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Budget Speech 1999/2000
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Speeches and Media Release
 Provincial Treasury, Economic Affairs, Environment & Tourism

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 EASTERN CAPE PROVINCIAL GOVERNMENT

MEC FOR FINANCE AND PROVINCIAL EXPENDITURE

BUDGET SPEECH FOR  THE YEARS 1999 - 2000

24 FEBRUARY 1999



1. Introduction

Mr Speaker,
 Honourable members and distinguished guests

It is a great honour for me to table before this House the fifth budget of the Province of the Eastern Cape. You will agree that this 
budget is significant in two ways:

1.  It is the last before the second democratic elections later this year and provides important indicators of our achievements to date.

2.  It comes at the end of a period of remarkable change in a hostile and challenging environment.

In presenting this budget it is not our intention to ignore our problems and pretend that the road has not been without a pothole or two.

You will recall that the previous budget was presented amidst serious financial and administrative problems. The Provincial Government had 
an overdraft of more than R1b. As a result we nearly failed to pay pensions in February 1998. In addition outstanding debt totalled over R2 
billion. We had to turn that around.

We approached the national Minister of Finance for support. We entered into negotiations, which culminated in an arrangement in terms of 
section 1998. In addition outstanding debt totalled over R2 billion.

We approached the national Minister of Finance for support. We entered into negotiations which culminated in an arrangement in terms of 
section 100(1)(a) of the Constitution. This arrangement resulted in a grant with certain conditionalities attached to it.

Some of the key conditionalities were :

1.  That we should remain within the allocations made in the Appropriation Act of the Province for 1998/99, as a province and as individual 
departments.

2.  An improvement in financial and cash flow management to ensure that the budget will be sustainable over the three years of the MTEF.

3.  To ensure that provincial departments honour their commitments, responsibilities and obligations.

4.  To rationalise the administrative structures of the finance components of departments.

5.  To establish efficient and effective budgetary practices

6.  To exercise sound financial practices including the timeous payment of legitimate claims, the enforcement of Treasury and Tender Board 
legislation

7.  To optimise the collection of own revenue and to improve own revenue by at least 10%

8.  To undertake a number of other administrative measures to save costs

By the end of December 1998 a further agreement was entered into between the provincial Government and the National Department of Finance. 
This agreement, which was also concluded with all other provinces, provided specific expenditure targets for the whole of this financial 
year as a precondition for receiving an additional grant of R177.4 million, principally for the repayment of debts.

In terms of this agreement the province has committed itself to remain within the figure for total expenditure as recommended in the 
Adjustments Budget. Achievement of this target requires the full support of departments to allow us to remain within the targets which were 
set in December 1998.

It is important to stress the obvious. These problems had to be confronted in a situation where the province was weighed down by massive 
backlogs in key areas of social need: education, health, infrastructure, water, sanitation and social pensions.

At this point it is important to re-emphasise the role of the budget in governance as a mechanism for accountability, management and 
control:

* As the first democratically elected provincial government we have a special responsibility to account to the electorate. The budget 
provides an opportunity to account for delivery in clear quantitative and financial terms. In this way it ensures transparency in the 
manner in which public funds are utilised.

* The budgetary process also allows for the tracking of income and expenditure and hence for effective management. It permits the strategic 
allocation of resources in areas of priority and need.

* The province has been hampered by corruption and misappropriation of scarce resources. Effective budgeting allows for the implementation 
of control systems and provides a basis for stamping out mismanagement, fraud and waste.

In presenting this budget we shall attempt to reflect on both the context within which we had to operate over the past few years and on our 
record of performance and delivery. In summary therefore, this budget is both a statement of achievement and of challenges in the most 
trying conditions.

2. The budget in a broader context

Budgeting is not just about facts and figures. It is a process informed by diverse social, economic and political factors and their 
interrelationship at a local, national and international level.

I will provide a brief overview of some of these factors.

