Speech by the MEC for Finance, Economic Development and Tourism, Mr. SE Kholwane (MPL) during the occasion of the introduction and tabling of the Provincial Adjustments Budget for the 2017/18 Financial year at the Mpumalanga Provincial Legislature, City Of Mbombela
Honourable Speaker and Deputy Speaker; Honourable Premier, Mr. DD Mabuza; Colleagues in the Executive Council;
Honourable Members of the Provincial Legislature; Members of Mayoral Committees from all our municipalities;
Chairperson of the House of Traditional Leaders Chief Ngomane, and other esteemed members present;
Director-General, Mr. Thulani Mdakane;
Head Official of the Provincial Treasury, Ms. Nombedesho Nkamba and other Heads of Departments;
Chairpersons of Boards and Chief Executive Officers of our Public Entities; Business Executive of the Office of Auditor-General in Mpumalanga; Chairpersons of Audit Committees and Risk Committees;
Representatives of Labour, Business, Civil Society and the Media;
Our special guest, Ms Gracious Nonkululeko Maphanga a BCompt Accounting Science student at UNISA;
Ladies and gentlemen;
It is an honour to table the fourth Adjustment Appropriation Bill of the fifth administration of the ANC led Government in the Province.
This Bill seeks to adjust allocations that were appropriated to the Provincial departments in March 2017, and to fund emerging and critical programmes that advance the objective of an inclusive, united and prosperous society.
Honourable Speaker
As we are about to conclude the year in which the ruling party celebrates the centenary birthday of Oliver Tambo, we wish to convey our appreciation to the people of South Africa, Africa and diaspora for continuing to pay heartfelt tribute to the esteemed leadership of OR Tambo and the central contribution he has made to dismantle the bondage of colonial oppression towards a free, united and democratic South Africa.
Unity of all the motive forces of a society is a necessary pre-condition to building a successful nation.
In his own foresighted wisdom he once said:
“We have a vision of a South Africa in which black and white shall live and work together as equals in conditions of peace and prosperity.”
Very true indeed, it has been twenty three (23) years of freedom and democracy in which we have worked together, black and white and with all sectors of our society to neutralise the apartheid effects and harm caused by the colonial legacy of more than three hundred and forty (340) years.
Amidst the stubborn high levels of unemployment, poverty and inequality, together we have lifted more of our people out of poverty, we have created more jobs than before, expanded social grants, housing and basic services to our people, and further improved access to better education and health care.
We are alive to the reality that, with these undeniable impressive post-apartheid milestones, we are still nowhere closer to the Promised Land.
The late President Nelson Mandela was preparing us when he said
“After climbing a great hill, one realised that there are many more hills to climb.”
Our journey to move South Africa forward continues. We will conquer the next hills en-route to our economic freedom.
We have now entered the second phase of the democratic transition to pursue the ideals of inclusive growth and development.
The focus at this stage of the transition is on effecting fundamental structural changes to skewed patterns of ownership, control and management of means of production.
The recent Executive Council Lekgotla gave directive to all Provincial departments and public entities to increase the pace and scale of the implementation of the ruling party’s electoral promises for the remaining MTSF period.
Without doubt, the social compact we have with the electorate and broader society must find expression in the government’s spending priorities.
I am of the view that proper planning and a well-managed government budget provides the foundation for lasting improvements in the lives of all South Africans, especially the historically marginalised, the workers and the poor rural masses.
A government budget is but one of the mechanisms to distribute national wealth - wealth beneath the soil, on top and above the surface of our beautiful land.
The expenditure priorities of the current Provincial administration are well captured in the 2014-2019 Medium Term Strategic Framework (MTSF) as our frame of reference.
Honourable Speaker,
It is one thing to have the National Development Plan (NDP) and Annual Performance Plans (APPs) but if we are not clinical in our execution we are like a soccer team with talented individual players but losing games because they are not converting.
If you don’t take your chances to score goals you are destined to be a loser.
It is often said that lions that fail to work as a team will struggle to bring down even a limping buffalo.
