26 March 1996
INTRODUCTION
The successful transition to democracy coupled with the Government's commitment to manage the economy prudently has won us the confidence of investors both here and abroad. Our economy has already started to perform positively and the results are there for all to see. As recent as up to the first half of 1993 many observers had already concluded that the South African economy was destined for a scrap-heap. However, since the latter half of 1994 the economy has been showing signs of strong recovery and has indeed been growing from strength to strength. This can largely be ascribed to the favourable perceptions created by the Government of National Unity. For 1996 this growth is estimated at 3,7%, something South Africans never dreamed of a few years ago. Inflation has been within a single digit for the better part of 1995 and currently stands at its lowest in over two years.
Over and above, South Africa has taken up the financial and investment portfolio within the Southern African Development Community (SADC), and our increasingly important role is clear from the fact that South Africa's exports to other African countries increased by 50% during 1995 while the country remains the foremost source of foreign investment in t he region. While Africa as a whole is increasingly being referred to as a "marginalised" continent, foreign governments, multinational agencies and corporations are seeing South Africa as the hope of Africa.
On the ground, life has started to have real meaning for the hundreds of thousands who now have access to clean and safe drinking water. The benefits of democracy have a tangible impact for the many homes which have been supplied with electricity during the course of last year. To the millions of children who benefit from the school nutrition scheme, and free medical care, life has not only become better but there is also greater confidence in the future.
Honourable Speaker, notwithstanding the excellent measures already achieved, which indeed justify optimism in the future of the South African economy, there remains reason for concern.
Although a firm basis has been established on which to address poverty in all its forms, the work ahead is still enormous. We are all aware that it takes time to change course and the country has within the short space of time made a concerted effort to address most of the basic needs. We have seen the infrastructural projects, clinics and classrooms taking off the ground but these have been overshadowed by the huge amount of backlogs inherited by this Government. The Government's commitment to alleviate poverty still stands but this objective can only be achieved by empowering people and create the conditions for sustainable poverty alleviation. Our challenge is therefore to expand the economy and create jobs to improve the quality of life for all.
The Government is at the centre stage of the above scenario but unfortunately the majority of its action on the stage have financial effects. The improvement on the picture I have just sketched will therefore depend to a large extent on the way in which we manage the financial resources of this Province.
An effective budget process is not a quantification exercise, it is an exercise of planning, policy development and review of priorities.
The budget must contribute in a positive way to free South Africans from their constraints. Accordingly, the budget must show how all the activities of Government fit together in a sustainable and affordable way. Too often, however, the experience of many other countries worldwide has shown the real potential of the budget to become an obstacle to sustainable poverty alleviation. Our case is different as we have in place the Reconstruction and Development Programme which directs us on the implementation of the various programmes for purposes of improving the quality of life of our people. The budget at hand reaffirms our commitment towards Reconstruction and Development.
Honourable Speaker, in line with our stated objective of accountability towards those we are serving, allow me to give a brief report on the following:
The macro-economic environment in which we are operating. Anticipated interventions. Challenges facing the North West Province on policy matters.
To what extent were we successful in managing the 1995/96 budget against the milestones we have set?
THE NORTH WEST ECONOMY IN PERSPECTIVE
The North West Province ranks 7th out of the 9 provinces on grounds of per capita income and 6th in terms of the Human Development Index. This state of affairs indicates clearly that all provinces are unequal in terms of economic diversification, tax bases and the level and nature of poverty. Furthermore, the financial constraint is a major setback as all provinces are competing for financial resources from the National Government.
The most significant constraint on the functioning of the North West Government is thus financial. As is the case in the majority of the provinces, the North West Government will for the foreseeable future be facing a significant fiscal gap (the balance between revenues and expenditures). One of the greatest challenges facing the North West Government is how to close this fiscal gap.
I strongly believe that the situation surrounding the fiscal gap warrants serious consideration. A bird's eye view of the economic and social development state of the Province indicates that the provision of basic needs is unsatisfactory and that the Province has a limited viability in an economic sense. About 53% of households live below the poverty line, 44% of the labour force is illiterate, infant mortality is 43 per 1000 live births, while substantial backlogs exist in housing, clinics, classrooms and access to running water and electricity, mostly in rural areas.
