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Provincial Budget Speech 2000/01
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Speeches and Media Release
 Provincial Treasury, Economic Affairs, Environment & Tourism

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EASTERN CAPE PROVINCIAL GOVERNMENT

PROVINCIAL BUDGET 2000/01

BUDGET SPEECH

BY MEC FOR FINANCE AND PROVINCIAL EXPENDITURE E. GODONGWANA

2 MARCH 2000


"I have so often maintained in this House that I am almost ashamed to repeat it, but unfortunately it is not a principle which has yet 
entered into public opinion  expenditure depends on policy"

Disraeli to UK House of Commons in 1862, Quoted in Heclo, 1981

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INTRODUCTION

Honourable Speaker and the Premier
 Distinguished members of our Provincial Legislature
 Invited guests
 Ladies and Gentlemen

Mr. Speaker, Sir, may I be bold and open my speech by making an assertion that all honest, keen observers of the performance of both 
National and Provincial spheres of government in South Africa will not fail to notice the tremendous vision, collaboration and positive 
progress made from 1994 to date. Notwithstanding the twin apartheid legacy of mass poverty and underdevelopment, on the one hand; and a 
dysfunctional state machinery characterised by corruption, inefficiency, gross misadministration and poor financial management, on the 
other, the Eastern Cape is perhaps the best illustration of these positive changes taking place in the new democratic South Africa.

We are the first to admit that the road we have travelled so far has been rough and tough. We are also aware that many more challenges and 
hardships lie ahead. But the resilience of our people, born out of more than three centuries of struggle, and their determination to forge 
ahead, buttressed by our clear vision, financial discipline and focused programmes, will see us through.

Once more, Comrade Speaker, this Budget we present today is a further testimony of our commitment to advance the socio-economic 
transformation agenda that was overwhelmingly endorsed in the 1999 election by the people of South Africa and in particular the people of 
the Eastern Cape.

This budget is, in our view, a fitting continuation of the budgetary and financial goals we set for ourselves in the 1998/99 and 1999/2000 
financial years. For this reason it is therefore fitting that we quickly remind ourselves both about the socio-economic environmental 
conditions and the targets we set ourselves in both the previous financial years.

We began the 1998/99 financial year with severe financial and administrative problems, characterised by an overdraft of R1 billion and a 
deficit totalling over R2 billion.

Consequently, we entered the 1998/99 financial year with an agreement with National Government under Section 100(1)(a) of the Constitution, 
and all the attendant conditionalities.

This difficult situation meant that we entered the 1998/99 financial year with a dual challenge:

* To eliminate the bank overdraft, reduce the crippling deficit, and begin to put in place tight cost reduction measures, thereby improving 
financial management systems and capabilities.
* Enhancing service delivery and promoting socio-economic development through targeted expenditure.

Despite the temporary setback caused by the payment of rank promotions during 1999/2000, we were able to remain on the course that we set 
for ourselves.

The 2000/01 Budget is, therefore, firstly a recommitment to and consolidation of the above approach; and secondly, a greater shift in 
emphasis towards the prioritisation of targeted expenditure.

What Then Is The socio-economic Context That Continues To Inform Our Budgetary And Financial Management Processes In The Eastern Cape 
Province?

We have gone a long way towards ensuring that this budget becomes a concrete expression and reflection of the prevailing socio-economic 
conditions in the Eastern Cape. We were mindful of the fact that, in the final analysis, a budget is a potent instrument for impacting on 
these socio-economic conditions, and is therefore able to propel the transformation programme.

A brief reflection on the socio-economic environment is therefore a logical point of departure. South Africa entered the transition period 
with an economy that was already crisis-ridden. The following features characterised our situation:

* Poor GDP growth rate, which had already dropped from the 6% average of the &#145;60s to 1.8% in the &#145;80s; and finally plummeted into 
a negative range of 1.1% in the early &#145;90s;
* Declining rates of gross fixed investment and high capital outflows;
* Low rates of private investments which led to under-utilisation of manufacturing plant capacity;
* High unemployment and the economys inability to create new jobs to absorb even a fraction of new entries (which is currently between 400 
000 and 600 000 per annum);
* Balance of payment problems.
All these features were indicative of the ongoing breakdown of the apartheid economy, which rested on primary products, particularly gold, 
and inward industrialisation.

