Home Finance 2017 Limpopo Provincial Budget Speech

2017 Limpopo Provincial Budget Speech

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A hundred years ago in a village in Bizana, a child was born, who would grow up to be a ‘colossus that strode the world’ to quote President Mandela.

President Tambo if he was still alive would be a hundred years old this year in October. He is the leader whose name as you correctly said honourable Premier, is synonymous with unity. He led our people and our movement during the most trying period of our history, and was able to forge a united organisation and people. We are a testimony to his efforts as a new country and nation in the making.

Madam Speaker and honourable members, the 2017 budget statement is inspired by the vision of our country that President Tambo articulated when addressing the fourth congress of FRELIMO in 1983 in Maputo were he said and I quote “we in the ANC and the revolutionary alliance which we head, have never considered freedom to be the substitution of black for white faces in the corridors of power, while leaving unchanged the exploitative economic infrastructure from which racism receives its sustenance. We have always understood that the uprooting of the oppressive system must necessarily entail the seizure of the key centres of economic power – as stipulated in our Freedom Charter – and their transference to the common ownership of the people.”

We are also guided by the tasks the SONA and SOPA have set for us as implementers of the mandate of our people.

But we are doing all these when Global economic growth in 2016 has been lacklustre, though the world economic activity is projected to pick up pace in 2017 and 2018, especially in emerging market and developing economies, there is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the new United States (U.S.) administration and its global ramifications as well as June 2016, when the United Kingdom (U.K.) voted in favour of leaving the European Union (Brexit).

Global growth is projected to recover to 3.4 percent in 2017, then up to 3.6 percent in 2018. The Advanced Economies are projected to grow at 1.9 percent in 2017, and then to 2 percent in 2018, while growth in the Emerging Markets and Developing Economies will improve from 4.1 percent to 4.8 percent in 2018. In Sub-Saharan Africa GDP growth is estimated to show that the economy will rise to 2.8 and 3.7 percent in 2017 and 2018 years respectively.

Our country, honourable members, is a country with an unemployment rate of above 25 percent and is one of the most unequal societies in the world. In recent years the mining industry has been culling jobs as commodity prices have fallen in the international markets, throwing many communities and towns into economic distress. The loss of jobs in mining is felt in other industries as well, hence the general saying in South Africa, that when mining sneezes, the economy catches a cold.

The South African economy only expanded at an annualized 0.2 percent in the fourth quarter of 2016, compared to vastly improved growth of 3.5 percent in the third quarter of 2016 and it is estimated that the economy will only expand by 0.9 percent in the first quarter of 2017. From the third quarter of 2016 to 2017 the economy showed positive signs of growth and it is mainly supported by mining, general government services and real estate activities. The largest contributor to GDP growth in the third quarter of 2016 was mining and quarrying, which grew at 5.1 percent. This was largely due to increased production in the mining of ‘other’ metal ores, iron ore in particular.

Activities related to the local government elections in August 2016 also contributed positively to economic growth. The payment of additional salaries to thousands of temporary electoral staff, as well as increased spending on goods and services, pushed general government services up by 1.8 percent. Other industries that recorded positive growth were finance (1.2 percent), personal services (0.6 percent), construction (0.3 percent) and transport (0.3 percent).

The economy of Limpopo province has sustained a positive trajectory over the years, only recording negative growth in 2009 largely due to the global financial crisis. The local economy has been on a positive growth path in the past years, recording a 2.0 percent GDP growth rate in 2015 however, honourable members, 2.0 percent GDP growth rate is below the LDP targeted GDP growth of 3 percent which was deemed suitable to stimulate job creation in the province.

In terms of the Districts economic performance, the Districts’ GDP growth rate trends tend to follow a similar pattern with the provincial trend. Waterberg District economy has been performing better than the other Districts and this is mainly attributable to the recent economic activities in the Lephalale area of the District. Generally, the Limpopo Districts economies are on a positive path except for Vhembe and Mopani Districts which recorded negative growth between 2012 and 2014.

Honourable Speaker, we do believe that when it comes to the Vhembe Region, the development of the Makhado Musina Special Economic Zone will have a huge impact on economic growth in this region, the developments thus far are progressing as anticipated and details of this exciting project will be elaborated on by the MEC. In Mopani we see that considering the good rains we have experienced in the region the growth in the agricultural sector will be significant.

In terms of contribution to the provincial GDP growth in 2015, Agriculture has experienced a negative contribution of -0.2 percent; this is evident due to the prolonged severe drought in the province that affected the horticultural crops and animal production. We hope for an improvement in this sector due to the recent rains, which many believe has broken the drought, re a leboga PULA!!!