The province has the second largest rural population of all nine provinces. Economic activity in the province contributes around 6,9% of the total South African GDP. However, this is unevenly distributed in a spatial sense, with one centre producing 26% of that activity, and also skewly distributed in a sectoral manner, with mining producing 53% of all economic activity.
ANTICIPATED INTERVENTIONS
Given these structural deficiencies, the province has adopted a growth and development strategy that is based on the creation of a climate conducive to private sector investment and human development. The implementation of this strategy, as well as the province's constitutional obligations will severely strain fiscal capabilities. Moreover, although re-prioritisation of provincial expenditure has commenced (and a process of zero budgeting adopted), this will be difficult to ease the strain on provincial finances over the short to medium term due to the fact that fixed commitments (mainly in the form of salaries and debt servicing) amount to 48,6% of total expenditure. Secondly, "fair" criteria for redistribution of funds amongst departments have yet to be determined because of the nature of the current budget process.
A full scale reprioritisation will only be possible within the next budget cycle once there is national consensus on a Medium Term Expenditure Framework and other issues relating to budget reform. The conclusion at this stage is that the North West's economic plight makes imperative an analysis of available revenue sources and potential in the province as well as an evaluation of the system of fiscal decentralisation that is emerging, or likely to emerge in future, in South Africa. The above constraints, seen in the light of the province's economic base and its basic needs requirements, calls for a clear and sound strategic approach towards the role of the provincial fiscus.
In this respect, the North West Provincial Government took an initiative and approved the establishment of a Provincial Fiscal Research Unit. The objective of this Unit is to inform the Fiscal process on a rigorous, scientific and continuous basis in future so as to enable the Province to plan accordingly.
POLICY ISSUES
Human development:
Vast transfers of capital in the form of foreign aid have failed to create prosperity in Third World Countries, but nations like Japan and Germany, and people such as the Chinese and the Jews, have lost everything and then risen within a generation to even higher socio economic levels than before. This is because they have exploited human capital, (this is the economic term for the ability to produce wealth) and cannot be destroyed except by genocide or consumed as material wealth.
Given the institutional legacies we have inherited it is imperative for the North West to concentrate on increasing skills through Adult Basic Education and Training, literacy programmes and development management training in partnerships with training institutions. In the long-run, Mr Speaker, we will reap the benefits if we invest in people as the productive core of our economy.
Financial and fiscal policies:
Financial resources are increasingly becoming scarce. In order for us to spend efficiently we need to embark on an exercise of financial reform (both income and expenditure reform), reviewing incentives, promotion of public fixed investment and influence the evolving system of fiscal relations.
Contrary to our expectations, the Financial and Fiscal Commission's recommendations which were supposed to serve as an input into the 1996/97 budget process did not materialize. We hope that finality about a horizontal as well as vertical division of funds will be finalized for the 1997/98 budget process.
Another important aspect is that the inhibiting effect of the Function Committee system is being addressed. Agreement has been reached for its abolition and to be replaced by Technical Committees for setting norms and standards but to function under the auspices of the relevant MINMEC forums between National and Provincial Departments. A Budget Council comprising National and Provincial political heads will deal with the final allocation of funds before submission to Cabinet.
This is an important aspect of budget reform that will ultimately result in the budget being more transparent and a higher degree of checks and balances built into it.
Economic Development Strategy:
The most compelling question is what is our model of development in the North West Province? Is it d model that will lead us to focus on the right problems and will generate solutions to address these problems? Our model should be one that will promote endogenous development and local self-reliance. It should promote and kindly Entrepreneurial spirit.
Some of the strategic thrusts to be pursued to realise the above objectives include:
Clustering: A cluster or corridor of industries can be developed around key industries such as motor assembly plants and tourism, e.g., exploiting the Pilanesberg axis. The development could be supported by investment in infrastructure by Government which will attract other industries to the area.
