Issued by: Department of Finance and Economic Affairs
25 May 2000
Honourable Speaker,
The Premier,
Members of the Legislature,
Colleagues in the Executive Council,
Ladies and gentlemen,
It is with pride that I address you today.
The 1999/2000 financial year will be noted with a lot of satisfaction by the department of Finance and Economic Affairs. The successes of 1999/2000 have laid the basis for a strong foundation for innovation and creativity. We have reshaped the department and are in the throes of reinventing government, efforts that are likely to lead the drive for a new look public sector in the new millennium.
KEY SUCCESSES
The 1999/2000 financial year has indeed turned out to be a milestone year for us. We have achieved a surplus position as planned. The final surplus is anticipated to be in the region of R584 million. We are pleased to announce that all departments, including the department of Health have come in within budget. A tremendous achievement. Own revenue collections have also come in on budget. This adherence to fiscal discipline has created the room for Gauteng to invest resources in exciting projects that have the potential to reshape Gauteng, such as the Strategic Economic Infrastructure Investment Programme (SEIIP) and the shared services centre.
Mr Premier, when you announced at the NCOP that Gauteng will wipe out its overdraft by the end of March 2000, we were concerned that it was a tall task. Well, we have not let you down. Each department, together with Treasury has rallied to ensure that your promise was fulfilled. The net closing balance of the Gauteng bank accounts at the Standard Bank as at 31 March 2000 was a positive R94 million. No overdraft, as you had undertaken.
Again, a truly remarkable achievement. We are currently active in the money market on a weekly basis; such is the strength of our cash position.
Turning then to the current year:
AN OVERVIEW OF THE GAUTENG ECONOMY
1999 was a year of economic recuperation for the Gauteng economy, following the interest rate shock and economic downturn in the aftermath of the emerging markets crisis in late 1998. Although initial projections predicted recession, or at best a stagnant economic situation, strong recovery on the back of lower interest rates, improved commodity prices and recovering demand in the East resulted in moderate growth for 1999. The latest figures show that the South African economy grew at 1.2% over 1999.
Gauteng's diversified economy is projected to have grown at 1.6% over the same period, slightly higher than the national rate.
Recently revised projections for future growth show that prospects for the future look healthy, with a strong recovery predicted for the next three years as the South African economy is expected to grow at an average annual rate of 3.6%, up from previous estimates of 3.4%. Due to the stronger representation of certain sectors Gauteng's economy is likely to outstrip the projected national growth rate for 2000, with initial estimates showing a growth rate of 3.9%. Although consumption spending was hard hit by the dramatic increase in the cost of credit in late 1998, the equally dramatic fall in interest rates over 1999 allowed sectors such as retail in Gauteng to bounce back. Initial estimates show retail grew by 3.5% over 1999, and signs of real appreciation in the previously depressed property market.
Other national developments which bode well for future growth in Gauteng are the substantial reduction of income tax by R9.9bn this financial year (with Gauteng capturing over half of South Africa's disposable income), and the tax exemption of 15% on income under R100 000 granted to SMEs.
The impressive domestic recovery, and the consequent benefits for Gauteng is the result of strong economic fundamentals in South Africa, underpinned by favourable developments in a number of macro-economic factors. A strong global recovery has boosted export revenue, easing pressure off the current account. Following the completion of a number of major Parastatals projects in 1998, Gross Fixed Capital Formation slowed down in 1999, contracting by 6.1%. Similar trends were discernible in Gauteng, where new capital investment is predicted to have contracted by 5.9% in 1999. South Africa's Gross Fixed Capital Formation will accelerate from 2000 onwards, and is expected to grow at 3% for 2000, rising to 6.0% and 3.1% in 2001 and 2002 respectively. In similar vain, capital investment is projected to grow robustly in Gauteng, with the Gauteng Province also boosting investment through the formation of the Strategic Economic Infrastructure Investment Fund (SEIIP), which will inject R1.2bn via SDI projects into the regional economy over the next three years.
Whilst high oil prices remain a worrying inflationary factor, particularly when combined with a currently weak Rand, the general consensus is that price levels above $25 a barrel will not be sustained in the medium to long term, and hence ease pressures off the CPI-X, which stood at 7.4% for 1999, and is predicted to lower to 6.9% in 2000. The weakness of the Rand is also not expected to continue into the medium term, with analysts stating that it is already undervalued by 10% to 15%.