Within a relatively short space of time South Africas economy has undergone fundamental changes and the following positive results are 
already being felt:

* Integration into the world economy, characterised by the liberalisation of exchange controls and improved foreign direct investments in 
major sectors of our economy;
* Inflation and interest rates are going down;
* The balance of payments is improving;
* Prudent fiscal policy and management is in place; and
* The budget deficit has been brought under control.
The overall result and effect of these positive changes is that South Africa has become more attractive for both foreign and local 
investment, therefore creating a favourable basis for generating sustainable jobs.

Comrade Speaker, Honourable Members and Invited Guests, this budget, whilst it has been largely informed by the environment that we have 
sketched above, is predominantly a statement of our analysis of the prevailing conditions in the province. We will briefly outline some of 
the key features of our provincial situation:

* There are glaring demographic realities, namely:

* The high rural population  6 out of every 10 people in the Eastern Cape live in rural areas;
* The high number of youth (5 to 24 years)  3 out of every 10 people are still in school;
* A large proportion of our people are elderly;
* The high unemployment rate  8 out every 10 people are not in permanent formal employment;
* The majority of the unemployed continue to be women.

* The Legacy of Uneven Development in certain areas;
* The province continues to be characterised by infrastructure backlogs; in respect of the roads, telecommunications, electricity, water, 
housing, etc.
But What Then Has Been Our Achievement Over the past two financial years?

My focus here is merely going to be on the performance of the Department of Finance. But before doing so, it is perhaps necessary to state 
that, despite the limitations of previous budgets, the Province of the Eastern Cape has made tremendous strides in improving the quality 
and scope of service delivery. In key areas of basic needs: like education, health and welfare, we already have a solid track record of 
confronting challenges and focused delivery. The various MECs will provide details of our achievements in the area of social delivery.

Let me now focus on the achievements of the Department of Finance. At the beginning of the 1998/99 financial year, we announced the 
introduction of the following measures as part of our drive to arrest the overdraft, to manage the budget deficit, and to improve 
efficiency within our financial systems:

* An Early Warning System;

* The Early Warning System consists of a financial management report that indicates the status of expenditure against budget at particular 
times of the year, and is intended to provide a signal to Accounting Officers regarding their performance;
* A revised format of the Early Warning System, which is in line with the requirements of the Public Finance Management Act, has been 
introduced.

* Debt Verification

* Since 1998/99, the province verified debts using the services of an accounting firm. During 1998/99, the total verified debts were R2.2 
billion. Over the last two years, the province was able to repay over R2, 5 billion of debt, including some new debts, which were 
identified. By the end of 1999/2000 the remaining debt outstanding will be only R480 million.

* Centralisation of financial administration; which included:

* Implementation of the Financial Management System (FMS);
* Pre-Auditing

* These procedures have allowed us to gain control over expenditure, and have introduced higher levels of efficiency by eliminating the 
coding anomalies which caused confusion through transaction allocation errors;
* Personnel have been exposed to a comprehensive training programme in the Pre-Audit offices.

* Use of electronic payments

* The theft and loss of cheques is no longer a problem - as it was two years ago. This is due to the fact that very few cheques are now 
being issued to creditors, and nearly all staff members are now paid by electronic transfer.

* Forensic Investigation Unit

* Since the Unit was established in June 1999, a tangible benefit has been that the Unit initiated the arrest of 16 government officials in 
5 major fraud cases, totalling an amount of R15.7 million;
* Almost 43,000 cases of cheque fraud, predominantly from the payment of social welfare pensions, totalling an amount of R25 million, and 
which occurred over the last two to three years, were detected. This resulted in the prevention of further losses to government of about R9 
million per month.
* So far, close to R2 million of losses to government due to fraud, has been recovered; and the recovery of a further R5.6 million is in 
the process of being effected.