International context

The provincial economy is integrally related to the national economy, and both exist in a challenging global economic environment. This is 
complicated on the one hand by greater volatility and a deepening crises in may economies. On the other hand there are however expanding 
opportunities for growth, technological innovation, export and job creation.

Since April 1998, deepening financial crises in Asian economies, a marked slowdown in global trade, and massive disinvestment from emerging 
markets, have shaken international confidence. The ripple effects of these disturbing events have had negative consequences for weaker 
economies such as those of Russia and Latin America.

National context

As an emerging economy South Africa has not escaped some of the growth-retarding effects of international fiscal volatility. We have seen 
the exchange rates of the Rand sharply depreciated, prime interest rates and home loan rates have escalated, consumer price inflation has 
crept upwards, export growth has slowed down and business confidence has been dented. Recent figures indicate minimal growth in the economy 
over the past year.

Nevertheless, the country’s underlying economic strengths and policy stability have allowed us to weather the storms of world financial 
crises better than most emerging economies.

Unfortunately these circumstances have resulted in a downward adjustment in expected economic growth over the next three years. Lower 
growth reduces government revenue and limits the resources available to the fiscus and the broader economy to meet some of the historic 
challenges we took on when we came into government. Inevitably the struggle to create more jobs, deliver adequate services to rural people, 
democratise all levels of government institutions and ensure thoroughgoing economic transformation will be more difficult.

As these points are all clearly put in Minister Manuel’s budget speech of last week, I will not repeat the details. It is however important 
to understand that provincial finances are not a mechanistic appendage of the national budget.

The challenge is how we use resources allocated to us in an effective manner and apply them creatively to serve the development needs of 
the Province.

Provincial Context

Sustainable economic growth and development is the most fundamental building block for socio-economic survival and represents a critical 
area in which a high priority must be accorded to building and strengthening the province’s economic base and providing access to 
opportunities for viable job creation.

The outcomes of Presidential Job Summit provide a wide range of general and specific mechanisms for strengthening the economic base of the 
province. These must be thoroughly reviewed and formulated into carefully designed plans and strategies to give effect to the spirit and 
intent of the Summit. The following aspects are relevant in this regard:

* New and innovative approaches to promoting viable small business enterprises that will generate job opportunities enterprises that will 
generate job opportunities, increase and re-distribute wealth, and add value to the provincial economy.

* Realisation of the significant potential for sustainable job creation in the province’s emerging tourism industry.

* Participation in the National Presidential Lead Project for mass housing delivery. The scope for construction and building materials 
related small business opportunities associated with this project in the province is substantial, particularly since preference will be 
accorded to housing projects in SDI areas.

* Job creation in the Integrated Provincial prototype projects, of which there are two in the Eastern Cape;viz.,

* The Wild Coast-Emonti Integrated provincial Project, which incorporate the Wild Coast SDI and extends to East London, and

* The Greater Algoa Bay Provincial Lead project, which extends to the wider hinterland of the grater Port Elizabeth-Uitenhage metropolitan 
area.

* Labour market policies and human resource development programmes to facilitate job creation.

* Industrial sector summits, involving direct participation by business, government and labour interests to facilitate the development of 
innovative industrial strategies designed to expand export-oriented output; and to create new jobs and save existing jobs. This approach 
involves the focused development of sector-specific industrial cluster initiatives, which are already well established in the Eastern Cape.

Special employment programmes to facilitate rapid job creation, particularly amongst the most vulnerable groups in the labour market. Many 
such programmes are already operational in the Eastern Cape, and include the following :

* The Consolidated Municipal Infastructure Program, consisting of grants to local authorities for bulk infrastructure works in low-income 
neighborhoods and housing projects,

* The Community Based Public Works programme, which is mainly focused on rural road maintenance and other local infrastructure needs,

* The Working for Water Initiative, which clears alien vegetation in water catchement area,

* The Rural Water and Sanitation programme, bringing water services to previously un-serviced communities, particularly in rural areas,

* The Housing Subsidy programme, consisting of standard capital subsidies for low-income housing development projects in rural and urban 
areas, and

* Support for a range of social development and income-generating projects by non-governmental organisations.