Although Gauteng's unemployment rate is markedly lower, at 28.3%, than the national rate of 33.9% (as measured by the 1996 census), joblessness continues to pose a serious problem. Whilst a robust services sector in Gauteng has resulted in a lower unemployment rate, job losses in well represented sectors such as manufacturing remains a serious concern. With inflation figures edging downwards, substantial export growth, and growing consumer confidence due to higher disposable income, prospects for the Gauteng economy in 2000 are favourable.
THE DEPARTMENT OF FINANCE AND ECONOMIC AFFAIRS BUDGET
The department has embarked on a radical rethink of its mandate and responsibilities that has culminated in a total restructuring. The principle that has underpinned the restructuring has been the focus of policy versus implementation. The department sees itself largely as a policy department with implementation best suited to agencies. We believe strongly that the departments' strength lies in its policy-making abilities.
Implementation requires different skills and capacities and rather attempt to combine these capacities, it was felt that highly focused, well-mandated, lean agencies are best placed to carry out implementation responsibilities.
Thus a dual model has been followed. Implementation occurs through the agencies of the department, namely the Gauteng Tourism Authority (GTA), the Gauteng Economic Development Agency (GEDA), the Gauteng Gambling Board, the Liquor Board, the Consumer Court and the Shared Services Centre. The policy and regulation function, on the other hand, rests within the Department. In this manner both implementation and accountability are enhanced.
Economic Affairs The restructuring process has resulted in the Economic Affairs Chief Directorate being streamlined into two distinct units: a Consumer Affairs / Business Regulation (housing the newly formed Consumer Court), and Liquor Affairs, and a Policy and Research Unit. The Liquor Affairs section will be run as a trading account in future. In essence the department will focus on its core competency of regulation, monitoring and the formulation of policy, whilst the agencies will act as delivery points.
Given that SMEs internationally have proved to foster both economic and job growth, a proposal for a new approach to SME support is being developed, and a position paper has been tabled to DTI. We believe that Gauteng can play an important role in developing this important sector of the economy.
The department recognises that tourism is a critical component of the growth trajectory envisaged for the province and indeed the country, and hence GTA has been allocated an special grant of R25 million this financial year - R10 million is earmarked for increased marketing initiatives and R15 million on tourism development. Tourism development will include the implementation of the Gauteng Tourism Act. GEDA has continued to hone its mandate, and a number of interesting projects are underway. The GEDA film office, targeting the film production sector, should be functional in the third quarter of 2000. Three missions are planned for 2000, namely Israel, a successful mission from which I have just returned, the UK and Vienna and California. Missions have proved important in generating investment leads for the province. More generally, GEDA continues to improve its Web presence, having recently upgraded the site with a 'Global Directory', and improving its networks in the private, public and international sectors.
The licensing of temporary casinos in Gauteng has boosted the coffers of the Province. The Gambling Board collects some R3,5 million in gambling taxes each week with each of the five casinos proving to be quite successful.
Horse racing has welcomed the reduction of taxes imposed by the province and has made meaningful strides in its efforts to corporatise. The consolidation of the industry into a corporate entity has boosted it and progress has been made towards a listing.
Last but not least, as part of the smart province framework GauTech, a venture capital company created and mandated by the department in terms of a public private partnership to provide finance and business support to start up IT companies, has been launched. To date GauTech has invested R13million in 4 start up companies and created over 40 new high tech jobs. Export opportunities for one of the companies is already in process only 6 months after inception. An average of 15 projects a month are being screened.
A second project that has begun operation is GauTech Venture Catalysts -an angel network and advisory service for start up IT companies which are too young to acquire venture capital finance. This initiative has been undertaken in collaboration with GauTech and Letsema Consulting. The company began operation on 1 May 2000 and already has two clients.