* Reforming the Budget Process

* Another important achievement was in the area of reforming the budget process. We have transformed the budget process from being merely a 
technical and bureaucratic exercise, into a tool for service delivery. The key feature of the new budget process is that it ensures 
political involvement by all those directly affected by the process. Its focus is not only on the allocation of resources, but also 
includes the aspects of monitoring and evaluation as important aspects of the budget process. The critical elements of the budget process 
include

* Enhanced political control over government priorities;

* Broadened participation in the budget formulation process;

* Greater understanding of cost drivers; and

* Output-oriented expenditure.

We are happy to announce that, overall, these measures are in place and functioning. Their positive impact is beginning to be felt in the 
improved financial performance of the provincial government. However, we are also conscious that we have not yet reached the point of 
perfection.

Honourable Speaker, allow me to comment on the criticisms raised by the Auditor-General regarding Provincial financial statements that are 
still outstanding. Whilst these criticisms are valid, and whilst we share the Auditor-Generals concern that the Provincial Accounts are in 
an unacceptable state, the circumstances stem from the dubious financial systems that we inherited. The Standing Committee on Public 
Accounts has ruled that, in order to rectify the situation, we need to start the accounts afresh, with a zero balance as from the start of 
the 1995/96 financial year. As things stand at the moment, tenders have been called for consultants to address the matter, and the closing 
date for these tenders is March 2 2000. Within six months, we will have identified the underlying causes of the problems, and the Financial 
Statements of the Eastern Cape Province will be in order.

The 2000/1 Budget

Provincial Revenue

The budget that we are tabling today, comes from the following sources:

Equitable Share  Wage Bill Adjustment    Finance Supplementary Allocation        Conditional Grants      Own Revenue     Total
15,407,462      1,044,468       389,622         892,346         190,354         17,924,252
I will briefly reflect on the aspect of Own Revenue. To date, our performance in collecting own revenue is disturbing. In fact, over the 
past three years, we have seen a decline in provincial revenue. Consequently, we commissioned an investigation into the matter, in order to 
identify the correct revenue sources and the actual revenue that we should be generating; as well as to assist us to put in place systems 
to ensuring that the revenue is, indeed, being collected. Some of the key issues arising from the investigation are the following:

* Inappropriate Tariff Structures

* The existing tariffs in operation are currently amongst the lowest charged in the country, and bear no relation to the actual cost, thus 
resulting in an under-recovery of service costs. In this financial year, we will take steps to address these issues;
* Current tariffs will be revised, where applicable;
* In respect of motor vehicle licensing, we have decided to revise our fees to be in line with other provinces. In this regard, my 
colleague, the MEC for Transport will be announcing the new tariff schedules.

* TLC Collections

* The TLCs and the provincial government will enter into agreements that will ensure that all fees collected by these agents are remitted 
to the Provincial Revenue Fund.

* Rentals on Government Property

* Rentals charged for government houses will be revised to reflect market prices.

* Collection System

* New collection systems will be implemented in the next financial year in all revenue-generating departments; and also, for the first 
time, a debt management recovery system will be implemented.

The implementation of these measures will surely improve Own Revenue in the Eastern Cape, and will ensure that more resources are made 
available for development.

What are the Key Strategic Components of The 2000/01 Budget?

Our overall strategy for this coming year is anchored around two interrelated strategic components, namely:

* Transformation of government machinery for more efficiency;

* Enhancing service delivery and promoting socio-economic development through targeted expenditure.

Allow me Mr. Speaker to elaborate a little on each of these themes.

1. Transforming government machinery for more efficiency

It remains our contention that the transformation of the public sector is the prime vehicle through which efficiency within our 
administration can be assured. This explains why the transformation of the government machinery continues to be an important strategic 
thrust for the Eastern Cape. I am sure that you would agree that a solid foundation has already been laid. The challenge is to ensure that, 
in the coming financial year, we take the process a step further. From a financial and resource perspective, the central challenge is 
shifting budgetary patterns away from consumption expenditure towards a greater emphasis on capital expenditure.

It is a known fact that budgeting is about making choices. All those directly affected by the budget must be conscious about the choices 
they are making. Departments are already beginning to move away from merely attaching figures to traditional cost centres. There is an 
increasing focus on planning and prioritisation. This trend would have to be consolidated in the coming financial year. This must be 
accompanied by an increasing broader awareness of priorities. We must create consensus on key social and development priorities.