The two Industrial Development Zones in the province are poised for final establishment during 1999. These will provide vitally important 
opportunities for industrial investment and associated job creation in the Eastern Cape.

The Coega IDZ will go ahead, despite setbacks associated with the uncertainty about the zinc refinery; and the development plans for the 
East London IDZ are being turned into reality.

Arrangements for the further development of the Wild Coast and Fish River Spatial Development Initiatives (SDIs) are well advanced and will 
result in agreements for significant tourism-related investments during 1999. These will bring major opportunities, not only for new 
tourist facilities, but also for small business entrepreneurs to enter into a field from which they have previously been excluded.

Strategies for Local Economic Development initiatives have begun to take shape throughout the province and these constitute the basis for 
economic empowerment at the local level, particularly in small towns and rural areas where the incidence of poverty and unemployment have 
taken a heavy toll on people’s lives.

Further development in investment-promoting infrastructure is equally important, particularly in the SDI and IDZ areas. Bulk water 
supplies, reliable electricity and telecommunication services are essential factors in attracting investment, as are investments in roads, 
railways, harbours and airports. We are beginning to develop appropriate institutions and strategic capacity to support and drive these 
processes.

Several Industrial Cluster initiatives have been established in the province. Such initiatives are designed to improve productivity, 
competitiveness and job creation through constructive collaboration amongst industrial enterprises and workers in a specific sector.

The Fish River motor and Components industry Cluster is the most advanced, in this respect. Other initiatives have been launched in the 
wool and mohair, the timber and wood products, the arts and crafts, tourism and food processing industries.

We believe that the climate of socio-political stability in the Eastern Cape is conducive to economic growth and new investment in 
industrial activity, tourism and small business development. We must continue to sustain this environment by stamping out crime.

We are sure this budget will reinforce the advances made and pave the way for further gains in the social and economic fields.

3. Review of recent performance

It is appropriate at this point to highlight some of the achievements of this provincial government. I will focus on two critical issues:

* Improving financial efficiency

* An improved delivery track record

Improving financial efficiency

To remedy financial management problems already highlighted the following measures were successfully implemented:

* An Early Warning System to prevent expenditure over-runs will allow us to remain within the targets agreed upon with the national 
Minister of Finance.

* Debt verification established total debt of R2.2 billion of which we are ready to pay off R1.5 billion from the 1998/99 budget. This will 
leave a balance of R631 million to be repaid over the next few years. This represents a dramatic turnaround in the financial position of 
the provincial government. The forensic audit process saved government R214 million in debts which were proven either to have been paid or 
were being double counted.

* Centralisation of financial administration included :

* Implementation of the Financial Management System (FMS) with effect from 1 April 1998. This enables Treasury to quickly obtain a complete 
financial position of the administration. This was not possible in the past.

* Pre-Auditing has been introduced whereby all payments must first be submitted to Treasury, either at head office or at one of the five 
regional offices. The pre-audit section examines each transaction to determine that there are funds available; that the transaction has 
been properly authorised by a person formally delegated to give the authority; that it complies with Treasury Instructions, Tender Board 
and other financial regulations; and that payments in terms of contracts are authentic. This process has resulted in many transactions 
being rejected because of irregularities. Departments are now becoming much more accurate and correct in their submissions. This is 
speeding up the processing of payments.

* Major reduction in the handling of cheques has reduced fraud. Whereas there were 19,000 cheque payments to staff in July 1998, there were 
only 1,200 in November 1998 of which many were unclaimed. From July 1998 until January 1999 the value of unclaimed salary cheques was R4.2 
million. The Department is currently investigating the reasons for this and what happened to unclaimed cheques before July. All unclaimed 
cheques have now been frozen and will not issued again.

* Use of electronic payments has greatly reduced fraud and the number of cheques being issued. Consolidated payments are also used so that 
a creditor receives only one payment per week for all the moneys due.