Beneficiation: The evidence internationally contradicts the statement that beneficiation could only occur close to the markets for jewellery. As the Platinum Province and as a major gold
Small, Medium and Micro Enterprises (SMMEUs): A high priority should be given to the promotion of SMME's. Given the many comparative disadvantages of the North West Province, the Province should very aggressively promote SMME's.
Small farmer development could capture retrenched farm workers who are experienced and re-employ them into productive farming. This whole initiative should form part of our Land Reform Programme.
Infrastructure and housing process: Considerable backlogs exist in the area of infrastructure and housing, both in the urban and rural context. Infrastructure and housing provision should be used to promote small builders, contractors and developers, both in urban and rural areas. This will require a deliberate intervention through the budget process to increase public fixed investment.
Sub-contracting: Given the dominance of mining in the North West Province, the Province should actively promote sub contracting to and the strengthening of linkage-effects. Sub contracting could have off-spins into the manufacturing (light engineering) and agricultural sectors (small producers).
Sub-contracting: Given the dominance of mining in the North West Province, the Province should actively promote sub contracting to and the strengthening of linkage-effects. Sub contracting could have off-spins into the manufacturing (light engineering) and agricultural sectors (small producers).
Economic development should always contribute to the achievement of sustainable human development. Appropriate financial policies are required to mobilize resources for development that will afford maximum benefit to all the people of theProvince. Our pursuit for sustained patterns of economic growth should always be pro-people, pro jobs and pro-ecology.
Reconstruction and Development Programme (RDP)
Honourable Speaker, development is one of the key elements of poverty alleviation. The structure of the budget is still skewed in favour of recurrent expenditure. Capital expenditure is being crowded out by the increasing recurrent expenditure, especially salaries. We want to correct this trend and move towards an acceptable norm of the ratio between recurrent and capital. For this financial year an amount of R461,87 million has been budgeted for capital and represents 7% of total expenditure. It should be noted that some RDP-related funds on housing are still outstanding.
The RDP is key to achieving economic growth and social development. However, in order for us to be able to implement the RDP successfully we need to link planning to budgeting in a multi-year context.
A process of linking planning to budgeting has already been started by the Strategic Planning and Development Unit and Treasury. Planning will guide the province in directing resources towards achieving its objectives. These objectives will then be fed into the budget process so that the resources required for the implementation of these objectives are provided for.
Mr Speaker, it is obvious from the above that de-linking planning from budgeting will yield fatal results. I want to reassure you that we will pursue this matter vigorously in the next budget process to inform us fully on the maximum utilisation of our financial resources.
State Debt
National Government has agreed to take over the debt which was inherited from the previous administration and manage it centrally. Although provision has been made in our budget, it will be transferred as and when the National Government is ready to take it over.
With this take over, the Province will start on a clean slate with regard to state debt as we did not have borrowing powers. However, the Bill on Borrowing Powers of Provinces has just been finalised and will be presented to National Parliament soon. Although the Bill will give borrowing powers to provinces, we in the North West do not intend to go on a borrowing spree. Government should never be exposed to undue risk. We will borrow selectively; preferably for revenue generating projects.
It is a truism across the globe that financial prudence can be regarded as the cornerstone of successful development. A government which has to rely on borrowing to finance development loses its autonomy and hence its ability to set its own development agenda.
Transformation of the Public Service
The Public Service is key to the implementation of government policy. However, in order to be able to deliver, a new culture of public service needs to be nurtured. Without transforming the public service we will continually suffer the legacy of the past. Some of the problems that have been identified in the White Paper on the Transformation of the Public Service and which have afflicted the Public Service-are the following:
Lack of representation; Lack of legitimacy; Low capacity for service delivery and development; and Inappropriate use of staff resources, etc.
Without transforming the public service the above will never be overcome and it will not be able to discharge its new roles efficiently, effectively and equitably.
Given the fact that about 45,3 % of our budget goes towards personnel costs and in certain departments it is as high as 70 % of total expenditure, it is important that we get value for money from services rendered. The Province has already started a process of civil service transformation. We hope that out of this process will emerge a public service which is competent, efficient, effective, and committed to the values and goals of Government.
