Medium Term Budget Policy Statement: Economic Services & Infrastructure Administration

Meeting report

JOINT BUDGET COMMITTEE
1 November 2001
MTEF PRIORITIES FOR ECONOMIC SERVICES & INFRASTRUCTURE ADMINISTRATION: BRIEFING BY MINISTERS

Relevant documents
Medium Term Budget Policy Statement 2001
Presentation by the Minister of Communications (Appendix 1)
Presentation by the Minister of Public Enterprises (Appendix 2)
Presentation by the Minister of Public Works

Chairpersons: Ms D Mahlangu (ANC) and Ms N Hlangwana

SUMMARY
The Minister of Communications identified three key areas that needed funding. These included the restructuring of the Post Office, increasing the capacity of ICASA and the Emergency Communications Services. She said that if the Department did not need the money it would not take the government subsidy but at the moment it was important to ensure that the Post Office does not return to the desperate position that it had found itself in, in the past.

The Department of Home Affairs made its presentation according to the question given to it by the Joint Budget Committee. It explained some of its major line functions within the Department, which are civic services and migration, which it described as "growing industries".

The Minister of Public Enterprises presented commentary on his Ministry’s budget. Questions were raised about the restructuring of state assets such as Telkom and Eskom. There was concern that restructuring is equal to job losses. However, the Minister disagreed with this argument. He tried to explain how and why certain jobs are lost in the process and what the government plans to do to ensure that restructuring does not impact negatively on the people of this country.

The Minister of Trade and Industry’s address spoke of the remarkable strides that the South African economy has achieved from 1994 up to the present. He indicated that the threshold of South African foreign exports has remarkably improved. The Department has also succeeded in effectively managing and reducing its cash rollover. It also plans a benchmarking exercise in order to be among the top five government departments.

The Minister and Director General of Public Works indicated the important strides that the Department has achieved in implementing its program. The Minister said that the public works programmes has contributed to a substantial boon to employment creation. The department was however, looking at ways to create more sustainable employment opportunities. Women have also largely benefited from the department’s programmes.

MINUTES
Before the first minister made a presentation, Ms Mahlangu (Co-Chair) pointed out that a query had been raised about the exclusion of the Ministry of Defence from the programme.

Mr Andrew (DP) said that Defence is a major item of spending and should be included on the program.

Ms Mahlangu said that Defence does not fall into the category where spending is prioritised in
the MTBPS. Another member agreed with this view.

Ms Mahlangu asked for guidance from the Committee.

Ms Hogan said that there would be no harm in Defence being included since there is a specific request for that.

Ms Mahlangu asked if the members agreed that Defence should be called.

An ANC member said that the programme had already been agreed on and if Defence were to be included, it should have been done at that stage.

Mr Andrew pointed out that Ms Mahlangu had herself said that everything had been done at the last minute. Protection Services was broadly included and it was assumed that Defence would be included because it is part of this category. Now it appears that Defence is excluded and the issue was immediately raised. The programme was quickly scribbled down at the Committee’s first meeting (31/10/01). If the Committee is adopting such a formalistic approach, then it should say so.

Ms Mahlangu said that Defence would be invited to attend and that the matter was closed.

Minister of Communications presentation on MTBPS
Ms Ivy Matsepe-Casaburri spoke on the three areas identified as priorities in the MTBPS:
· Restructuring of Post Office
· Increasing capacity of ICASA, and
· Emergency Communications

Restructuring of Post Office
In 1999 it had been thought that the subsidies paid to the Post Office would come to an end
because profits would be made. This was not the case because the equity partner did not
deliver and continued losses were incurred. The Post Office needs to be restructured and lots
of money is needed for this. In the adjustment budget R600 million has set aside for last year
and this year to cover some of the needs.

The restructuring of the Post Office will take place within the following context:
- Postal service is a basic means of linking the entire population
- Providing an accessible and efficient postal service is essential for social and economic
development
- Increasing new communication technologies
- New e-commerce environment
- Inequalities in accessing postal services, in employment practice and in procurement practices.