* An electronic provisioning administration system will be implemented.

This will involve the establishment of centralised stores and ensure that Treasury instructions are properly adhered to. Wastage will be 
significantly reduced. The Logis computer system, a national government-supported system for stores administration, is to be introduced.

* A Forensic Investigation Unit is being established.

The Unit will work closely with the South African Police Service Commercial Branch to curb white-collar crime.

* Budgeting and expenditure control systems have been improved. Budgets are prepared on an activity basis and regular meetings are held at 
which the expenditure of departments is discussed. This ensures that departments manage their budgets better.

* A system for the recovery of costs on the use of motor vehicles allows for the accurate charging of the running costs of vehicles to 
appropriate cost centres.

The above prove our commitment to turn around the situation which was facing the province a year ago. We acknowledge that these measures 
might have caused some initial discomfort or even problems but we want to assure the public and those who do business with the provincial 
government that these measures were taken in our mutual interest.

Delivery track record

This province’s delivery record is often called into question on the basis of isolated incidents. In his speech when opening the 
Legislature this month, the Premier highlighted enormous progress in social delivery. Different MECs will continue to prove cynics wrong in 
the next few weeks when their policy speeches show concrete evidence of delivery achievements. While certain areas of delivery undoubtedly 
remain problematic, there is little doubt that our government has succeeded in making significant improvements in both the quality and 
quantity of service delivery in key areas such as welfare, health and housing.

Despite massive expenditure in an area such as Welfare, we have managed to improve efficiency and root out corruption with substantial cost 
savings. We have for example identified 2 255 fraud cases. These are currently under investigation. Substantial cost savings have also been 
made by eliminating the use of cheques for benefit payments.

In the health Department services have been extended to neglected areas. In the first three years of our government we managed to build or 
replace 96 clinics and renovate around 100 hospitals improving access and quality of services for nearly one million people.

The Provincial Housing Board has to date approved 159 capital housing projects representing 80 868 housing units. The total number of 
houses built and under construction as at the end of December 1998 was 85 296.

We would like to emphasise that as we enter the new financial year, the challenge of all those involved in the implementation of government 
programmes is to ensure that the scope of service delivery continues to widen, the quality of services continues to improve and that 
delivery retains a people-centred orientation.

4. Budgeting framework

The 1999/2000 Provincial Budget is the second budget in the current cycle of the Medium-Term Expenditure Framework (MTEF) and is formulated 
in the context of the national Medium-Term Budget Policy.

The national budget policy sets out the equitable division of nationally-raised revenue between the three spheres of government specified 
in the Constitution.

The equitable distribution of the unconditional grant to Provinces in the 1999 budget is based on a number of refinements to the allocation 
formula specified by the Financial and Fiscal Commission. These are linked to the status of social and economic development in the 
Provinces, and stem from comprehensive reviews of progress and performance in the 1998 MTEF specifications.

The formula will be updated each year in the light of new and better data. Formula refinements are however expected to become less frequent 
over time as a result of a growing understanding of how to measure the service needs of the provinces.

Based on the spending function reviews and extensive consultations, the equitable share formula for 1999 consists of the following 
components:-

* An education share, which takes account of the size of the school-age population (6-17 age group) and the actual enrolment in public 
schools. In this instance, school-age children are accorded twice the weight of pupils enrolled, reflecting the intention to reduce under-
age and over-age enrolment in schools.

* A health share, which favours people without medical aid or health insurance because they use public health facilities more frequently.

* A social security/welfare component, derived from the total grant-eligible population (elderly, disabled, and children) and a poverty 
index determined from the 1995 Household Income and Expenditure Survey.

* A basic component, which reflects the distribution of population amongst the nine provinces, with equal weights accorded to urban and 
rural population.

* A backlog component based on the distribution of capital needs indicated in the Schools Register of Needs and the Audit of Hospital 
Facilities. This is supplemented by the distribution of rural population amongst the provinces, which serves as an indicator of overall 
need, based on the assumption that backlogs are more severe in rural areas. This is a new component introduced in response to 
representations by several provinces and national government departments.

