a few.
* Designed and implemented an elaborate financial management capacity building programme towards implementation of the Public Finance Management Act to narrow the skills gap in the Province. This project is the first of its kind in the country where about seven hundred officials are currently being trained simultaneously.
* Established a well-run Internal Audit unit overseen by an Audit Committee made up of external experts. This greatly enhanced the quality of financial reporting. In the previous year the province received seven unqualified reports, six qualified reports and not a single disclaimer.
* Revamped the whole Provincial procurement system through a new approach of supply chain management. This translated into higher levels of economic empowerment, better value-for-money and enhanced integrity in the process. We disbursed an amount of R15 billion from 1994 to date for the procurement of goods and services. Of this amount 60% was procured from suppliers designated as Historically Disadvantaged Individuals and SMMES.
* We managed to reduce personnel costs as a percentage of the budget from 61% in 1994 to 49% in 2004; freeing up more money for critical development spending.
* Implemented a highly successful anti-corruption strategy through e.g. a strong forensic audit unit, cheque clearing centre and risk management plans. Our current conviction rate is 90%. In the Presidential Report of 2002 by the South African Institute of Government Auditors it is stated: "North West Province has the highest fraud awareness factor and also the lowest incidence factor". Since 1994 four hundred and twenty five fraud and corruption cases with a value of R35,1 million have been reported for investigation. Of the reported amount only R 4,6 million represented actual loss, some of which has been recovered.
MEDIUM TERM EXPENDITURE FRAMEWORK
Revenuur
Our own revenue was adversely affected by the reduction of gambling revenue from R219 million in 1994 to a mere R21,8 million in 2004, a decrease of 90%, this being occasioned by the opening up of the industry in neighbouring provinces. This drastic reduction of gambling revenue challenged us to look at alternative ways of increasing own revenue. I am pleased to report today that over the same period revenue from motor vehicle licenses increased from R39,8 million to R131,9 million per annum. Hospital fees also increased during this period from R3,7 million to R19,2 million per annum. Our endeavours gained momentum in the financial year 2002/03 when for the first time in almost eight years we collected 14% more than budgeted own revenue. For the current year we are on target to collect 10% more revenue than last year's actual amount. Collection of own revenue will further be enhanced by the revised Revenue Policy. Key features of this policy are that it addresses the manner in which Provincial Revenue should be handled, prescribes the format in which the collection of revenue should be reported and deals with debt management. Total revenue is budgeted at R15, 233 billion, an increase of R1,56 billion or 11,4%. It increases to R16,9 billion in 2005/06 and R18,3 billion in 2006/07.
The breakdown is as follows:
* National transfers amounts to R14,862 billion of which the equitable share is R13,271 billion and conditional grants R1,591 billion.
* Own Revenue accounts for R371 million of our revenue target.
Expenditure
Social Cluster
The budget for the social cluster is R12,113 billion and accounts for 80% of the total budget. The expenditure on the social cluster increases to R13,672 billion in 2005/06 and R14,922 billion in 2006/07.
The social cluster budget has been allocated as follows:
Social Services, Arts, Culture and Sport receive an allocation of R4 183 billion, an increase of R626,4 million or 18% over last year's figure. This amount accounts for 28% of the total budget. A large percentage of the increase will be to extend the Child Support Grant for poor children between ages 7 to 14 at a cost of R416,2 million.
Education is budgeted at R5,331 billion, an increase of R483,7 million or 10% over its previous year level. This allocation accounts for 35% of the total budget. This amount will be utilised for inter alia:
* Intensification of infrastructure development including sanitation and maintenance at a cost of R175 million.
* Introducing transport for children in rural areas at a cost of R13 million. * Improving the delivery of learner support material at a cost of R120 million.
Health is budgeted at R2,599 billion and this amount reflects an increase of R237,4 million or 10% over its last year figure. The share of the health budget is 17% of the total budget. Two important programmes have been introduced:
- Attract and retain scarce health professionals in rural areas through an incentive scheme. To this end an amount of R28 million has been budgeted increasing to R37 million and R47 million in the financial years 2005/06 and 2006/07 respectively.
- Implement the Operational Plan for comprehensive HIV and AIDS Care. An amount of R70,981 million has been provided for this purpose. This amount increases to R100,9 million in 2005/06 and to R142,3 million in 2006/07.
Economic Development and Infrastructure Cluster
The budget of this cluster amounts to R2,195 billion. This amount increases to R2,308 billion in 2005/06 and R2,481 billion in the 2006/07 financial year.