One of the challenges faced in the restructuring is providing more postal outlets and the
upgrading of the postal infrastructure.

The Minister said that new technology is needed in order to be competitive and to deliver services such as e-commerce. Internet projects already deliver this in some rural areas. To improve the Post Office, resources are needed. The restructuring challenges have resulted in more qualified personnel and management. The new management provides confidence in better resource management.

The losses of the Post Office are being investigated. All the contracts the Post Office has concluded are being looked at. The losses meant that resources had to be diverted
to where there were leakages. The Post Office suffers from much crime. Syndicates
use the Post Office as a conduit and resources are needed to work against this.

An important area of restructuring is the Post Bank. A diversification of services will be
introduced. Institutional barriers will be reduced to provide loans to small and medium
enterprises. The Post Bank targets people who want smaller loans and it should be able to
deliver welfare payments to persons. An important change is that Post Bank is going to be
ring fenced and the assets of the Post Bank will be separated from the Post Office.

Increasing capacity of ICASA
Certain regulatory functions need to be ensured that they are performed. For example, the second national operator must be licensed. ICASA must hold hearings and this takes long. ICASA must scrutinise the plans and the technical equipment. Resources are needed for this. When decisions are made, often they cannot be implemented or they are contested in court. It is important that ICASA has the capacity to enforce the regulations it makes. ICASA trains individuals but they are poached by industry and this seems to be a vicious cycle. Now that Cell C is here ICASA will have to monitor its license conditions and collect the fees. This all means that an increased budget is needed for ICASA.

Emergency Call Centres
The national call centre is to provide a singular contact point for people in need of emergency assistance. One phone number will be accessed for the ambulance, police, fire brigade and other related services on a 24 hour basis. The 2000/01 allocation is R20 million.

Discussion
Ms Hogan (ANC) wanted the details of the shortfall expected. The budget states that government will be providing a subsidy for the Post Office for the next 3 years. She also asked the Minister how confident she was that the Telkom IPO and the M Cell deal would take place in 2003.

Mr Pieterse (ANC) asked how technology such as fax and email affected the Post Office.
He asked how can the brain drain be stopped and how long before the emergency centres are up and running.

A member commented that full services were normally found in advantaged areas and that only satellite offices were provided in the previously disadvantaged areas. He asked what is being done to change this.

Mr Andrew (DP) found it strange that the subsidy does not go up or down because if proper planning is done, it should not be that the same amount that is required every year. He asked why the subsidy cannot be reduced over the next three years.

An ANC member commented that it was good that the Post Bank would be ring fenced. He asked when the Post Bank would be rolled out in rural areas.

Other issues raised were: a request for the Minister to comment on the Carte Blanche issue and a query regarding how many jobs would be created.

The Minister’s Response
- The Post Office had embarked on a re-balancing of facilities within South Africa. It is not so simple to move one Post Office to another area as a competitor will just come in if the Post Office moves. The rebalancing program investigates in which areas there is not a full service. In these areas new technology must be set up rather that installing old technology. All this depends on the roll out of telecommunications infrastructure. Transtel and Eskom must come on board with their extensive telecommunications infrastructure. Wherever these companies provide electricity and railway, the telecommunications infrastructure can be linked to the Post Office. This will make electronic transfers from one Post Bank to the next possible which will be accessible and fast. This is important for migrant workers who will no longer need to send money through the post. The rendering of a better service is linked to the telecommunications infrastructure. The right technology is needed and the right persons to make it happen .
- The Post Office had not been not properly prepared for technological advances such as email.
- Investigations suggest that employees are running their own business from the Post Office itself. She said that the possibility of getting the Post Office back on track is good.
- The Department would not want a subsidy if it was not needed. It is important to ensure that the Post Office is not put into the position it was in the past.

The Director General, Mr A Ncgaba, said that the issue of the opening of mail dealt with in the Carte Blanche programme, has been addressed. There have been investigations, people have been arrested and prosecuted.