* An economic output share based on the inter-provincial distribution of total employee remuneration, measured as a composite of 
remuneration paid in the first and second quarters of 1998 and for the whole year in 1997.

* An institutional component, which is equally distributed amongst the provinces, reflecting an equality of need for institutional 
capacity.

The application of these formula components yields each province’s equitable share of revenue, as is indicated in Table 1 at the back of 
this document.

* Budget Overview

Our provincial budget forms an integral part of the national economy and the national budget. The national budget imposes three key 
imperatives:

* The need for increased and more effective social spending

* Fiscal and financial discipline

* A sound macro-economic framework.

As will be illustrated today, these imperatives also inform the provincial budget.

Income

The available budget of the province amounts to R15 946 197 074 for 1999/2000.

This includes:

* The equitable share

The amount of the equitable share of R14 819 395 999 includes carry through costs of Improved Condition of Service (ICS) for 1999/2000. The 
Eastern Cape’s equitable share of the available funds. Over a five-year period the target shares are to be phased in. This means that our 
share will decrease by one percentage point. (see table 3 in the annexure.) Although these figures show a small award trend in nominal 
terms, the 1999/2000 allocation is 1.4 % less in real terms, than 1998/99, while the following two years reflect a situation of no real 
growth.

Mr Speaker, what we are presenting in money terms are estimates for the next three years as shown in the tables.

* Conditional grants

* Housing and Local Government will receive R70 million to fund personnel cost in R293 townships. They will also receive R7 458 000 to 
subsidise the land development objective processes in poor rural areas.

* The Department of Education will receive R20 235 000 to support financial management and quality enhancing initiatives in school 
education.

* The Department of Health will receive R50 310 000 000 to support health professional training and research. This department will also 
receive R63 900 000 to fund the construction and development of the Umtata regional hospital. In addition the Department receives R125 561 
000 to fund primary school nutrition programmes.

* Finance supplementary allocations

In addition to the above the Province will receive a supplementary allocation of R444 951 000. This allocation is dependent on proper 
budgetary and financial management controls by the Province.

* Revenue from the Province

In terms of the new concept of revenue retention, departments collecting more than the targets allocated to them will be entitled to retain 
a large portion of the surplus. If a department collects less than the target, its expenditure budget will be reduced proportionally.

There has been a disturbing decline in provincial revenue from R308m in 1997/98 to R251m in 1998/99. To remedy this situation we have taken 
two important steps:

* We have appointed specialists to undertake an investigation on the improvement of revenue collection

* We are having discussion with the South African Revenue Services to assist with collection of revenue on our behalf.

There is also the matter of the levying of provincial taxes which will depend on the outcome of an investigation currently being conducted 
by the Katz Commission.

We hope to raise R344 086 073 in own revenue this year.

For detailed expenditure I refer you to the tables attached to this budget.

Additional factors worth noting;

Allocation to departments

* You will note that as in the past, the bulk of the budget continues to be allocated to education, health and social security. The 
combined budget for these departments constitute 85% of the total provincial budget. This reflects the particularly deprived nature of the 
province and social backlogs that persist.

* The second point that we want to emphasise is that personnel expenditure remains at 58% of our budget. This is unchanged from last year 
and compares unfavorably with the national average. We are not deaf to calls for the trimming of the public sector, we believe that at the 
core of public sector, we believe that at the core of public sector transformation is the enhancement of capacity, expertise and 
effectiveness. Reduction of personnel in the public sector should be seen as an integral part of maximising efficiency rather than as an 
end in itself. We therefore hope to focus as well on re-skilling of existing staff and mechanisms to improve inter-governmental co-
operation, planning and co-ordination. Our provincial public sector transformation programme will be undertaken in accordance with national 
bargaining chamber agreements. We do not envisage any significant increase in personnel. Critical posts will be approved at the discretion 
of the Premier.