Restructuring of Parastatals
The transfer to parastatals is budgeted at R609,87 million and represents 9% of the total budget. Out of the total provision R443,77 million is current whilst only Rl76,1 million is capital. Development initiatives within most of these parastatals are negligible in relation to their overall expenditure.
The restructuring of parastatals in the North West Province needs to be guided by a set of principles within which individual cases can be assessed, but which will provide a perspective of consistency, so that the restructuring process is not perceived to be an ad hoc exercise in each case. These principles could include inter alia the following:
Parastatals should be geared towards the promotion of economic growth and development, as well as the delivery of basic needs in line with RDP objectives.
In view of the limitations on the availability of public funds there should be the most efficient utilisation of public resources, implying a reduction in dependency on government where appropriate.
Activities should be aimed at creating wider ownership in the economy and the empowermen of disadvantaged communities.
Safety and Security
Human security has both physical and socio-economic dimensions. Protection against violence and criminality is a cornerstone of political stability and a precondition for a productive labour force and the prevention of social disintegration. Secondly, human security should provide the poor with the minimum of basic goods and services to protect them against hunger, disease and the effect of illiteracy. However, the poor should also be protected against volatility in living conditions - hence the importance of sustained and fairly high levels of economic growth to improve per capita income and the material base of development.
To be a winning Province there must be political, social and economic stability.
THE 1995/96 BUDGET
The implementation, monitoring and management of the 1995/96 budget gave us a useful experience and also formed a firm basis on which to manage future budgets. Although full details of the revised 1995/96 Budget Estimates were given when the Adjustments Estimate was tabled earlier this month, the following are worth mentioning:
The total revised expenditure level is R6,727 billion.
Of importance also is the fact that own revenue revised estimate is R454,4 million against the original budget of R408,4 million, an increase of R46,4 million or 11,3 percent.
Contrary to media speculation about the alleged major spending spree in provinces, I am glad to announce that our commitment to fiscal discipline is yielding the desired dividends. For the 1995/96 financial year the North West Province has attained a fully funded budget.
Mr Speaker, allow me now to share with you some of the highlights of the 1995/96 process.
Management of the Budget
A Provincial Treasury Committee was established to advise the Executive Council in order to enhance financial performance in the Province. Let me hasten to say that we were the first to establish such a committee amongst the provinces. This committee was instrumental in controlling spending in departments. One of its main functions is to evaluate requests from departments for additional expenditure. Clear criteria were set against which all requests were measured, chief of which was whether the anticipated expenditure for which funds were requested was in fact unforeseen and unavoidable.
In addition to the above, the Standing Committees on Finance and Public Accounts were supportive in promoting a high level of accountability in departments by conducting performance evaluation sessions within departments.
Arrear books of account
In my last Budget Speech, I expressed concern on the amount of accounting backlogs inherited from the previous administration. We have during the course of the year managed to recover all the accounting backlogs. These accounts have now been submitted for audit purposes. Initial indications are that a deficit of about R441 million could be anticipated, which built up over a protracted period of time as a result of poor financial management from the past regime. Some items in the suspense account date as far back as 1983.
I must also point out that although we managed our budget properly, our cash flow position is being unsettled though to a lesser extent, by the cash flow problems inherited from the past. Regarding the management of the 1995/96 budget, I can report that we are definitely on track to close our books on lime.
Provincial Revenue Account
Our new provincial revenue account which was activated in April 1995 was well managed and served the province beyond expectations. It was indeed a superhuman effort to put systems and procedures in place within a matter of weeks to activate our account.
THE 1996/97 BUDGET
Before embarking on the content of the 1996/97 Budget I need to highlight the process on how we went about compiling this budget. During my previous Budget Speech, I promised transparency in the budget process through involving stakeholders and role players. In arriving at the final product I am presenting today, the budget went through various stages and was thoroughly evaluated at each stage and adjustments, where required, were effected before passing on to the next stage. Three main structures were involved in the evaluation of the budget before it reached its finality. These structures are:
Treasury Committee
Budget Committee - consisting of Treasury and members of the Standing Committees on Finance and Public Accounts and the RDP Commission.
The Budget Forum - consisting of Departmental Heads of all spending agencies and external stakeholders.