This view is echoed in the 1977 written message by former President Nelson Mandela to Adelaide Tambo in which he said:
“Significant progress is always possible if we ourselves plan every detail…However preparing a master plan and applying it are two different things.”
The main issue is not about spending, but at all material times the big questions are, what are you spending on, how and when are you spending it?
All these elements must be perfectly synchronised to yield high impact budget outcomes.
Unfortunately, the global, National and Provincial economic outlook also doesn’t make things easier for us.
Economic and fiscal environment
Honourable Speaker,
The Adjustment Budget is tabled under extremely difficult economic circumstances characterized by a low growth rate and high levels of unemployment, poverty and inequality.
The former President of South Africa, Thabo Mbeki alluded to this when he said:
“Trying times need courage and resilience. Our strength as a people is not tested during the best of times.”
National economic outlook
Global economic conditions are generally favourable despite some geopolitical risks which are impacting negatively on the national economic outlook.
While the world economy is projected to grow at rates of almost 4 percent this year and in 2018, our outlook as a country remains constrained against the backdrop of weak fixed investment and low levels of business and consumer confidence.
Despite this scenario, South Africa moved out of a technical recession with a growth of 2.5 per cent in the second quarter of 2017, with strong near-term improvement in agriculture.
Mining output has rebounded and recorded relatively high growth rates in both the first and second quarters.
Manufacturing has also moved out of the industry’s recession in the second quarter of 2017. There is, however, a concern about the negative growth rate in industries such as construction.
While we welcome this broad-based improvement of the South African economy in the second quarter of 2017, this is not expected to have a significant impact on the annual growth outcome of our Country.
National Treasury revised this year’s economic growth rate downward from 1.3 to only 0.7 per cent. The forecast for 2018 and 2019 is 1.1 and 1.5 per cent, respectively.
Provincial Economic Outlook
Honourable Speaker,
After weak growth in 2015 and 2016, the real GDP growth (on a quarterly basis) of the Province was 1.7 per cent in the first quarter and 3.6 per cent in the second quarter of 2017.
The Provincial economy was therefore, unlike the South African economy, technically not in recession in the first quarter of this year.
The relatively good performance of especially mining and agriculture, were Mpumalanga’s saving grace in this regard.
Agriculture recorded very high growth rates of 23.1 per cent in the first quarter and 33.6 per cent in the second quarter.
Mining also recorded relatively high growth rates of 13.1 and 3.9 per cent in the same quarters of 2017.
These high quarterly Provincial growth rates in the first part of 2017, are however not expected to have a significant impact on the Mpumalanga annual growth outcome.
In fact, it is expected that Mpumalanga’s economic performance of around 0.8 percent this year, will be in line with the national growth expectations.
It might be higher, provided that key industries such as agriculture, tourism and mining experience a high growth rate for 2017.
Provincial job creation and unemployment
Honourable Speaker
The low economic growth that I referred to earlier, contributed to the relatively low job creation in the Province and the high unemployment rate in 2016 and 2017.
According to StatsSA the Provincial unemployment rate dropped in the third quarter of 2017 for the first time in five (5) quarters.
Despite this 1.6 percent decrease in the third quarter of 2017, the 30.7 per cent unemployment rate is still very high and not at an acceptable level.
Most of the job creation on an annual basis was recorded in the finance, trade and manufacturing industries, with job losses in community services, construction and mining.
The net job creation for Mpumalanga for the last three years was around 68 000 jobs if we analyse the labour market between the third quarters of 2014 and 2017.
The main concern however in this period was the job losses in the mining industry.
We believe that the economic recovery of the mining industry if sustained, can contribute to an increase of employment in this key industry.
Provincial poverty and inequality
Honourable Speaker,
Recently, Statistics South Africa released the report on Poverty Trends in South Africa which provided a red flag for the Country in terms of an increasing poverty rate and a very high number of people and households that are living in poverty, especially since 2011.
The report shows that Mpumalanga is making good progress from a poverty rate point of view.
In fact, we are the only Province that recorded a decline in poverty rate between 2011 and 2015 according to the lower-bound as well as the upper-bound poverty line.
