MEC Wendy Nelson: North West Medium Term Budget Policy statement

Adjustment Budget Vote Speech 2015/16 by Hon. Wendy Nelson, North West MEC for Finance, Economy and Enterprise Development

Madam Speaker and Deputy Speaker
Honourable Premier, Supra Obakeng Ramoeletsi Mahumapelo
Colleagues in the Executive Council
Honourable Members
Executive Mayors and Mayors
Dikgosi mo Bokone Bophirima Councillors
Director-General and Heads of Departments
Municipal Managers
Board Members and CEOs of state-owned entities
Ladies and Gentleman

Madam Speaker, the 2015/16 Adjustment Budget is presented against the backdrop of subdued economic growth as a consequence of slow recovery in the global economy and internal structural weaknesses in the South African economy. We are experiencing energy constraints which already had negative spill-over effects in other sectors of the economy; a weaker rand exchange rate, and lower commodity prices.

This is in addition to the current drought conditions that we are experiencing due to erratic rainfall patterns which conditions continue to have a huge impact to the agricultural sector.

Madam Speaker a well renowned economist, Thomas Piketty, recently visited our country and delivered the Annual Nelson Mandela lecture, and his emphasis was; tackling income inequality as measured by the gini- coefficient is not enough, but we need to mainly aspire to reduce and close the capital inequality gap, because it is through capital that businesses can be established, jobs can be created, income can be generated and economies can be grown.

Our response as the Province to Thomas Piketty's observation is the full implementation of the five concretes announced by the Honourable Premier which are:

• Rebranding, Repositioning and Renewal (RRR);
• Focus on Agriculture, Culture and Tourism (ACT) as the strategic economic pillars and its tributaries;
• Reconciliation Healing and Renewal (RHR);
• Setsokotsane; and
• Saamwerk-Saamtrek philosophy

Provincial Economic Outlook

In the baseline forecast, provincial economic growth which is mainly dependent on the national economic growth rate of 1.3% is likely to remain subdued in the short term, given the sharp decline in the demand for minerals by South Africa's main trading partners.

Much of the sluggish growth in Bokone Bophirima is due to the deteriorating platinum prices resulting in low production which raises costs and erode profit margins. Generally, international demand for commodities has also declined, particularly from main trading partners.

Madam Speaker, such decline in foreign demand for minerals, have created impetus for the province to diversify its economy to cushion it from external demand shocks; hence our focus on ACT as our strategic economic pillars for sustained economic growth in the Province induced by its tributaries. Therefore, the expansion of agriculture, culture and tourism sectors are "no longer an option but a must" through which economically viable Villages, Townships and "Small Dorpies11 (VTSD) would be developed.

Despite these challenges, our commitment to prioritise villages, townships and small dorpies for support through appropriate budget allocation will not change. Our considered view is that providing the necessary financial and non-financial support to these VTSD areas will assist in reducing unemployment, alleviating poverty and addressing inequality. This view is informed by the positive feedback we continue to receive during our engagement with community members through Bua le Puso and Setsokotsane initiatives.

In agriculture, aligning land reform and agricultural support programmes remains crucial. The sector will also grow and benefit from assisting small scale farmers who should graduate to commercial farmers through training, support and linkages to local and international markets.
Madam Speaker, to improve food security in our communities, seeds will be provided to schools, clinics and households in order to promote subsistence farming and ensure food security.

The provincial annual inflation rate declined from 5.9% to 4.1% as a result of general stability in the price of food, non-alcoholic beverages, housing and administered price of utilities and transport. Education contributes a good 0.3% to the provincial inflation. This is not surprising as housing is a contributing factor, given that we are predominantly a rural province where our people prefer to save to build their own houses than using bank loans. The contribution of the price of food towards the decline in inflation could be attributed to the increased productivity within the agricultural sector where our province is experiencing better performance.

Madam Speaker, due to a weaker rand exchange rate and lower commodity prices, South Africa's exports have been growing faster than imports for the third year in a row thus narrowing the current account deficit to 4.1% of GDP. The weaker rand does not contribute positively to our inflation outlook as it makes it more expensive to buy import commodities like oil.