Due to time constraints, the remaining questions will be given to the Minister in written form.

Department of Home Affairs
Mr I Lambinon (Deputy Director-General: Department of Home Affairs) said the Department’s priorities for the Medium-Term Expenditure Framework (MTEF) can be divided into two line functions: civic services and migration. In addition to this funds have to be provided for population control as well as transfer payments for Independent Electoral Commission (IEC).

With the approval of the Cabinet an investigation was done on the restructuring of government printing with a view to taking it out of the direct control of government.

The focus of Mr Lambinon’s presentation was on the Department’s civic and migration services. Both functions involve a great deal of personnel from within the Department and the Home Affairs budget therefore has substantial expenditure on personnel. Under the roof of this Ministry one finds two of the fastest growing "industries": growth in population (civic services) involving the population register; and immigration. In many countries, these two services have been separated.

Recently the Minister through the Immigration Bill proposed that immigration services should be an independent body. However the consensus within Cabinet was that it be retained under Home Affairs. The need for the Immigration Bill to replace the Aliens Control Act of 1991 is viewed to be of particular importance. The other policy initiative of the Minister relates to the devolution of the civic services to local authorities. Civic services deliver services to the South African citizens in the form of birth, marriage and death registration, passports, ID documents and other related citizenship matters.

Migration services involve the issues of temporary residence permits, permanent residence, illegal foreigners within the country, asylum seekers and refugees and monitoring of entry points.

Projects of concern include Home Affairs identification system, fingerprint system, and movement control system.

Discussion
Mr T Ralane (ANC) queried that - in combating ghost social grant recipients - were there plans to link the IT systems of the Departments of Social Development and Home Affairs in order to have a proper auditing of pensioners? Secondly, were there centres in the country for asylum seekers?

Mr Lambinon replied that that was why the Department was introducing a new national identification system in order to combat the ghost social grant system. There are centres where asylum seekers have to report on entering the country and where they would be evaluated as to whether they are genuine asylum seekers. So far the Department is encountering problems because not many were genuine asylum seekers but what one could classify as ‘economic refugees’.

Mr M Sikakane (ANC) asked if taking certain civic services such as the issuing of ID documents and passports down to local authority level, would improve the situation at the Department of Home Affairs?

Mr Lambinon responded that this is a matter that government has approved at Cabinet level but it still has to be looked at. The primary thought behind this is that local authorities deal directly with local citizens and could be the best organisations in rendering such services whereas Home Affairs would have to set up structures at such levels to render such services. Health clinics for example could register births - but this idea was still in principle only.

Dr S Cwele (ANC) asked for clarity as to what had happened to the assets of the government printing works at Umtata which had closed down. Secondly, did the Department have a policy of using the previously disadvantaged for its advertising needs? Thirdly, what were the obstacles preventing the Department from eradicating the illegal issue of IDs and passports?

Mr Lambinon noted that many of the former independent states had printing works. The rationalization of government printing works had resulted in the Umtata printing works closing down and all the assets were taken to Pretoria.

He said corruption in the Department is being given prominent attention, especially the issuing of IDs, passports and permanent residence for R30 000 to R40 000. He mentioned the incident where a stock of passports were being transferred from a government printing works to Home Affairs and the truck was hijacked between the printing works and the point of delivery. Every possible effort is being made to prevent the documents landing in the hands of wrong people for purposes of self-gain. Extreme measures in the Department are in place and he was convinced that the Department was getting on top of the things.

Mr E Sigwela (ANC) commented that in rural areas Home Affairs offices lack facilities such as computers and transport and wondered whether in the preparation of the budget these things have been catered for?

Mr Lambinon responded that they have mobile units for servicing rural areas. They are aware that some offices do not have computers. The upgrading of offices is considered "of the highest priority" but funding is the major problem.