The National Development Plan (NDP) is very interested in poverty according to the so-called lower-bound poverty line.
StatsSA defines this as those individuals who do not have command over enough resources to purchase and consume both adequate food and non-food items, and are therefore forced to sacrifice food to obtain essential non-food items.
According to the report, the lower-bound poverty line was R647 per person per month in 2015.
The percentage of the Provincial population that was below the lower-bound poverty line decreased from 46.1 per cent in 2011 to 42.6 per cent in 2015, which translates to more or less 1.8 million people.
This 3.5 percentage points decline in the Provincial poverty rate can also be attributed to the increased access to social grants in the Province over the last couple of years.
The number of grant recipients in the Province increased from approximately 1 million to 1.4 million during the same period.
This represents a 40 per cent increase in the 4 year period. Yes, we are looking after our people well but at the same time, it puts pressure on Government’s budget and as our Honourable Premier always emphasizes, we must find ways to ensure that our people are less dependent on grants.
Another area that still troubles us is the high income inequality in our Province and the fact that it hasn’t really improved since 2014.
Inequality as measured by the Gini-coefficient, remained at a relatively high level of 0.61 between 2014 and 2016.
The best way of fighting poverty and inequality is by increasing the level of education and skills, thus improving the employability of our people.
If we can find innovative ways of creating more sustainable jobs, it will impact positively on the reduction of poverty, and ultimately contribute to the distribution of wealth.
This adjustments budget is therefore an opportunity to reflect on the Province’s finances, to assess the effectiveness and efficiency of our spending as we pursue the ideals of a better life for all.
Mid-year performance and budget outcomes
Honourable Speaker,
I will now provide an overview of progress made against the key commitments in the 2017 Main Appropriation.
Aligning the developmental mandate of public entities
We are proud to say that even in these difficult times our Provincial budget continues to be a catalyst for radical social and economic transformation, and Public Entities remain our strategic implementing arm.
In this regard the developmental mandate of our Public Entities has been realigned to support MTSF priorities.
In-line with the fiscal consolidation plan, we have concluded the merger of Mpumalanga Gambling Board and Mpumalanga Liquor Authority, culminating in the establishment of the new Mpumalanga Economic Regulator (MER) with effect from 16 October 2017.
Promote local procurement to increase production
The current administration continues to promote local procurement in order to increase domestic production and the creation of much needed jobs.
It is for this reason that all departments are directed to progressively buy at least 30 percent of their goods and services from local producers to support SMMEs and cooperatives, particularly those owned by black youth, black women and People with Disabilities.
The new Preferential Procurement Regulations, 2017 further make it compulsory for big companies to sub-contract a minimum of 30 percent of the value of the contract for all contracts above R30 million to further develop emerging suppliers.
Similarly, the Provincial Government has adopted a new Social Enterprise Development Model which serves as a framework for localisation and opening of markets for SMMEs and cooperatives.
We are unshaken in our determination to leverage state procurement for targeted enterprise development in the built environment value chain.
To this end, we have started to use community-based small, medium and micro enterprises (SMMEs) and cooperatives to manufacture and supply construction materials for building and maintenance of hospitals, houses and paving of access roads amongst others.
Government Nutrition programme
To further give effect to the 2017 SOPA priority of utilising state buying power to procure from SMMEs and cooperatives, we are implementing a revolutionary government nutrition programme which places the small scale farmers at the centre of service delivery and food security in the Province.
Since the inception of this Programme in June 2017, approximately 1 452 tons of fresh produce were procured directly from farmers in line with the decision to progressively move away from the costly and sometimes inefficient tendering system.
This is one of the ground breaking initiatives by our Honourable Premier, and I am pleased that National Government and other Provinces are looking at this direction - where the sun rises.
Mpumalanga Enterprise Development Fund
To further support enterprises, the Premier, Hon DD Mabuza also launched the Enterprise Development Fund in partnership with Standard Bank of SA on the 14 September 2017 to enable our small and medium enterprises to access credit facilities that will take their business to the next level.
Since then, Honourable Speaker we have also been inundated with proposals from the other banks wanting to partner with the Province on Enterprise Development.