The Minister of Finance during his speech to the National Assembly last week suggested 9 principles to guide the transformation agenda, and we refer to 5 here, those being:-
– The litmus test of our programs must be what they do to create jobs, eliminate poverty and narrow the gap of inequality;
– Transformation must result in an economy that belongs to all, black and white, where the legacy of racial domination is no longer visible;
– Transformation should build on and strengthen democracy and entrench open and transparent governance;
– Transformation must achieve a more balanced structure of ownership and control of our economy;
– We must also confront cartels and collusion robustly and provide new opportunities for access to markets.

The five points mentioned above will be something that EXCO may want to consider in detail to ensure that we can consistently measure the transformation in the economy, particularly in the SCM space. We need more people to be economically active and radical transformation is therefore, not an option but a must. To increase our tax base the transformation agenda should be aggressively implemented.

Honourable members, it is by now a settled discourse among policy makers that public procurement can be used as a means to achieve horizontal policy objectives of governments the world over. These include examples like buy–America and preference for small and disadvantaged business in the USA, set-asides for aboriginals in Canada and targeted procurement for indigenous business in Australia.

It is therefore not surprising that South African government has identified public procurement as a lever to promote socio-economic policies and transform this all important sector. Policies play a crucial role but without proper implementation and commitment to implement from all stakeholders, they become a policy failure. The successes of the Preferential Procurement Regulations in 2017 will be dependent on the commitment of all stakeholders to realise the dream of an inclusive economy.

To give impetus to the NDP, the President announced in his State of the Nation Address in 2015 that “government will set-aside 30% of appropriate categories of State procurement for purchasing from SMMEs, Co-operatives as well as Township and Rural Enterprises”.

The Preferential Procurement Regulations 2017 are premised on three inter-related government policy objectives:
– Socio-economic transformation;
– Promotion of Small Enterprises, Cooperatives, Rural and Township Enterprises; and
– Promotion of Local Industrial Development.

The Preferential Procurement Regulations, 2017 provides for an added advantage to designated groups and Small Medium and Micro Enterprises (SMMEs) also classified as EMEs and QSEs in the BBBEE Act and the Codes of Good Practice.

Introduction of pre-qualification criteria for procurement on the basis of B-BBEE status level, requires that EMEs or QSEs which are 51% owned by either of the following individuals, partnerships or groups: Blacks; Black Youth; Black Women; Black people with disabilities; Black people living in rural or under-developed areas or townships; cooperatives owned by Black people and Black Military Veterans will qualify to do business with the state.

Therefore the introduction of a pre-qualification criteria will allow the advancement of these selected categories of people by limiting competition, amongst themselves. Well established companies will also be able to compete if they meet further requirements of subcontracting to these designated groups should they (established company) be successful in being awarded state tenders. The revised regulations require organs of state to plan and identify tenders that will be used for empowerment in terms of pre-qualification criteria, compulsory subcontracting, local production and content or general application of the preference point system.

It is here Honourable Speaker and Honourable members that each department’s procurement plan with the necessary timelines will be scrutinised to ensure these opportunities are met. Ensuring that there is fair distribution of subcontracting opportunities amongst designated groups. Ensuring that subcontractors are drawn from the central supplier database to avoid contracts being awarded to bogus and undeserving enterprises. Where it is necessary to negotiate with the preferred suppliers, those negotiations are conducted with fairness and integrity and not to favour or disadvantage any supplier.

The expected outcomes to these changes is that an increased number of designated groups will participate in economic activity of the country especially through public procurement; and there should be an increase in monetary value of tenders awarded to these designated groups.

The Public Procurement Bill aims to, among other things, define and articulate a system of public procurement and supply chain management consistent with the provisions of our Constitution; Allow for the flexible and effective pursuit of policy objectives which should redress the imbalances of the past, while committing to an environmentally sustainable future; and provide for public procurement which is developmental in nature and outlook, aspiring to expand the productive base of the economy, supporting innovation and investment.

The Bill, once enacted, would replace the PPPFA in its entirety and introduce measures that allow for targeted procurement in a more intentional manner. Public Procurement Bill, once passed will consolidate all procurement laws into a single legislation.

Here in our province, honourable members, we have negotiated an instrument with our banker, Standard Bank, as you will recall we announced this facility in last year’s tabling of the budget, however it has taken us a year to develop and agree to the terms of reference and the legal framework with the bank and so now we have a facility with a value equivalent to R300 million over the next three years, which will assist those emerging enterprises mentioned above to offer the state services. This facility is to provide bridging or working capital to these identified suppliers who are awarded tenders yet face challenges in carrying out their projects. We will provide details to this august house once finalised.

In the same breath allow me madam speaker to thank Standard Bank who on behalf of this administration donated ten houses to designated individuals in the Tzaneen and Makhuduthamaga Municipality’s. We will continue to partner with Standard Bank in addressing the various challenges that we are grappling with.