An ANC member observed that the Department had some rollovers and wondered whether there were plans to address that? Secondly, he observed that the Department wants to change IDs into ‘smart’ cards the size of credit cards and he asked if the Department has provided for that in its budget.

Mr Lambinon replied that all related departments are involved in this smart card of Home Affairs national identification system. The present identification ‘green’ book was not ‘secure’ and would be replaced by a card with all the security measures in that card to make it secure.

Mr R Pieterse (ANC) observed that the Department’s facilities "are not particularly user-friendly to women and disabled" and wondered whether were there any means of changing that?

Mr Lambinon acknowledged that some of the facilities of the Department were not user friendly and his response was, "We can only apologise for this" . They are doing their best as far as the training of staff is concerned and to make their facilities as user friendly as possible even for handicapped people. In many instances they have to rent their facilities and make do with what was available to them.

Mr M Masuthu (ANC) asked how far advanced was the Department’s verification system within the population register and are there any plans "to bring it up to scratch?"

Mr Lambinon responded that South Africa was one of the few developing countries that had not only a verification system based on fingerprints for IDs but also for passports. However the only problem was that they were using a manual identification and verification system.

Ms Mahlangu (ANC) noted that KwaZulu-Natal and Eastern Cape colleagues have told her about problems around the delivery of IDs to people living in rural areas. She asked what was classified as an important service for Home Affairs. What capacity and mechanisms does it have to ensure that people in the rural areas are receiving these services? She referred to the obtaining of South African identity documents through marriages of convenience and asked if the Department has included that as a major priority to be tackled.

Mr Lambinon responded that the Department has mobile teams which go out into the rural areas but due to the shortage of funds, they are unable to make this effective. He noted that marriages of convenience have escalated but this problem was not unique to South Africa. He added that there are also a number of cases where people have been placed on the population register irregularly. This was being investigated to see how they got into the register and it was hoped to rectify that in due time.

Briefing by Minister of Public Enterprises
The Minister of Public Enterprises, Mr Jeff Radebe, told the committee that the vision of his Ministry is to have restructured state-owned enterprises in a globally competitive environment, promoting economic growth and a better life for all. Among the department’s strategic objectives is to maximise shareholder value to realise the economic and social objectives of the state and to develop stakeholder management plans to promote the department’s restructuring programme. [For more details please refer to attached document]

Discussion
Mr M Sikakane (ANC) asked what advantages will the conversion of Eskom bring to the majority of people in this country. He said he is asking this question because Eskom is the giant of the electricity industry in the country and whatever is done, should be done for the good of the country and its people.

Minister Radebe replied that the major advantage of the incorporation of Eskom is that it will be in line with other state-owned enterprises which are already public companies in terms of the company laws of the country such as Telkom and Transnet.

He added that this would give Eskom a chance to account properly to the general public on its activities. As of now the accountability of Eskom is confined only to the shareholder. Now that it will be a company, this will improve its accountability and enhance its corporate governance. Moreover there are resources that are going to be released to the public through dividends and tax, which is not the case now. If it operates like a company this will give it more weight when it embarks on the Africa partnership strategy for development of the continent.

Mr Pieterse (ANC) asked whether restructuring is equal to job losses because this is the reason why the trade union movement is against the programme of restructuring.

Mr Radebe replied that there is no evidence before him that says restructuring is equal to job losses. But the government and organised labour have contingency plans that will deal with job losses in the event that this occurs as a result of restructuring. According to the Minister these social plans are going to be sectoral, and will involve government departments, organised labour, the private sector and other organisations involved in poverty alleviation programs.

The Minister agreed that there have been job losses in some companies for example Telkom has lost more than 10 000 jobs in the last three years. But this has nothing to do with the 30% that Telkom sold to private companies. Those job losses came as a result of the redeployment of new technology in the telecom sector, not only in South Africa but also globally. For instance in the past, copper cables were used that needed much labour. But now with the ICT revolution, it is a wireless technology which does not need much labour. That is the main reason for those job losses.