Public procurement policy
Transversal term contracts
In line with SOPA commitments to improve budget efficiency measures and stimulate local manufacturing, the Provincial Treasury has commenced with the implementation of the first phase of Provincial transversal term contracts.
Payment of invoices
Honourable Speaker,
Our efforts of mainstreaming local SMMEs and Cooperatives in the economy will not yield the desired result if suppliers are not paid, on time, for services rendered.
While the majority of departments comply with the policy directive for paying suppliers within 30 days of receipt of valid invoices, some still experience challenges due to the high volume of payment certificates and too many signatories in the payment cycle value chain.
To demonstrate our commitment to support the growth of small enterprises, the Executive Council has decided to reduce the payment period for valid invoices to ten (10) days.
The Provincial Treasury has developed a payment process flow that advocates for a lesser number of days from the traditional 30 days without compromising basic controls.
We will continue to work harder to ensure that all these priority programmes are implemented effectively, delivered on time and within the fiscal capacity of the Province.
Adjustment budget priorities
Honourable Speaker
The National Development Plan (NDP), Industrial Policy Action Plan (IPAP), Mpumalanga Economic Growth and Development Path (MEGDP) and Medium Term Strategic Framework (MTSF) all constitute an important blue print mix and reference framework to guide our planning and budget processes.
To this end, all departments are currently developing plans to accelerate the implementation of key programmes in social, economic and governance clusters.
Drive infrastructure and industrial development
A substantial multi-year investment has been made to drive strategic legacy projects such as the Mpumalanga International Fresh Produce Market, Industrial Techno parks, Agri-hubs, Health and Education facilities, roads and bulk supply of basic services, amongst others.
The Executive Council re-emphasised that departments should prioritise investment on infrastructure and thus should be cautioned not to redirect the allocated resources for infrastructure to cushion other financial pressures.
In the current adjustment, an additional R19 million is provided to Department of Agriculture, Rural Development, Land and Environmental Affairs to fast-track the construction of Agri- hubs in Mkhondo and Bushbuckridge Local Municipalities.
We have committed to rollout programmes to increase access to basic services such as electricity, water and sanitation, amongst others.
To advance this policy obligation, R60 million is allocated towards bulk water infrastructure in Siyanqoba in Emalahleni Local Municipality; six (6) villages in Bushbuckridge Local Municipality; Standerton Extension 8 in Lekwa Local Municipality and to assess bulk water supply in Thembisile Hani Local Municipality.
Furthermore, R22 million is provided for water and sanitation programmes in Bushbuckridge, Embalenhle, and Glencore to Phola.
Roll overs
In line with our commitment to provide housing opportunities for qualifying households, R11.888 million has been approved, from the roll over amount, for construction of 260 RDP houses in Sheba Siding and Matsulu, in the City of Mbombela; Botleng Extension 7 and Eloff in Victor Khanye Local Municipality.
This budget will also be used for planning and township establishment in Siyanqoba and Hlalanikahle in Emalahleni Local Municipality.
A total of R53.429 million is added to the budget of Department of Social Development to fund ongoing social infrastructure delivery.
- Of this amount, R19.639 million is for early childhood development centres (ECD) in Emalahleni/Ogies; Standerton; Siyabuswa; Ermelo; Tweefontein, and Manzini.
- While R32.309 million is for completion of phase 1 of Nkangala Treatment Centre and Phase 2 of Swartfontein Treatment Centre.
In line with the long standing position of the government to shift the balance of expenditure from consumption, we realigned the budget allocation to increase the maintenance budget from R803.446 million to R1.261 billion in 2017/18. Included in this allocation is the cost for phase 1 renovations in the Piet Koornhoof building in Emalahleni Local Municipality.
It is imperative that a fully costed maintenance plan be developed and implemented in the Provincial Government to ensure that all immovable properties are maintained at a specific level throughout their lifespan.
Honourable Speaker
Improving health of the citizens
To strengthen and expand the free primary health care programme, government has responded to an emergency budget pressure in the health sector which arose during the recent malaria outbreak in the Province.