The other aspect of the programme concerns the reorientation of the administration, and the strengthening of a civil ethos in the public 
sector. The Batho Pele Campaign must be intensified. We must move these campaigns beyond paper and ensure that they inform the daily 
practice of every civil servant in our administration. Linked to that, is the promotion of a "value for money" culture. You will agree that 
the culture in the public administration is that people seldom think about the financial implications of their actions.

In order to promote better financial management, we are introducing a Best Practice Award for the best-managed department. The idea behind 
this is to improve efficiency and to make public managers more conscious about their approach to doing business in government. This has a 
great potential of creating a competitive mood within the provincial administration that will see the performance levels of departments and 
public managers improving. As this is a new concept, we will be inviting input from interested parties on the criteria and standards for 
evaluation. The Department of Finance will, on the other hand, put together a Financial Management Rating System and the other departments 
will be called upon to make available their Services Charters. We will also solicit the services of the Public Services Commission and 
other independent bodies. Clearly, for this to work a conducive environment will have to be created in each department, that will ensure 
that each staff member clearly understands what is required from him or her.

The ratio of personnel expenditure to capital expenditure remains very high. We spend almost two-thirds of our budget on personnel costs. 
Whilst mindful of the fact that the solution to the problem cannot crudely be a reduction of personnel, this situation does pose a major 
challenge for our public sector transformation programme. Clearly, the critical imperative of our public sector reform programme should be 
a focus on enhancing and improving both the scope and quality of service delivery. This is not a task of government alone, but it is an 
exercise that would require the broad collaboration of a number of stakeholders and interest groups. On our side, we will be initiating a 
discussion within government about fixing the personnel expenditure baseline. All new appointments will have to be accommodated within this 
baseline. We will not be encouraging departments to mechanistically stick to their organograms. It should not necessarily be the structure, 
but the work output that determines the level of staffing.

We must understand clearly that this issue is not only about the size of the Provincial public sector, in terms of the number of people 
employed; but it is also about how we manage the personnel expenditure budget. In short, how effectively do we utilise the personnel that 
we have in order to ensure that we secure an optimal measure of efficiency?

A process has already been initiated to begin to deal with these problems. We are very clear that the issues involved are complex and 
sensitive, and the process needs to be informed by the broad socio-economic targets we set for ourselves. Discussions have also been held 
with the PERSAL consultants about the speeding up of payments of leave gratuities and pension benefits.

Mr. Speaker, it has also come to the notice of government that some of our employees go home with almost nothing in their pay packets 
because of loan repayments that they make to micro-loan lenders. As this is against the law, some departments have already started 
investigating criminal activities arising from the situation. Measures and guidelines regulating personnel salaries vis--vis micro-loan 
lenders will be strictly applied.

The last issue concerns the implementation of the Public Finance Management Act, which introduces measures to combat irregular, fruitless 
and wasteful expenditure. It also requires that consolidated accounts are prepared and ensures that performance standards are set in the 
employment contracts of Accounting Officers. MECs are also required to play an active role in monitoring expenditures in their respective 
departments.

Mr Speaker, all the above processes, and those that individual departments will be introducing, will not only change the face of our public 
administration, but will also ensure that our procedures and practices are in line with our economic and social agenda.

2. Enhancing Service Delivery And Promoting Socio-Economic Development Through Targeted Expenditure

You would recall that we previously made special emphasis of the fact that the bulk of the population in the Eastern Cape is in rural areas 
and the highest poverty levels are in rural areas We have also emphasised that the larger proportion of the population is young or elderly. 
In this budget, therefore, we make a specific attempt to improve service delivery levels in these key areas.

From these allocations, the following key features are worth noting:

As indicated earlier, this budget is correctly skewed in favour of social services such as Education, Health and Welfare. This is dictated 
by the objective demographic realities of the Eastern Cape.

* The Department of Education, in particular, has an allocation of approximately R7.2 billion, of which R653 million is for non-personnel 
expenditure. This is a significant improvement from the last two financial years. In addition, a further R55 million will be made available 
for the renovation of schools hit by disaster, the rehabilitation of dilapidated classrooms and for building new classrooms. This amount 
will be ring-fenced.