The budget is allocated as follows:
Economic Development and Tourism receives an amount of R187,4 million.
Key programmes include:
* Implementation of the North West Economic Development and Industrialisation Strategy (NWEDIS) to the tone of R30 million.
* Securing the Mafikeng IDZ status.
* Promoting Black Economic Empowerment.
* Increase the province's market share in tourism.
* Facilitate SMME development.
Roads and Public Works is allocated an amount of R838,986 million. This amount increases to R890,523 million in 2005/06 and R950,215 million in 2006/07. The bulk of the allocation for this year will be utilised for the construction of 147 kilometres of new roads, gravelling of 197 kilometres of existing roads and resealing 536 kilometres of tarred roads. The Housing Subsidy Grant amounts to R421,378 million. This amount increases to R458,406 million in 2005/06 and to R485,910 million in 2006/07. For the 2004/05 financial year 18 000 new houses will be built.
Transport receives a budget of R596,999 million. This amount includes an amount of R244,291 million in respect of commuter subsidies.
Agricultural services have been budgeted at R394 million. This amount increases to R430,6 million in the 2005/06 and to R475 million in the 2006/07 financial year. One of the identified weaknesses in our land restitution programme is post settlement support. To this end an amount of R30 million has been provided to support resettled communities by enhancing their socio-economic position. R100 million will be provided for in the two outer years of the Medium Term Expenditure Framework to accelerate our efforts. A further amount of R26,9 million has been provided through a conditional grant for the Comprehensive Agriculture Support Programme to facilitate agricultural development.
Governance and Administration Cluster
This cluster is allocated an amount of R623,4 million. This amount increases to R640,8 million in 2005/06 and to R675 million in 2006/07.
Safety and Liaison receives a budget of R19,862 million. This amount increases to R21,136 million in 2005/06 and R22,215 million in 2006/07. This will go a long way to assist in creating a successful partnership between the South African Police Services, local governments and other criminal justice departments to achieve peace and stability in the province.
Local Government has been allocated an amount of R162 million.
Given our constitutional responsibility to strengthen the local sphere of government, the department will be extensively involved in: * Building capacity at Local Government level, especially on financial management.
* Implementing the Disaster Management Act.
* Accelerating housing delivery by building capacity at local government level.
The Department of Finance is allocated an amount of R211,877 million. This amount increases to R233,727 million in 2005/06 and to R237,391 million in 2006/07. Some of the programmes to be introduced by the department include:
* Implementing the National Chart of Accounts.
* Complete the roll out of procurement reform.
* Bridging the knowledge gap between accrual accounting and cash accounting.
The Office of the Premier has been allocated an amount of R144,536 million. This amount increases to R148,125 million in 2005/06 and R154,928 million in 2006/07. The office will continue its effort towards the refinement and management of the Provincial Project Management Information System (proMIS) as well as the development and promotion of the poverty relief and "Batho Pele on Wheels" concepts.
The Office of the Legislature has been allocated an amount of R85,111 million. Due to the once off payment of the cost of the legislature building this amount will reduce to R75,918 million in 2005/06 and increase to R81,439 million in 2006/07.
Our massive investment in social services, economic development and infrastructure as outlined above, clearly demonstrates Government's commitment to aggressively launch an offensive against poverty and unemployment. Through an integrated and multi-pronged approach we will be able to accelerate job creation through skills development, assistance to small businesses and opportunities for self-employment. Given the labour intensity of our housing and infrastructure programmes the erroneous allegation that this Government is not creating jobs is misplaced and flies in the face of reality.
Our poverty reduction efforts are based on both a short and long term view. In the fist instance to bring immediate relief to the destitute and in the long term through economic development, comprehensive social security, land reform and improved household and community assets that will translate into sustainable livelihoods.
THE WAY FORWARD
The great philosopher Albert Schweitzer once said: "I don't know what your destiny will be, but one thing I know: the only ones among you who will be really happy are those who will have sought and found how to serve." As we are approaching our first decade of freedom this Government can without any fear of contradiction say that we are indeed happy about the achievements registered thus far through our efforts in bringing about a better life for our people. Our spending levels have increased exponentially since 1994. Indeed a greater number of people are sharing in the tax base of our country through improved service delivery, the creation of opportunities to exploit their capabilities and to free themselves from the shackles of our unfortunate past. It is however not our intention to bask in the glory of our achievements.