Mr L Zitha (ANC) asked if there is any mechanism to ensure that tenders are accessed by black people in the R60 billion arms procurement deal.

The Minister said that is precisely what the government is working on. The government needs to see a sizeable chunk of that money going to black-owned small and medium enterprises.

Mr T Ralane (ANC) asked does the department have a plan to address affordability of electricity for poor people. What are the plans for basic free electricity for the poor?

Minister Radebe said it is for this reason that the government has taken a decision to provide free basic services for poor people, especially water and electricity. The Departments of Minerals and Energy and Water Affairs as well as Eskom are going to the different parts of the country to see how this system works.

Mr Baloyi asked a similar question on the restructuring programme. He said this programme would not benefit ordinary people because the companies are looking for profit maximisation, they do not have the interest of the people at heart. As a result of this restructuring, ordinary people will suffer because electricity prices go sky high.

The Minister replied that those price hikes have nothing to do with parastatals per se, that is the role of the electricity regulator. The electricity regulator has an obligation to balance the objectives of electricity for all as well as quality of service and the state of economy in South Africa whenever they make decisions on the price of electricity.

With regard to social objectives and having the interest of the people at heart, the Minister added that there are strategic areas where the private sector is unable to do better for the people. Thus there is always a role for the state in the economy to ensure that a better life for the people is of paramount importance. Even in the market economy, sometimes there are market imperfections whereby the state had to intervene.

Mr Maloyi (ANC) asked whether the parastals are taken on board in the strategic equity partnerships. To what extent are the parastatals involved in the strategic partnerships.

The Minister replied they are going to be using a preferential procurement policy that will look at parastatals. However, he pointed out that parastatals have to strive for themselves in the market place. The government does not want to encumber the parastatals with policies that will not work in the market place. The department needs to strike a balance by using progressive procurement policies that will enable these companies to do business and succeed in the market place.

An ANC member asked why municipalities that are selling electricity are so viable and those that are not selling electricity, are poor. Is it true that this Eskom conversion is disempowering these smaller municipalities.

The Minister said this is not disempowering municipalities. On the contrary, this is to give power to the municipalities so that they can be responsible for distributing electricity to their communities thereby generating revenue for themselves from that. He did not believe that Eskom should be burdened with revenue collection. Instead Eskom should be looking at issues of the broader economy by ensuring that they generate enough electricity and transmit it to the municipalities at the end of the day. That should be Eskom’s responsibility.

Of course there are municipalities that are poor and therefore the government has taken the decision to ensure that they group municipalities, combining the poor and rich together. Although he is not sure whether the process is a success - it is a step in the right direction.

Mr Masutha (ANC) wanted to know what would the establishment of Arivia.kom mean to ordinary people. Is it possible for the surpluses from these parastals to be given to the poor in order to empower themselves.

The Minister replied that the incorporation of these parastatals is meant to solve the problem of the empowerment of the poor from the programme of restructuring state assets. The government is trying to avoid subsidisation by making public resources properly accounted for. They are also trying to build a corporate approach in these parastatals which is very important. The surpluses that are accrued by the parastatals should be paid to the government as dividends. The government, with its own policies, will redirect those proceeds into social programs.

Presentation by the Minister of Trade and Industry
Minister Erwin remarked that a few years it would not have been possible for Parliament to bring about a major structural change in the South African economy. The basic structure of the economy has changed putting it in a position to achieve a great number of different things. The investment performance is now across all sectors. This is an indication of the structural change in the economy. Previous investment drives tended to focus on particular sectors, whereas now there is a healthy investment trend in every sector of the economy. The economy’s relative price structure is now in a healthy position. All sectors are enjoying far more competitive inputs and are able to keep their prices more stable and improve the quality of products. South African exports are also becoming extremely competitive in the international markets. In 1994, the total value of manufactured exports amounted to some R36 billion. By 2000 this had improved with R109 billion exports being recorded. As the medium term budget policy statement indicates, this is important because the Department has structurally changed the nature of the South African economy.