* In respect of the Department of Health, the total budget is almost R3, 3 billion, of which R 1.1 billion is for non-personnel 
expenditure. An additional amount of R4, 5 million will be made available to operationalise clinics already built through the procurement 
of necessary equipment and supplies, and the appointment of appropriate personnel. The Department is charged with the task of coordinating 
the HIV/Aids Awareness Programme in the province. Over the next three years, we are making available R100 million for this programme. Both 
these funds will be ring fenced.

Honourable Speaker, as far as the HIV/Aids Awareness Programme is concerned, the amount allocated represents the Governments contribution 
to this critical matter. We call on the private sector and other interests to join with us in this endeavour.

In addition, a conditional grant of over R 84 million will be allocated to the Department of Health for the rehabilitation and upgrading of 
Hospitals.

* The Department of Welfare has an allocation of R3.95 billion. We believe that we have provided sufficiently for social security, 
including the proposed increase of R20 per beneficiary, by allocating R 3.6 billion towards this end. However, we are making an additional 
amount of R35 million available for outsourcing the payment of social security grants. The Department will be announcing the details later.

* An additional amount of R19 million is made available to the Department of Agriculture for dipping material. We have been informed that 
this will be sufficient for the rest of the financial year to service 1370 dipping tanks in the province. An additional R7.5m is being set 
aside for the Umtata Fresh Produce Market. Again, both these amounts will be ring-fenced.

* An amount of R 3.5 million has been allocated to the Department of Transport for weigh bridges and vehicle-testing stations.

* A feasibility study into the economic viability of the railway line to Umtata has been provided for; and funds will be made available for 
the Coega and East London Industrial Development Zones, once we have concluded discussions with the Industrial Development Corporation and 
the Department of Trade and Industry. Details of these will be announced in the Policy Speech on March 15 2000.

These allocations demonstrate a deliberate shift of focus towards infrastructure development that will facilitate investment and promote 
job creation. Increasingly, as funds are released from debt-servicing obligations, more resources will be devoted to infrastructure 
improvements.

* Last, but not least, the Department of Public Works will be getting an additional amount of R112 million for the improvement of roads, 
and this amount will also be ring-fenced. In this regard, during 2000/01 we will develop a comprehensive road network plan. The MEC for 
Public Works will provide details at the appropriate time.

The concept of "ring-fencing", which we have introduced into the budget this year, refers to a safeguarding practice that ensures that 
funds earmarked for specific programmes and projects cannot be re-allocated or tampered with during the course of the financial year. The 
objective of "ring-fencing" is to ensure that we are able to make an increasing impact on the lives of the poorest of the poor, and that 
funds designated for this purpose are not applied to other ends.

The funds indicated above add up to more than R 280 million; and are additional to the amount specified in this budget. However, it must be 
emphasised that the affected Departments will only gain access to these funds through application to the Treasury and the submission of 
business plans indicating how the funds will be expended.

Comrade Speaker, Honourable Members, Invited Guests, I should state that the allocations made for the funding of the above programs are in 
no way sufficient. As such, in order to deal with the backlogs while at the same time addressing present needs, departments have to project 
their budget expenditure over the Medium Term Revenue and Expenditure Framework period. We are going to fast-track the implementation of 
Private-Public Partnerships in our province. We will work with the Unit to be created by Minister Manuel at the national level so that spin 
offs of the project do actually create jobs and livelihood in our communities.

Allow me, Mr. Speaker, to also challenge the organs of civil society, youth formations, gender monitoring groups and organisations of 
disabled people to monitor the impact of government programmes on their constituencies. Without their involvement and participation, our 
good intentions, planning and programmes may fall short of addressing their urgent priorities. In strengthening participation in the budget 
process we intend to conduct a series of &#145;Budget Blitzes in various regions. Members of the Budget Committee will address gatherings 
attended by Regional Directors and officials from District Councils in each region. During these, regional plans will be discussed and the 
impact that government is making through the budget will be appraised. This is intended to decentralise planning, and thereby making the 
regions more focused and involved in crafting their budgets.