The critical challenge moving forward is to increase the quality and efficiency of our spending. For example, the United States and United Kingdom spend a substantially smaller percentage of their budget on education than South Africa, yet the quality of their education is ranked 107 places above South Africa's according to the latest World Competitiveness Report. The whole notion of value-for-money should increasingly pre-occupy our minds moving forward. Let me briefly cite some examples:
* One out of every three Rand spent in our Province goes into Education and the numbers have grown in real terms over the last decade. Our matric pass rate, though laudable for all intents and purposes, should not only increase quantitatively but also qualitatively; yielding the appropriate skills base to make our country globally competitive.
* We have broadened access to health care by the construction of more clinics and hospitals, however if our infant mortality rate, maternal mortality rate and our life expectancy is not improving, then the quality of our spending must be revisited; not forgetting the quality of care the public legitimately expects from us. * Major strides have been made in constructing new infrastructure but if there is not a proper balance between the creation versus maintenance of new assets this might set us up for failure.
* In as far as our massive investment in social grants is concerned, Government's noble intentions are also having the potential to create perverse incentives. The somehow discretionary approach in the approval of disability grants needs to be tightened up and monitoring mechanisms in our total grant system need to be as such that benefits do not end up in the wrong hands.
* The wage bill has been curbed to 49% of the total budget. Since this is our major cost driver I think the public is entitled to receive higher levels of service delivery. It therefore becomes imperative to deal with the aftermath of Resolution 7 and once and for all address the issue of an appropriate skills mix. Large investments have been made in capacity building programmes over the last ten years; the effectiveness of these programmes should be seriously assessed if we want to have a civil service that is more enterprising and responsive to the public's needs.
Honourable Speaker, it is my pleasure at this point in time to table the:
* North West Appropriation Bill of 2004
* The Budget Statements 1 and 2
* People's Guide to the Budget
* A copy of the Budget Speech
Constructing a budget and the subsequent management thereof is a very involved and complex process that requires the effort of a multitude of players.
It is now a matter of public knowledge that this is my last budget, as I will be exiting the political arena.
Honourable Speaker, over the last ten years Premier Popo Molefe has been to me a pillar of strength consistently providing visionary leadership. But what will always remain with me is his humility in serving the people of the North West. He indeed ignited in some of us a passion for defending our gains of freedom and democracy at all costs. This Province will forever be indebted to his legacy.
I would also like to extend my gratitude to:
* Colleagues in the Executive Council for your support in taking collective responsibility for fiscal management.
* Honourable Z Sebekedi and A Venter, Chairpersons of the Finance and Public Accounts Standing Committees respectively.
* The Director General, Heads of Departments and Chief Executives of our Parastatals as well as their respective Chief Financial Officers for your diligence and professionalism in meeting our sometimes difficult demands during the budget cycle.
* To the Management and staff in my department whom I became so dependent upon over the last ten years, you have made me proud.
* Office of the Auditor General, Internal Audit Committee and the Tender Board, your role has enhanced our efforts towards accountability.
* To Liz and the family, thank you for your understanding, tolerance and most of all inspiration. You created the primary environment for me to be the best that I can be.
* To the general public who attended and the media, thank you for coming to share this day with us.
CONCLUSION
Honourable Speaker, we are closing the chapter of our first ten years of freedom with a sense of pride in the humble contribution we could make. The facts are up for scrutiny. In reflecting on the last decade we draw inspiration from the words of President Theodore Roosevelt who once said:
"The future belongs to the man and woman who is actually in the arena, whose face is marred by dust, sweat and blood, who strives valiantly, who errs and comes short and short again, who knows the great enthusiasms, the great devotions and spends himself/herself in a worthy cause, who at the best knows in the end the triumph of high achievements and at the worst, if he/she fails while daring greatly".
Government is firmly committed to pursue our goal to create a province in which all can experience an ever improving quality of life, enjoying human rights, with access to opportunities brought about by our hard earned freedom and bound together as a nation by our humanity. Our mandate in bringing "A BETTER LIFE FOR ALL" is not based on an unsubstantiated optimism. Over the last decade we have gained tremendous experience and insight into the task at hand and can therefore embrace the future with confidence. If we apply our collective ingenuity we know that together we can and will do more.
LET'S KEEP GOING TOWARDS THE SECOND DECADE OF FREEDOM!
I thank you, Honourable Speaker.
Issued by: North West Provincial Government
25 February 2004
Source: North West Provincial Government (http://www.nwpg.gov.za)
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