R8.032 million is therefore allocated to Department of Health for intensification of government programmes aimed at arresting the devastating spread of this disease.
I would like to commend the department for acting swiftly to deal with this health challenge.
Education
Education remains the largest expenditure category in the Provincial budget, and this trend will continue for the foreseeable future.
We have provided R253.890 million to fund various priorities in the education sector which includes, funding for critical positions in Circuits amongst others.
Local government support
Honourable Speaker
The financial viability of municipalities remains a challenge in our Province due to deficiencies in revenue collection and budgeting processes. This directly affects municipalities’ cash flow and contributes to delays in payment of creditors of which Eskom is one example.
To this end, the Provincial Treasury has finalised the procurement of the relevant panel of experts on various financial management skill sets to support our municipalities.
We will in due course deploy this technical support service to five (5) municipalities, that is, Thaba Chweu, Emalahleni, Govan Mbeki, Lekwa and Dipaleseng.
Furthermore, this adjustment budget provides R5 million to Department of Cooperative Governance and Traditional Affairs for other targeted municipal interventions.
Improving budget management
Honourable Speaker
Our fiscal policy compels us to adhere to the principles of a sustainable budget structure to realise the full value and societal impact of public finances.
Public Entities in the Province will be provided with a budget framework and closely monitored to ensure that spending is in line with the framework to enhance accountability. To mitigate the risks to the Provincial budget management, the Executive Council has resolved to withdraw part of the delegations relating to shifting of funds (virements) from departments and assigned critical parts of this mandate to the Provincial Treasury.
From 2018/19, Compensation of Employees will specifically and exclusively be appropriated, and no one will be allowed to shift funds on this item to defray excess expenditure in another economic classification without approval of the Executive Council.
We will continue to enhance measures that are aimed at protecting the integrity of the Provincial budget and related processes.
Governance
The root causes for negative audit findings that need urgent attention by all departments and public entities are:
- Improvement of key controls and addressing risk areas;
- Consequences for poor performance and transgressions; and
- Instability or vacancies in key positions;
The on-going investigations on irregular expenditure that are being conducted by the Office of the Premier and other departments is a step in the right direction as the outcomes of these investigations should indicate appropriate action that may be taken.
It is important to note, Honourable Speaker, that no department or public entity in the Province received a disclaimer or adverse audit opinion for the 2016/17 financial year.
This is an indication that our public institutions are continuously focusing on improving the overall systems of internal control.
It is, however, imperative that our institutions improve and sustain future audit outcomes. We will continue implementing the commitment that we have made in this August house that certain departments and public entities should be subjected to interim audits without fail.
This initiative had a positive impact on MEGA which was subjected to an interim audit and indeed came out of a disclaimer.
2017 adjustments budget
Honourable Speaker
Revenue
The weak economic environment has a negative impact on the ability of the Province to collect revenue.
Notwithstanding these challenges, the Province managed to collect 66 percent of the annual revenue target of R1.2 billion at the end of October 2017.
In line with the previous budget commitment of raising the revenue targets to R4.2 billion, we will further adjust our projections upwards during the 2018 MTEF period.
Adjusted Fiscal Framework for 2017
The 2017 Provincial Fiscal Framework will be adjusted by R472 million.
The money available for this adjustments budget comes from approved rollovers on Conditional Grants amounting to R38 million, R13 million from Equitable Share and Provincial collections of R279 million amongst others.
Accordingly, the budget for the current financial year increases from R44 536 875 to R45 008 591.
This amount excludes a roll-over allocation of R66.872 million for the Education Infrastructure Grant that will be retained in the Provincial Revenue Fund until the infrastructure expenditure in the Department of Education improves.
This budget includes an unallocated contingency reserve of R5 million to enable the Province to respond to any eventuality during the course of this financial year.
Changes in budget allocation per vote
Honourable Speaker,
After consideration of mid-year performance and in-year budget pressures, the Executive Council has approved the changes to baseline allocations of Votes as follows:
Vote1: Office of the Premier
The budget of the Office of the Premier is increased from R289.769 million to R306.650 million.