Honourable Premier, indeed as you pointed out during SOPA, audit outcomes of our province continue to improve. Operation Clean Audit as instructed by EXCO is in full swing, the ideal is that we should achieve and sustain clean audits in all provincial departments and municipalities in the short to medium term. The role of oversight bodies like Audit Committees, Internal Audit and SCOPA, MPAC at municipal level, are fundamental to good governance and accountability as has been emphasised on numerous occasions, and it is happening.

Our continued Section 18 intervention in Education is beginning to show some positive results and we are predicting that we can salvage this department out of a disclaimer audit outcome at the end of this financial year. There is still some work to be done and we anticipate to exit from the finance division in Education by the end of July 2017.

We have as the Provincial Treasury agreed with the National Treasury, to focus on the following key issues, those are, to improve accountability, to ensure effective financial management and insure good governance in all departments and public entities.

Honourable Members as you are aware the new Municipal Standard Chart of Accounts (mSCOA) will be implemented form 1 July 2017, and it is envisaged to contribute to greater transparency and consistency in municipal finance. As mentioned to improve audits in this sphere of government, we must appoint appropriately skilled senior management in the administration and we will be discussing the issue of ICT in the municipal sphere, one system for all is our thinking.

While introduction of the Central Supplier Database (CSD) will improve transparency and fairness in the procurement space, we will also monitor and provide support on revenue management, including appropriate tariff setting, regular billing and an effective collection system. Focus on the confirmation of government debts, and payments to Municipalities as an offset from the departmental allocations.

We will also monitor and support asset management to ensure that each Municipality has a credible asset register and that once submitted for audit it is reliable and appropriate. Performing asset work is very tedious and hard work, we need dedicated and committed staff to carry out this responsibility, and this cannot be outsourced.

Through EXCO, we have allocated R50 million to Thabazimbi Municipality, and R20 million will be allocated to Musina Municipality in 2017/18 financial year to cushion financial distress. Provincial Treasury has also seconded an official to Mokgalakwena Municipality as an acting CFO, a financial specialist to Thabazimbi Municipality and an acting Municipal Manager to Vhembe District Municipality, this is done to assist administration whilst the Municipalities are in the process of filling the vacant positions. It is about our intergovernmental relations and our responsibility to assist local governments to manage and ensure there is quality service delivery to the people of the province.

Our budget process, honourable members, is aligned to the National Treasury budget process schedule which is issued every year.

Provincial Treasury plays a crucial role in driving the budget reform process in the province.

During the preparation of budget for the 2017 MTEF it is the responsibility of the Provincial Treasury to ascertain that all departments submit the required budget documents on time and in the correct formats. The Provincial Treasury does this task as part of the Executive Council Budget Committee (EXCOBUDCOM) responsibility, which ensures better alignment of budget allocations to policy priorities within the expenditure control framework.

The provincial government derives funding from Equitable Share, Conditional Grants and Provincial Own Revenue. The Equitable Share budget for 2017/18 financial year is R51.9 billion. This amount is projected to grow to R55.4 billion in 2018/19 and R59.4 billion in 2019/20 financial years respectively. The Conditional Grant allocation is R7.9 billion in 2017/18, R8.4 billion and R8.9 billion for the years 2018/19 and 2019/20 respectively. Provincial Own Revenue estimates increases from the original estimates of R1.0 billion in 2016/17 to R1.1 in 2017/18 financial year. This amount is projected to grow to R1.2 billion in 2018/19 and R1.3 billion in 2019/20 financial year.

Provincial own revenue forms part of the total provincial receipts that is allocated to departments to address provincial spending priorities. The provincial own revenue collection contributes R1.1 billion or only 1.8 percent in 2017/18 financial year.

Of that revenue the bulk of the revenue is generated in the Department of Transport at 43.4 percent mainly on motor vehicle licenses, followed by Provincial Treasury at 16.5 percent from interest earned on positive bank balances.

Department of Health is the third largest revenue contributor at 16.1 percent, here Honorable members we anticipate to improve our revenue collection considering Treasury’s additional funding given to Health to ensure there are revenue clerks at all our facilities to improve the collection of patient fees, while Economic Development, Environment and Tourism contributes 13.4 percent primarily from casino and horse racing taxes, and we anticipate that considering the investment made on the improvement of facilities in our game reserves we will realize an increase in the revenue stream. Other Departments contribute 10.6 percent of the total provincial own revenue collection.

A budgeted amount of R61.4 billion is made available for spending by provincial departments for 2017/18 financial year. This amount is projected to grow to R64.3 billion in 2018/19 and R68.1 billion in 2019/20. The allocation represents a positive growth of 7.9 percent in 2017/18 and 6.1 percent over the MTEF. The growth rate increase of 7.9 percent in 2017/18 is mainly influenced by the allocation of the total provincial own revenue and additional funding made available through cash reserves to fund provincial priority projects in an endeavour to reduce the unemployment rate, alleviate poverty and reduce inequality in the province.