Conclusion

In conclusion, let me re-emphasise some of the key challenges for the coming financial year.

One of the principal challenges is building on the foundation of improved and sustained service delivery. This requires that departments 
and our personnel adopt a new target- and projects-driven orientation to their day-to-day work. The minimum resources available must be 
utilised for maximum benefit. This requires strict management at both political and administrative level. We must all work toward ensuring 
that our departments adhere to the projected targets. Of central importance is the continuation of refining and improving our service 
delivery systems.

The second important issue is the consolidation and continued improvement of the financial management systems and capacity. This requires 
that we intensify the process that we have started of objectively looking at our own internal capacity, strengthening existing systems and 
making appropriate interventions.

Again, in this regard, individual departments must take proactive steps not only to support the process, but also to ensure that their 
activities are integrated within the broader strategy of the provincial and national government. A critical component of this process is 
surely the refinement of our relationship and partnership with the private sector to enhance capacity within the public sector.

Thirdly, the implementation of the Public Finance Management Act will be one of the most critical focus areas in the coming financial year. 
This will not only involve new systems and the strengthening of existing systems, but will also necessitate considerable training and 
skills upgrading for senior management. Linked to this, we will step up the on-going fight against corruption and waste by eliminating 
fraud, particularly in the social welfare system.

The final point is the challenge of giving concrete content to the concept of cooperative governance. Key to this process will be the focus 
on creating synergy and integration amongst all delivery agents. The mechanisms that we have for promoting inter-governmental collaboration 
have to be strengthened to ensure greater synergy within the provincial government. Of equal significance is, surely, the link with local 
and district councils on service delivery. The guiding principle must be that we devolve delivery to agencies that are better positioned to 
deliver efficiently and which have better capacity.

Honourable Speaker, this is the budget that I have been mandated by the Executive Council to table in this house today. It is a collective 
statement by the Council setting out our priorities for the coming financial year. It is intended to guide us in the day-to-day management 
of our departments and in providing a better life to the people of our province. As the Council, we collectively own the budget, as it is 
indeed a product of our collective endeavour. As a unified Executive Council, we have a single responsibility, and that is to serve our 
province.

Mr. Speaker, this is the budget for the coming year, and it constitutes a significant statement to the people of our province.

In conclusion, Honourable Speaker, I would like to express my deepest gratitude to the following people:

* To the Honourable Premier of our Province, for his unwavering support and without whom the measures we have taken would not have 
succeeded;
* To the Honourable Minister of Finance, for his patience, support and understanding of our Province;
* To the various officials in the national Department of Finance who have monitored and managed the business of the Eastern Cape;
* To the members of the Cabinet Budget Committee who have assisted and supported me;
* To the Members of the Standing Committee on Finance under the able leadership of the Honourable Johnny Makgato;
* To the management and staff members of the Department of Finance and the Treasury whose team spirit and dedication have been a source of 
great inspiration to me. It is my sincere hope that, together, we will meet the challenges that lie ahead of us;
* And last, but by no means least, to my family, and especially my wife Thandi, who have consistently supported and sustained me, often 
under trying circumstances.
Thank you.

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ANNEXURE

Department      2000/2001 Voted Allocation       1999/2000 Budget Allocation     Increase        Decrease
Office of the Premier    92,987         89,832  3,155
Legislature      62,755         47,512  15,243
Health   3,263,908      2,872,351       391,557
Welfare  3,950,911      3,676,418       274,493
Public Works     538,667        526,475         12,192
Education        7,187,095      6,395,448       791,647
Housing and Local Government     846,967        278,385         568,582
Agriculture and Land Affairs     387,163        362,982         24,181
Economic Affairs, Environment and Tourism        127,476        131,705                 -4,229
Transport        195,137        188,313         6,824
Finance and Provincial expenditure       1,102,886      1,215,263               -112,377
Sports, Arts and Culture         161,875        157,059         4,816
Safety Liaison   6,425  4,455   1,970

Total Expenditure        17,924,252     15,946,198      2,094,660       -116,606

* statutory payments for Executive Council Members are included in the Legislature allocation
* the allocation for Finance Department includes R102, 778 for the department and R1, 000, 108 for Treasury Reserve

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