Vote 2: Provincial Legislature
The budget of the Provincial Legislature increases from R317.291 million to R333.593 million to strengthen public participation.
Vote 3: Provincial Treasury
There is no change in the 2017/18 budget of the Provincial Treasury, which remains at R289.945 million.
Vote 4: Co-operative Governance and Traditional Affairs
The budget of the Department of Co-operative Governance and Traditional Affairs increases from R510.044 million to R515.044 million to strengthen support to municipalities.
Vote 5: Agriculture, Rural Development, Land and Environmental Affairs
In order to expand the support to emerging farmers, the Department of Agriculture, Rural Development, Land and Environmental Affairs receives an additional R19 million thus increasing the budget from R1.124 billion to R1.143 billion.
Vote 6: Economic Development and Tourism
There is no change in the allocation to the Department of Economic Development and Tourism which remains at R1.130 billion.
Vote 7: Education
The budget of the Department of Education increases from R19.322 billion to R19.587 billion to improve the outcome of the schooling system.
Vote 8: Public Works, Roads and Transport
The budget of the Department of Public Works, Roads and Transport increased from R4.765 billion to R4.777 billion.
Vote 9: Community Safety, Security and Liaison
The budget of the Department of Community Safety, Security and Liaison increases from R1.153 billion to R1.178 billion to facilitate the takeover of the licensing function from certain municipalities and enhance protection of state property amongst others.
Vote 10: Health
The budget of the Department of Health increases from R12.020 billion to R12.045 billion to deal with the malaria outbreak amongst others.
Vote 11: Culture, Sport and Recreation
Department of Culture, Sport and Recreation’s budget reduced from R511.232 million to R452.067 million.
Vote 12: Social Development
The 2017/18 budget of the Department of Social Development will be increased from R1.456 billion to R1.509 billion to conclude the ongoing infrastructure programme.
Vote 13: Human Settlements
The allocation to the Department of Human Settlements increases from R1.646 billion to R1.739 billion to improve housing, water & sanitation infrastructure in pursuance of sustainable livelihoods for all.
Conclusion
As I conclude, allow me to borrow the words of Pope Francis when he said,
“Human Rights are not only violated by terrorism, repression or despotic leadership but also by unfair economic structures that create huge inequalities.”
Inclusive growth depends on how these structures are changed, and we have made great strides in making the necessary changes.
There is hope that the dream of an inclusive society is possible. Tomorrow will certainly be better.
Honourable Speaker, I would like to extend my appreciation to the African National Congress and the Honourable Premier, Mr. DD Mabuza for entrusting me with the responsibility to prepare and table this Adjustments Appropriation on behalf of the Executive Council and the people of Mpumalanga.
To my colleagues in the Budget and Finance Committee and Executive Council, thank you very much for your support throughout the process of preparing this Adjustments budget.
To the Chairperson, Honourable Vincent Mlombo and Honourable Members of the Portfolio Committee on Premier’s Office, Finance, Economic Development and Tourism, thank you very much for your guidance and support to the Provincial Treasury.
I would like to acknowledge the contribution of the Director-General, Mr. Thulani Mdakane and other Heads of Departments in steering the administration course through this very difficult Adjustments Appropriation process.
To the Head Official, Ms. Bede Nkamba, all officials in the Provincial Treasury and my office, thank you very much for your commitment throughout this adjustments budget process.
I would like to give a word of appreciation to our special guest, Ms Gracious Nonkululeko Maphanga who spent the day with us whilst we were finalising this speech yesterday.
To all people of Mpumalanga, thank you for your continued support that enabled me to serve you to the best of my ability.
I will forever be indebted to my family and my children for their generous support as I perform this public duty on behalf of our people.
Honourable Speaker, I now have the honour to table:
- Mpumalanga Adjustments Appropriation Bill for 2017/18;
- Mpumalanga Adjusted Estimates of Provincial Revenue and Expenditure 2017,
- Provincial Adjustments Budget Speech for 2017/18 which summarises the budget decisions of the Executive Council, and
- Provincial Economic Review and Outlook 2016/17;
I thank you.