Revenue
Own Revenue
Own revenue is budgeted at R456,04 million and is R1,64 million more than the revised estimate for 1995/96. While steps of enhancing the own revenue collection are being taken, it is important to note that our own revenue potential is very limited. Also in budgeting for own revenue, we have been very conservative as a result of announcements made by the Minister of Finance that gambling in the former TBVC states, which is currently zero rated, will be subjected to VAT with effect from 1st October 1996. The bulk of the own revenue is derived from casino levies and this announcement has curtailed our revenue potential.
The following is the make-up of our own revenue sources:
Item R'Million Gambling 5,50 Motor licences 90,00 Casino levies 171,00 Interest and Dividends 53,54 Levies 1,50 Recovery of Loans 6,50 Departmental 93,00 Property 9,00 Miscellaneous 26,00
Total Own Revenue 456,04
RDP Funds
The RDP funds to be transferred by National RDP Office amount to Rl41 million. Of these funds R95 million is earmarked for infrastructure development, R36 million goes towards the feeding scheme while R10 million goes towards the Premier's Discretionary Fund.
Transfer Payment
Funds to be transferred by National Government into the Provincial Exchequer for 1996/97 financial year is budgeted at R6,310 billion.
EXPENDITURE
The total expenditure level for 1996/97 is estimated at R6,907 billion.
Let me now give a brief rundown of the Departmental Votes.
Premier
An amount of R73,05 million has been budgeted for the Department of the Premier, a decrease of R6,72 million or 8,4% on the revised estimate amount of R79,77 million for 1995/96.
Legislature
An amount of R24,66 million has been budgeted for the Office of the Legislature, an increase of R1,58 million or 6,9% on the revised estimate of R23,08 million for 1995/96.
Health and Developmental Social Welfare
This Department's budget has been divided into two votes:
Health
An amount of R1,181 billion has been budgeted for Health, an increase of 10,4% on the revised estimate for 1995/96. This amount represents 17,1 % of the total budget.
In line with Government's policy, there is going to be a major shift in funds from urban to rural centres and from institution-based care to primary health care. This is an important step in making health care more accessible to the total population and a more equitable distribution of resources.
With the restructuring of departments, Media and Broadcasting has been made part of this department. Of significance is the reduction in the BBC's allocation from R139 million in 1994/95 to R50 million for 1996/97. A reduction of 178% over the two year period.
Developmental Social Welfare
An amount of R1,026 billion has been budgeted for Developmental Social Welfare, an increase of R146 million or 16,6% on the revised estimate of R879,91 million for 1995/96. The largest percentage of this amount will go towards social pensions. As already announced by the National Minister of Finance, there will be a 6% increase for pensioners. In order to enhance efficiency and eliminate fraud, the Department has put out a tender for the privatisation of pension payouts.
Provincial Service Commission
An amount of R36,76 million has been budgeted for the Office of the Provincial Service Commission, an increase of R4,95 million or 15,6% on the revised estimate of R31,81 million for 1995/96. An amount of R20 million has been set aside towards bursaries. We strongly believe that human resource development is key to enhance efficiency in the civil service.
Tourism and Environmental Affairs
The budget for this newly created department is R96,74 million. As this is a new department, it is not possible to make a comparison.
Tourism in itself has a potential to bring about job creation and buying power to the Province. With a well-structured tourism industry, I have no doubt that opportunities will even be available for the emerging entrepreneur.
Finance and Economic Affairs
An amount of R405,46 million has been budgeted for the Department of Finance and Economic Affairs. A very key programme of the department will be the development of Small, Micro and Medium Enterprises (SMME's). An amount of R20 million has been provided or 150% increase from last year's budgeted amount of R8 million. A concerted effort is needed to inculcate a spirit of entrepreneurship. SMME's are also one of our ~strategic thrusts towards job creation and economic empowerment of the disadvantaged sectors of our economy like women, the youth and rural communities.
Education, Sports, Arts and Culture
An amount of R2,330 billion has been budgeted for the Department of Education, Sports, Arts and Culture, an increase of R150 million or 6,9% on the revised estimate of R2,180 billion for 1995/96. This amount is 33,7% of the total budget.
