MEC Sakhumzi Somyo: Eastern Cape Treasury Prov Budget Vote 2018/19

Honourable Speaker
Deputy Speaker
Honourable Premier
Honourable Members
Senior Government Officials
Distinguished guests and Ladies and Gentlemen

Somlomo, Mandigawule ndiwarhuqa.

Last week we came before this House to present the fifth budget for the 5th administration. In it we highlighted the need to seize the moment of positivity that is unfolding in the country as it could lead to more investments and job creation for our citizens.

Barely a week had ended after we tabled that budget and Statistics South confirmed that indeed we were correct in our assessment that the national economy is now taking a new path for growth. They announced unexpected but exciting news that the national economy has grown by 1.3 % in 2017 compared to the 1.0 % projected by National Treasury for the same period.

Without a doubt this indicates that the 2018/19 financial year promises to be a great year in our country and indeed our province. We are hopeful that nothing negative happens in the global economy that could hamper our growth prospects. We say this because there is seemingly a brewing trade war between the US and China and some countries in Europe. We trust that sanity will prevail and that these critical trade partners of our country would find solutions to whatever matter they disagree on.

Apart from that Honourable Speaker, we can boldly state that we are on track to consolidate the successes we attained in the 2017/18 financial year. Backed by the R591.4 million budget, will pursue the same policy priorities of:

Fiscal Consolidation

• Supply Chain Management Reforms.

• Infrastructure support.
• Municipal Finance governance and
• Governance and Accountability
   

Despite the recent upswing in the global economy and the recently announced 1.3 % growth in the national economy we are still in a space of fiscal constraint. In this regard we must continue to implement the fiscal consolidation policy with a particular focus on cost containment measures, management of the wage bill and enhancing own revenue generation.

Efforts to curbing expenditure on non-core items during will be enforced for the remainder of the term to ensure that service delivery commitments are carried to the fullest.

With regards to the management of the wage bill, we have seen a 1 % reduction on the CoE budget at the end of the 3rd quarter of this financial year. This might seem small to many, however to us it is a significant step towards addressing runaway personnel costs that have been an albatross to the provincial purse.

We will henceforth continue to play an active role in the centralisation of authorisation of appointments on PERSAL through our participation in the Provincial Coordinating Monitoring Team (PCMT) whose mandate is to optimise the utilisation of human capital and promote fiscal discipline in the province.

Honourable Speaker, one of the positives that have come out of the subdued economic environment was the realisation of the need to create own revenue sources. In the period under review Provincial Treasury collected an amount R442 million through interest on banks.

In the 2018/19 financial year, we will monitor the implementation of our Revenue Generation Strategy, while we are finalising a research study to maximise own revenue. Revenue collection for the province stood at R1.2 billion at the end of December 2017 and we project to increase this collection to R1.4 billion in the 2018/19 financial year.

Honourable Speaker, we are committed to rationalise public entities to make them leaner and more effective. We will continue to prioritise the reduction of expenditure and improvement of efficiencies in our public entities.

Reviews of performance, both financial and non-financial performance, will be conducted to identify areas of improvement. The rationalisation process and refocusing of provincial public entities to strengthen and improve financial management and governance will continue throughout the MTEF.

Supply Chain Management Reforms

Honourable Speaker, in 2016 PT introduced policy reforms in our Supply Chain Management as a mechanism to curb the outflow of the provincial fiscus. This was enhanced further through the proclamation of the Preferential Procurement Regulations which enabled amongst others SMME contracting for designated groups.

Through LEDPF, we have managed to retain half of our goods and service budget within the province to benefit local SMMEs. At the end of the third quarter, 48% of the procurement budget for goods and services was spent on local suppliers located within the Province.

PT together with DEDEAT will monitor the implementation of the Local Economic Development Procurement Framework (LEDPF) with the aim to achieve the following objectives:

• Ensuring maximum retention of Provincial fiscal spend in the province.
• To stabilise vulnerable and declining sectors as a result of the economic crisis and de-industrialisation.
• Protect and safeguard productive capacity of existing industries and retain current jobs.
• Diversify government efforts geared towards spreading employment and investment over a wide range of industrial activities and
• Expansion and increase in the productive capacity of SMMEs and Cooperatives in the province.

Provincial Treasury will continue to identity commodities that are manufactured in the province and advise departments before they engage on procurement.

In the 2017/18 financial year PT has facilitated the signing of offtake agreements for manufactured goods in our province. Identification of more opportunities for offtake agreements will be prioritised in 2018/19 to ensure that the 50% target of sourcing goods and services locally is achieved.

While we do this outstanding work of opening opportunities for SMMEs, we will also implement consequence management to deal with officials who are delaying with the payment of SMMEs within the legislated 30 day period. In this regard a focused circular providing intervention and channels of communication will issued and published.

This will ensure proper transparency, reporting and monitoring of invoice submission and turnaround time for payments. We urge service providers to use the channel in order none compliances.

We will continue to proactively engage departments to facilitate payment of creditors to ensure that SMME cash flows and financial sustainability is improved. This is a non-negotiable going forward.

In an effort to professionalise Supply Chain Management in the province, 258 officials from provincial departments were trained on identified areas that include Bid Committees, Demand Management; Infrastructure Procurement Delivery Management and Acquisition Management.