* Another area I would like to emphasise is how we prioritise infrastructure developnment. We must concede there have been problems in this 
area in the past yer particularly around the upkeep and construction of roads. We are doing a number of things to address this:

* R59 million has been allocated to District Councils through the Poverty Relief Fund. 50% of this is for roads.

* We are also continuing our discussions to secure similar funding for this financial year.

* In addition to the money allocated to public Works, government will also make R70 million available which will be administered by local 
government for improvement of roads.

* The combination of the strategic use of the available resources reflected in this budget with a continued focus on the key initiatives 
currently being driven in the province (SDIs, IDZs Local Economic Development etc.) will provide a conducive climate for revitalisation of 
the provincial economy and the attraction of strategic investments. This would involve giving impetus to key strategic industries as well 
as enhancing the vibrancy of the agricultural sector.

6. The challenges we face

A number of lessons have emerged on the road we have travelled so far. It is only logical that we incorporate them in charting the way 
forward. Informed by these lessons the focus in the coming period should be on:

* Effective and efficient government

Experience shows that fragmentation, poor administrative systems, lack of focus and failure to prioritise, have a negative impact on the 
effectiveness of government. Our emphasis in the coming period should be on efforts to improve co-ordination and synergy within the 
provincial government as well as between the province and other tiers of government. In addressing these, the capacity of district councils 
and local government will have to be prioritised. We must build a network of delivery agents to tap into strengths and capacities in all 
sectors: civil society, the non-governmental organisation (NGO) sector, business and labour. We must give content to inter-governmental co-
operation in planning and implementation of programmes. All these efforts should be underpinned by a drive to place people and communities 
at the centre of government programmes.

* Fighting poverty and addressing backlogs

In the coming period we must consolidate efforts to address rural under-development, poverty, unemployment and backlogs that continue to 
characterise this Province. The policy and planning framework to address this has been established. We need to shift resources to hasten 
implementation of these programmes and ensure rapid and visible delivery.

7.  Conclusion
In conclusion I would like to thank all those who have supported me in supported me in preparing for this Budget:

* The Premier and all my cabinet colleagues for their co-operation, understanding and support

* The national Ministry of Finance for maintaining strong and effective links with this Province

* The Standing Committee for Finance and members of the Legislature for diligently playing their oversight function.

* The management and staff of my department for their commitment to the team

* Finally to each one of you in this Chamber for your continued interest in the financial affairs of this Province.

Mr Speaker, we face enormous challenges in this Province. As government we appreciate and understand that we have a critical and central 
role in meeting these challenges and transforming the Eastern Cape. I would however like to stress only a collaborative effort involving 
all stakeholders –business, labour, media, civil society – can carry us successfully to the desired future.

Unless there is commitment to wo4k towards one collective goal, efforts to transform the Province into the kind of society we all envisage 
will continued to be thwarted and we will not be able to meet the challenges we have set for ourselves. We must send out one, consistent 
message : We have the will, the courage and the potential to build a better future in this Province. Let’s do it now.



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SCHEDULE

(AS A CHARGE TO THE REVENUE ACCOUNT)

VOTE NO.         TITLE   AMOUNT

R 000
1.       OFFICE OF THE PREMIER   93 454
2.       PROVINCIAL LEGISLATURE  47 512
3.       HEALTH  2 995 662
4.       WELFARE         3 808 205
5.       PUBLIC WORKS    567 575
6.       EDUCATION       6 763 455
7.       HOUSING AND LOCAL GOVERNMENT    288 364
8.       AGRICULTURE AND LAND AFFAIRS    393 569
9.       ECONOMIC AFFAIRS, ENVIRONMENT AND TOURISM       136 426
10.      TRANSPORT       195 063
11.      CORPORATE SERVICES
12.      FINANCE AND PROVINCIAL EXPENDITURE      489 769
13.      SPORT, ARTS AND CULTURE         162 689
14.      SAFETY AND SECURITY     4 455

TOTAL    15 946 198


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