Education is the major focus area of our human resource development strategy. Free education has already been introduced and, as you are aware, it needs to be sustained. We have committed ourselves to accelerate classroom building projects this financial year. All resources are deployed in a manner that will bring about equity in per capita spending throughout the Province.
Local Government and Housing
An amount of R456,53 million has been budgeted for the Department of Local Government and Housing, a decrease of R45,41 million or 9,1 % on the revised estimate of R501,94 million for 1995/96. The decrease is due to once off allocations made to this department in respect of local government elections (R36 million) and assistance to local government structures (R19 million). This amount represents 6,6% of the total budget. What is still outstanding is our allocation for housing from National Government.
Transport and Civil Aviation
An amount of R323,58 million has been budgeted for the Department of Transport and Civil Aviation, an increase of R62,24 million or 23,8% on the revised estimate of R261,34 million for 1995/96. One of the special projects of this department is the upgrading of Pilanesberg Airport to the tune of R15 million. We are convinced that this initiative will enhance our tourism capacity in that area.
Public Works and Roads
An amount of R672,92 million has been budgeted for the Department of Public Works and Roads, a decrease of R53,45 million or 7,4% on the revised estimate of R726,37 million for 1995/96. This decrease is due to the exclusion of the DBSA projects which have been fully implemented.
Agriculture
An amount of R274,26 million has been budgeted for the Department of Agriculture. Some components of Agriculture have been transferred to the new Department of Tourism and Environmental Affairs and a fair comparison can therefore not be made.
A very significant feature of the Department's budget is the amount of R66,2 million allocated for entrepreneurial development, i.e. an increase of 244% on last year's budgeted amount of R19,3 million. The importance of promoting our small farmers, especially from the previously disadvantaged sectors, cannot be over-emphasised.
Safety and Security
An amount of R5,86 million has been budgeted for Safety and Security. It is important to note that the relatively small allocation is due to the fact that the Police budget is still being administered at national level. This allocation only caters for the administration of the MEC's Office and Civilian Secretariat.
THE 1996/97 BUDGET IN PERSPECTIVE
Mr Speaker, it could be stated that South Africa has been afforded a golden opportunity to provide answers to complex problems which a Cost-Cold War world is saddled with. This will require that we deal with th~ root cause of our problems. We are fortunate that we can draw on the experience of successful developing countries.
The latter experience points to the importance of balancing human development with high levels of growth and a vital role for Government to play an enabling role in development.
The budget is not an event but a process. Some of the policy pronouncements, we are convinced, will have an immediate impact but others only in the medium and long term.
Our transition to democracy has captured the imagination of the international community. The political leadership demonstrated at all tiers of government thus far has been remarkable. The key is not to be distracted. Within a volatile and sometimes turbulent macro-economic environment it is important to exercise decisive leadership, i.e. the courage to do the right things. To translate our policies into tangible reality warrants a high degree of discipline.
Democratic processes and an effective institutional framework are critical for the achievement of growth and development but they are not sufficient as conditions for success. Institutional restructuring cannot take place in isolation from basic economic and business principles, however urgent we perceive our needs to be and how determined we are to show quick and dramatic results. If we ignore this fundamental point, we run serious risks.
The budget we are presenting to the people of the North West is consistent with our policy of sustainable development. Mr Speaker, I wish to express my sincere gratitude to the Honourable Premier. Colleagues in the Executive Council. Standing Committees on Finance and Public Accounts, the Director General and all Heads of Departments for your continued support in maintaining a high standard of financial discipline. A special word of thanks to the officials in the Department of Finance who under very difficult circumstances performed above themselves.
In conclusion, I wish to quote President Lyndon B Johnson who once said, "We must open the doors of opportunity. But we must also equip our people to walk through those doors."
Our political transformation opened doors of opportunities. The budget that we are presenting to the people of the North West Province is an instrument to equip them to unshackle themselves from the constraints of the past and walk into a new dimension of economic freedom.
It is my fervent desire that this budget framework will be digested with enthusiasm and implemented with courage.
I thank you Honourable Speaker.
Issued by: North West Communication Centre