Infrastructure Support

Honourable Speaker, the importance of delivering quality infrastructure projects on time and within the allocated budget cannot be over-emphasized. For years, our province has been known for slow spending on infrastructure funding. To address this challenge, during the third quarter of 2017/18, PT conducted site visits to determine whether infrastructure funds utilised by the provincial infrastructure departments translate to actual expenditure on the ground resulting to value for money at the point of service delivery.

We visited COGTA electrification projects in the OR Tambo and Alfred Nzo District Municipalities. The expenditure in respect of infrastructure departments was also monitored and reported on a monthly basis through the Top Management, Cabinet Budget Committee and Executive Council meetings.

Honourable Speaker our Municipalities have acknowledged the positive impact derived through the implementation of Social Infrastructure Projects. As Members would know, in 2015 we took a conscious decision to invest massively on socio- economic infrastructure to enhance economic growth in some of our Municipalities.

These projects include electrification, provision of access roads to clinics, schools and tourism centres and provision of water supply in drought stricken municipalities.

We are making commendable progress on the implementation of social infrastructure projects and to date, the Joe Gqabi Drought Relief Programme which consists of 20 sub-projects (Water, Sewer, Electrification and Fencing), is at 89% completion. King Sabata Dalindyebo Electrification, which consists of 13 sub-projects, is at 88% completion, whilst KSD R61 by-pass is complete. The Ntabankulu road infrastructure improvement is at 96%. PT continued to support municipalities to improve spending with regards to the social infrastructure integrated delivery.

Through this project we have also ensured the participation of SMMEs and the employment of local people in line with our policy on SMME development and reduction of poverty and unemployment. I must hasten to add that there were challenges experienced during the implementation of this project which include under-performance by contractors, SMMEs charging higher rates and protest action by some of our communities. We have learnt valuable lessons from these challenges.

The successful implementation of this project and its resultant benefits to businesses and ordinary people has forced us to extend it to Phase 2 which will see 726 kilometres of roads built over 2 years. An amount of R402 million has been allocated for this task.

Municipal Financial Governance

Honourable Speaker, improving financial management in our municipalities remains a key priority for our government. Most of our municipalities are experiencing huge cash flow challenges as they are owed by residents, business, provincial departments and other state organs for services rendered, and this affects their ability to provide adequate services to their communities and to pay their creditors.

Provincial Treasury has engaged provincial departments that owe municipalities for services rendered to help improve their cash flows and enable them to pay their creditors, especially payments to ESKOM and other major creditors. Departments must not burden our municipalities by defaulting on their payment obligations for services rendered. PT has further assisted municipalities in distress to develop financial recovery plans to help them move towards financial sustainability.

Let me also add that Provincial Treasury working together with OTP and CoGTA has developed a Provincial Local Government Coordination Framework and consequently a Tri-partite MoU to enhance integration and coordination.

Furthermore, improvement of municipal financial performance and governance towards effective and efficient use of public resources will be heightened by providing support and monitoring to all 36 municipalities on revenue expenditure, cash management, and assets and liabilities. The Municipal Standard Charts of Accounts (MSCoA) has been implemented in all municipalities and in the coming financial year we will ensure that proper reporting is in place.

Municipalities will further be supported to improve spending on conditional grants.

Governance and Accountability

Honourable Speaker, recent improvements in audit outcomes have inspired us to want to achieve more. These audit outcomes are extremely important in that they give a sense of accountability for the public funds we are entrusted with. PT continues to monitor the implementation of the Provincial Audit Improvement Plan (PAIP) throughout the current financial year.

As a result, 13 departments and 11 public entities obtained unqualified audit opinions.

We will continue to assess the risk across all departments and Public Entities and deploy the necessary interventions to ensure that there is no regression. Some of these interventions include reducing the irregular expenditure balances for all departments. Other support measures are being implemented towards sustainable financial maturity and these include Capacity Building Programmes, changing the culture for higher levels of discipline in managing the public resources and strengthening governance to oversee the implementation of internal controls.

Following the approval of the Financial Management Accountability Framework (FMAF) that provides for the in-year determination of the financial management standards against which the provincial departments will be measured, PT has since developed Terms of Reference for the establishment of the FMAF Steering Committee. The purpose of the Steering Committee is to provide a platform to assess the performance of the provincial departments based on agreed standards and make decisions on the appropriate consequences for non- adherence to the standards.

The municipal sphere of government remains a major concern when it comes to audit outcomes. We have continued to support municipalities by strengthening governance structures including participation in their audit committees and assessment of the effectiveness of their internal audits and risk management functions.

In this regard, for the 2018/19 financial year municipalities will be supported to improve financial performance and governance as we target to assist 25 municipalities to obtain unqualified audit opinions.

Conclusion

Honourable Speaker, there are already signs that the economy of the country and indirectly that of the province will improve over the 2018 MTEF. This will in the long run ensure more resources for the fiscus which we could use to advance our inclusive economic growth agenda.

While these positive developments on the economic front unfold, we must remain committed to the values of financial prudence that we implemented throughout this term. These measures have helped us to ensure delivery of core services to our people and provincial liquidity in this austere environment.

Budget and Programme Allocations

Honourable Speaker, let me present the budget allocations which will drive our programmes in the 2018/19 financial year. Provincial Treasury has been allocated R591.4 million and this reflects a reduction of 5 % from the budget of 2017/18.

We will use these resources sparingly to finance the following programmes:

Madam Speaker, allow me to table formally the Annual Performance Plan and Service Delivery Improvement Plan for the 2018/19 financial year.

I thank you.