The economy would not be complete without its engines which stimulate economic growth and development like Co-operatives and Small, Micro and Medium sized enterprises (SMMEs), which also need to be supported through various business development programmes such as business planning, financing, business skills training and development.

Madam Speaker, risks to the provincial fiscal outlook include low economic growth, weak industrialisation, decline in national government transfers, provincial government expenditure, and supply side constraints. Although individually these shocks may not threaten the fiscal sustainability, but combined they may have an effect. Provincial government spending on goods and services will be constrained because of fiscal consolidation measures and under performance of revenue collections during the last six months of the current financial year.

The North West economy still faces high levels of unemployment which mainly affect the most vulnerable groups such as women and youth. Year on year statistics reflect that to the end of September 2015, the North West economy shed jobs in other sectors of the economy with the exception of agriculture which employed additional 14 000 employees to increase the head count of agricultural jobs to 55 000 since the third quarter of 2014.

The provincial unemployment rate of 25.4% is almost the same as the national unemployment rate of 25.5%. This is also one of the contributing factors to the budget pressure on the part of municipalities especially on free basic services as more households become eligible to participate in the municipal programmes targeted towards the poor.

At the provincial level, the impact of the high unemployment rate is likely to increase dependency on the provincial government to provide more funding towards health, social development and education for people coming from poor households.

Provincial Own Revenue Performance

The provincial revenue targets for the second quarter has not been met due to the under-collection by Finance and the three main revenue collecting departments which are Health, Public Works and Roads; and Community Safety and Transport Management.

Under collection by the Department of Community Safety and Transport Management can be attributed to socio-economic challenges of poverty and unemployment while the Department of Health is expected to provide services to all those who present themselves to the provincial public health facilities irrespective of their economic status.

Madam Speaker, with regards to under performance of the above-mentioned departments in terms of revenue collection, it is important to indicate that there is a renewed focus on maximising provincial own revenue collection as part of the own revenue revolution strategy. The Provincial Treasury will be working with all departments and municipalities on initiatives which could potentially compensate for areas where provincial revenue collection are substantially below the estimated targets such as interest earnings on the provincial banking accounts.

During the State of the Province Address, the Premier directed the provincial administration to assist provincial government departments and municipalities to develop revenue enhancement strategies to augment own revenues.

Provincial Treasury have since provided technical support to eighteen municipalities to develop their revenue enhancement strategies that will inform future revenue budget preparation processes. Treasury would also be visiting all provincial revenue offices between November and January 2016 to assist with the implementation of the provincial revenue enhancement strategy.

The upward adjustment on own revenue by an amount of R12 million is in respect of a commitment made by the North West Gambling Board(NWGB) as part of the self­funding (revenue retention) proposal which I have considered favourably for implementation in the next two years. This therefore means that the Board would be allowed to keep 50°/o of the revenue for its operations and transfer the balance to the Revenue Fund effective from April2016.

Adjustment Budget

Madam Speaker, the 2015/16Adjustment budget that I am tabling today provides for the following:

• Appropriation of rollover of unspent funds from the preceding financial year;
• Appropriation of funds in line with section 25 of the PFMA; and
• Appropriation of funds that becomes available to the province.

Madam Speaker, the socio-economic challenges are enormous and the needs are overwhelming. Therefore, the current economic conditions, only allows us to reprioritise and redirect funds to key government programmes and not spend money on the "nice to have" as no additional allocations have been made available by National Government.

During the tabling of the 2015 Medium Term Budget Policy (MTBPS), the Minister of Finance Nhlanhla Nene announced the downward revision of the growth rate from 2% to 1.5%. This revision means a decline in estimated revenue collections that must be supported by revision of expenditure budget.

We need to continue with the implementation of the cost containment measures which were started in 2013/14 and ensure its full implementation through regular monitoring and reporting.

Departments and public entities are requested to reprioritise from existing baselines and manage headcount growth to respond to inflation wage pressures, particularly as negotiations resulted in an outcome that deviated from the initial projections. Government will need to reduce inefficiency and waste by targeting non-essential items and uncommitted resources; and continuous sustain front-line service delivery programmes.