The Gauteng SDI and the Strategic Economic Infrastructure Investment Programme Earlier this year in the Gauteng Budget Speech, a set of 10 SDI initiatives, aimed to promote Gauteng's economic policy focus, were launched. The Gauteng SDI covers three strategic areas in the regional economy: The need to increase transport efficiencies for both business and commuters, the identification of tourism and cultural heritage, and in Gauteng's case, business tourism, as a strong booster of both economic and employment growth, and the targeting of a number of high tech, high value added industrial projects in order to propel the province into the information age. The Gauteng Provincial Government has set aside R1.2bn, extracted from the surplus generated by prudent fiscal management, over the next three years to invest in the Gauteng SDI. In order to manage these funds, we have created the Strategic Economic Infrastructure Investment Programme (SEIIP) as a special programme with a separate accounting officer within the Department.
The SEIIP began its work on 1 April 2000, with an allocation of R200m for the financial year 2000/01. The managing director of the SEIIP, Lumkile Mondi, has already been appointed, and interviews have taken place for the other positions. The SEIIP has already begun playing a proactive role in managing the Gauteng SDI, and will be fully capacitated by end June 2000.
The horizon of the Gauteng province's economic vision, as implemented by the SDI and funded by the SEIIP, is a medium to long term one, and we do not profess to transform Gauteng's economy overnight. The value of the Gauteng SDI lies in the impact on the growth trajectory of the province, and the large-scale creation of highly skilled labour in the long run. We do not intend to do away with low skilled, low income jobs, but rather to create a much bigger pool of, and greater demand for, skilled, highly paid workmen and women. In launching the Gauteng SDI, and enabling its implementation through the SEIIP and the R1.2bn allocation, we show that we are serious about making Gauteng a world competitive, smart province that caters to its people's needs.
Treasury Treasury is focussing its energy on consolidating the reforms introduced over the last few years and building on the initiatives already underway.
We are weary of reform fatigue and trying to do much all at once. The implementation of the Public Finance Management Act is enough to keep us busy for a few years. Realignment of our financial systems to meet the demands of the PFMA reporting requirements is underway. The first deadline for monthly reporting was met. Gauteng has made substantial progress in compiling a new chart of accounts such that it reflects the new GFS budget classifications of revenue and expenditure. The introduction of BAS, a new general ledger system developed by State Expenditure is underway with the department of Finance and Economic Affairs coming on-line on 1 July 2000.
Cash management is another area receiving attention. Last year interest income was R17 million. This year we are targeting R50 million by prudently investing in the money market. Rather than just talking about it, we are happy to report that we have already earned an additional R1 million in the first 3 weeks of our operations.
Our budget management strategy has shifted from one of expenditure control to a focus on quality of spending. The deepening of the budget process and the introduction of output based budgeting will be enhanced. A great deal of focus will be placed on improving output data and information to enrich budget making and performance monitoring. To deviate slightly, Treasury acknowledges the concern raised in the Standing Committees' report that there are inaccuracies in some of the percentages contained in the budget statement 2. Treasury notes these concerns and has begun to put in place measures to ensure that these do not occur in future.
Shared Services Centre The Shared Services Centre project is truly seen as placing Gauteng at the forefront of reinventing Government. We have had enquiries from Australia and New Zealand on our initiatives. Something to be proud of.
The 50 strong project team is in place and has just completed an intensive 2-week training programme. Work on the due diligence phase of the project will commence on 1 June 2000. The objectives of the due diligence investigations will be to identify the baseline information of activities and processes and the costs associated. We need to know what we are currently doing and how much it is costing us so that when the SSC begins operations we will have comparative data to benchmark performance. The exercise will also form the basis for the decision on what moves to the SSC and what activities remain within departments. Thereafter, design of processes and the entity will be completed.
There is a great deal of excitement and interest generated by the project and quite a few of our sister provinces are engaging with us on the concept.
CONCLUSION
I have been blessed in leading a department that has never stood still over the past six years. We have continued to grow and evolve into a formidable entity. The department of Finance and Economic Affairs has been at the forefront of substantial reform in the public sector and is planning to stay ahead of the pack. Treasury has spearheaded some of the most fundamental reforms in financial management in the public sector over the last five years. Our achievements in Gambling and the Consumer Court are the envy of all provinces. Closing our books each year is a priority and we have not missed the deadlines.
The SEIIP and SSC are major initiatives that demonstrate our innovative approach to public sector reform. WE will continue in our endeavours to ensure value for money in the provision of services.
For more information contact Phetole Kubjane at (011) 355 8481/082 564 7787