The actual provincial expenditure as at 30 September 2015 is 47.9% or R16.717 billion of the R34.2 billion provincial annual budget. The expenditure shows a marginal increase of 2.4%, compared to 45.5 percent in 2014/15 for the same period.

This constitutes an improvement in spending trends in support of improved service delivery.

Madam Speaker, as per Executive Council resolution, the Provincial Treasury is currently working with three departments, namely; Public Works and Roads, Education and Sports Development and Health as part of co-management so as to ensure that we substantially managed down the accruals and ensure sound management of limited resources. The three departments under co-management take about 73 percent of the provincial budget.

Madam Speaker, under the leadership of the Premier and working together with my colleagues; MEC Sambatha, MEC Matsemela and MEC Masike, I am happy to announce that the following positive progress has been reported to date:

• Health

The departmental accruals for the 2014/15 financial year were confirmed as R750.7 million as per the Audited Financial Statements with an over drawn account of R216 million. As at the end of September 2015, R715 million was paid towards accruals from the previous financial year.

I am pleased to indicate that the management of financial resources within the department is on course to prevent the bank overdraft, overspending especially on compensation of employees and reduction of accruals by the end of the current financial year.

• Education and Sports Development

Madam Speaker, compensation of employees is the main cost driver of the department. The department opened the current financial year with accruals amounting to R285 million.

As at the end of September 2015, an amount of R265 million has already been paid which constitute 93 percent of the accruals. The 30 days payment arrangements have been strengthened and this has culminated to substantial improvements in terms of timeous payments of invoice. To demonstrate this improvement, in April 2015 payments paid after 30 days amounted R60.401 million and this figure dropped substantially to R13.620 million in September 2015. Furthermore, through the co-management programme, excess educators have been managed down from 925 to 373 as at October 2015 and the turnaround time of paying educators has improved.

• Public Works and Roads

The department opened the financial year with accruals amounting to R330 million from the 2014/15 financial year of which R260 million related to the road sector. As at the end of September 2015 all accruals from the previous financial year were paid. Public Works and Roads and Treasury have engaged our national counterparts to seek solution to the unfunded commitments estimated at R500 million for the current financial year. I am happy to announce that discussion on this matter has been concluded and feedback would be provided in due course. Madam Speaker, we will continue to provide support and work closely with these departments with the view to ensure sound financial management in the province.

2015/16Adjustment Budget Allocations

Madam Speaker, while there is no additional equitable share funding from National Treasury for provincial priorities, the Executive Council approved the reprioritisation of the budget from the slow moving programmes with the view to assist departments that are currently under tremendous budget pressures.

An amount of R217.269 million has been identified from various departments and re-directed to the three departments namely, Health, Education and Sports Development; and Public Works and Roads.

Furthermore, the Executive Council led by Hon Premier SOR Mahumapelo continue to demonstrate its desire to completely deal with the legacy commitments of the previous administration by redirecting resources from non-essential items to core programmes that support the five concretes including sustained funding for departments that are currently under co-management.

The 2015/16 Budget will be adjusted upwards by R658.226 million as per the following sources of funding, from R34.224 billion to R34.883 billion:

• An amount of R246.412 million received from National to augment compensation of employees as a result of higher than anticipated salary adjustment;
• R200.684 million rollovers from the unspent funds in the 2014/15 (of which R161.748 million relates to conditional grants and R38.936 million relates to Equitable Share);
• R32.481 million from unspent (retained surplus) Provincial Legislature allocation in 2014/15;
• R111.150 million from under expenditure of the previous financial year;
• R80.499 million from donations to various departments in the province which details are provided in the departmental allocations;
• A reduction of R13 million on the Provincial Own Revenue estimates;

Departmental adjustments

Madam Speaker, may I take this opportunity to outline adjustment proposals for Provincial Departments and the Provincial Legislature.

• Office of the Premier

Office of the Premier receives an additional amount of R65.256 million, of which R50 million is in support of the MRRRP projects and R10 million is earmarked for the Youth Entrepreneurial Services (YES).

Included in the additional allocation for the Office of the Premier, is an amount of R2.1 million received as a donation from the Construction Education and Training Authority (CETA) to provide training in the province.

• Provincial Legislature

Honourable Speaker, the Provincial Legislature retains an amount of R32.481 million as a surplus from the previous financial year, adjusting their main appropriation upwards from R273.019 million to R305.500 million.

• The Department of Health

The budget for Department of Health is adjusted upwardsbyR179.634 million, which includes the rollover amount of R18.512 million in respect of the Health Facility Revitalisation and National Health Insurance Grants. From that addition, an amount of R160.684 million is set aside to address the Improvement in Conditions of Service (ICS) and other budget pressures on Goods and Services.

Madam Speaker, the Department of Health also received a donation towards the training of two emergency medicine registrars for a period of 4 years from Netcare Foundation NPC. An amount of R438 thousand will be spent in the current financial year.

• Culture, Arts and Traditional Affairs

A net adjustment of R25.518 million has been made to the department's main appropriation increasing it to R654.157 million. This increase is as a result of the approved rollover of R34.959 million for the completion of libraries and Traditional Offices, while an amount of R9.441 million has been reduced to cater for other provincial priorities.

• Community Safety and Transport Management

The department received a net increase of R50 million to the main appropriation, which increases its allocation to R1.882 billion. While the original allocation is reduced by an amount of R25 million through reprioritisation for provincial priorities, the department received a donation of R75 million from the Road Traffic Management Corporation (RMTC) to assist with the construction of weigh bridges and traffic management education to our communities.

• Finance, Economy and Enterprise Development

Finance

The department's main appropriation is reduced by R30 million, mainly due to the downwards revision of the own revenue target. Notably, provincial departments have increased the spending rate as a result of improved planning and monitoring, which resulted in reduced cash for investment opportunities to earn interest. Consequently the budget for Finance has been reduced to R456 million.

Economy and Enterprise Development

An amount of R55 million has been added to the budget of the Department of Economy and Enterprise Development. This amount includes R12 million earmarked for the North West Gambling Board with the view to support the intention of the board to increase revenue collection through the self-funding model.

An amount R5 million is earmarked for the Improvement in Conditions of Service (ICS) and R38 million for the North West Development Corporation (NWDC)in relation to the procurement of the Christiana Hotel.

• Education and Sports Development

The department receives an additional amount of R187.538 million which increased the budget to R13.620 billion. This includes rollovers of R116.718 million mainly attributed to the Education Infrastructure Grant of R96.516 million. An amount of R70 million is allocated to assist the department with the implementation of the Improvement in Condition of Service (ICS) while the department receivedR820 thousand as a donation from the Japanese Embassy.

• Local Government and Human Settlement

The department has a net adjustment of R3.726 million to their main appropriation increasing it to R2.520 billion. The department received an amount of R17.726 million as rollover for the construction of the disaster management center and for the water and sanitation projects. Through reprioritisation an amount of R29 million has been reallocated to pressing areas within the department while R14 million has been released to fund other provincial priorities.

• Tourism

The department's budget has not been adjusted and remains at R145.050 million for the current financial year.

• Public Works and Roads

The departmental baseline has been reprioritised in favour of unfunded roads projects. Furthermore, the department received an additional R104.169 million increasing their main appropriation to R2.671 billion. This additional allocation is mainly intended to deal with the pressure on roads upgrades and rehabilitation programmes.

• Social Development

Social Development receives a net adjustment of R2.237 million increasing their allocation to R1.336 billion. The department received a rollover of R5.102 million for the Early Childhood Development (ECD) transfers and subsidies and the Witrand in-patient treatment center. In addition, the Health and Welfare Sector Education and Training Authority (HWSETA) donated R2.135 million for the social worker's internship programme. An amount of R5 million was released for other provincial priorities.

• Rural, Environment and Agricultural Development

The Department of Rural, Environment and Agricultural Development received a rollover of R7.667 million for Comprehensive Agricultural Support Programme Grant (CASP). Furthermore, an amount of R25 million was reprioritised from the department for other provincial priorities resulting in an adjusted budget of R1.104 billion.

Summary of Adjustment Budget Allocations to Provincial Departments

In summary, the following adjustments have been made to the Provincial Departments and Provincial Legislature budget inclusive of the budget cuts:

Departments R'000	Main appropriation	Total Adjustments	Total adjustmented allocations
Office of the Premier	730 648	65 256	7'95 904
Provincial Legislature	273 019	32 481	305 500
Health	8 904 071	179 634	9 083 705
Culture, Arts .and Traditional Affairs	628 639	25 518	654 157
Community Safety and Transport Management	1 831 742	50 000	1 881 742
Economy and Enterprise Development	255 096	55 000	310  096
Finance	486 002	(30 000)	456 002
Education and Sports Development	13 432 321	187 538	131619 859
Local Government and Human Settlements	2 516 024	3 726	2 519 750
Tourism	145 050	-	145 050
Public Works and Roads	2 566 374	104 169	2 670 543
Social Development	1 334 112	2 237	1 336 349
Rural, Environment and Agricultural Development	1 121 321	(17 333)	1 103  988
Total	34 .224 419	658 226	34 882 645

Honourable Speaker, the 2015 Adjustment Estimates of Provincial Revenue and Expenditure indicates to us that our financial resources are under tremendous pressure and that only prudent financial management can pull us through. Continuously and collectively, within the "Saamtrek-Saamwerk" philosophy we need to pursue greater efficiency and value for money in achieving our goals.

Provincial Departments and Public Entities are expected to reduce inefficiencies, wastage and ensure that funds are directed to programmes that will make an impact to the lives of Bokone Bophirima citizens.

If we are practical and sensitive to the needs of our people, we should complain less about reduction in budgets and rather continue to evaluate "relevant practical solutions" in the form of Setsokotsane and Bua le Puso in response to the needs of our people.

Relevant practical solutions demands that we respond urgently and faster to the needs of our people in line with the "Back to Basics" strategic document adopted by Cabinet, moreover we should be less philosophical about the problems and drive programmes that are simple and basic for implementation.

Conclusion

Honourable Speaker, Departments must refrain from committing beyond the allocation as no bailout will be available within the current constraints.

I must also emphasise that rollovers will not be considered where departments recorded over expenditure or the cash balance is not adequate to address the request.

Over the past few years, there has been an increasing trend of accruals in the province. This trend comes as a result of departments not adhering to the prescript of paying service providers within 30 days. Following the commitment by the Premier to pay suppliers within 30 days, a significant improvement was realised regarding payment of suppliers within 30 days. Departments are therefore encouraged to manage orders and ensure payments within 30 days, which will ensure that only invoices and orders generated in March 2016 are payable or accrued to April 2016.

Hon Speaker, my sincere appreciation to the visionary leadership of the Premier of the People's Province of Bokone Bophirima, Mr SOR Mahumapelo.

My gratitude also goes to colleagues in the Executive Council for their support which has made this difficult task easier and it is well appreciated.

The Chairpersons and Hon Members of the various Portfolio Committees, thank you most heartily for your immense support.

Many thanks to the Director-General and all Heads of Departments and their staff for their cooperation and the role they played in the compilation of the adjustment estimates.

Madam Speaker, I would like to congratulate Mr Ndlela Kunene on his appointment as the substantive Head of Department for Finance. He has served the department selflessly and is still serving the department with diligence and much change and progress have been registered thus far.

The department received clean audit for two years in succession, audit outcomes of other departments and state - owned entities have improved and the municipal support programme has also registered significant improvement. We are hopeful that he will continue to work harder and accelerate service delivery.

My appreciation also goes to the staff of the department led by the HOD for producing the 2015/16 Adjustment Budget  documents within tight timelines.

Last but not least my sincere gratitude goes to my family for  their continued support.

As we draw close to the festive season let us all drive safely, arrive alive and come back in the New Year to continue our responsibility of taking Bokone Bophirima forward.

Madam Speaker, In conclusion, I hereby table for consideration by the House, the 2015/16 Adjustments Appropriation Bill and the Adjusted Estimates of Provincial Revenue Expenditure.

Baie dankie

Ke a leboga

l thank you