One of its persistent constraints in the past has been a balance of payments constraint and its inability to grow because it was unable to export and to attract capital. The balance of payments position is now healthy despite slow-downs in other industrial economies. This helps in attracting investments. Both domestic and foreign investors acknowledge the stability of the South African economy and the changes that have been made to it. South Africa has attracted significant investments from Japan in respect of the sophisticated chemicals sector and in the automobile industry. These changes are healthy and important.

The Minister remarked that the real challenge that faces South Africa is to make the money that has been made available work. This would mean getting it and investing it in the rural areas and also in the urban upgrading process and supporting the growth of small and medium enterprises so that there may be an effective distribution of income in the economy. The restructuring of the Department of Trade and Industry has been an important step in attempting to set targets in many projects.

He remarked that it was hard to gauge what is happening in the small and medium enterprise sector. The number of registrations had risen dramatically by 300 to 400% in the past three year period. The majority of these registrations have been small and medium enterprises and most of them are black owned.

The Department of Trade and Industry has also begun to work in a more targeted manner. There has been a recent signing of Memorandum of Understanding between the Industrial Development Corporation, Development Bank of South Africa, Khula and the Department of Trade and Industry. This has been piloted in the Lubombo area where finance packages are offered to investors and small business enterprises for that area. There has also been an investment of the Mercedes plant, Daimler Chrysler, in East London. The Department has also worked with Alusaf in Richards Bay. The Department thus works more on the micro aspects of the economy in line with the budget speech of the President at the beginning of this year. It does detailed work with industries such as the automobile, clothing and textiles, jewellery, craft, electronics and steel industries. It has also launched the South African Boat Building Council which constructs yachts and ocean going boats.

The Minister remarked that he was very pleased with the Department’s performance on the financial front. It has changed from its position in 1997 where it rolled over nearly 40% of its funds to now rolling over less than 3%. This reflects much tighter financial management, a better arrangement of the budget, a clearer definition of its tasks and a clearer picture of how the department can most effectively use money in the budget. The financial management of the department is thus very strong.

The department’s target is that it 2004 it will conduct a benchmarking exercise in which it is expected that the department would be among the top five of the government’s departments. Later this year, the government and the department will deal with the revised small and medium enterprise strategy which is currently before Cabinet committees and clusters. This will be discussed extensively with a number of other stakeholders such as Nedlac. This strategy would be launched early in the following year. The whole government will commit itself to a black economic empowerment strategy with new legislation to be announced by the President early next year.

On the trade front, the Department has done exceptionally well in trade. The department was also very pleased with the finalisation of the Southern African Customs Union Agreement in its seven years of negotiation. This Agreement may well be a model for economic integration in the rest of the African continent where there is a sharing of decision making.

Discussion
Mr Theron (NNP) asked how much the international slow-down that the Minister had spoken about will affect South African exports. He also asked what strategies can the Department embark on to redress the raging unemployment and abject poverty situation in South Africa.

Minister Erwin replied that it was clear that the international slow down could be a problem for the country, more especially with the United States economy in recession, there would be difficulties. However South Africa’s trading pattern is much more divested in other emerging markets. Further, South Africa’s largest trading partner is the European Union, which is comprised of 15 countries. South Africa’s trade performance has outperformed the world growth trade rate. It is due to this diversification and the fact that South Africa is moving to trading in different products which are very competitive. There is no doubt that the impact on South Africa will be less than in most countries. South Africa is performing very well compared to all other economies. Thus the impact of international slow down would be low.

Ms Mahlangu (ANC) asked a question about the strategic investment incentive project which has an allocation of R3 billion over the next four years. In the Minister’s opinion, would South Africa reap any benefits as far as unemployment is concerned by creating employment opportunities and also higher rates of investments and economic growth.

Minister Erwin replied that there are very important investment projects in the pipeline. These projects will have a good impact on the South African economy. In addition to this the Industrial Development Corporation is investing about R20 billion in the next four years in the tourism industry on the coast. There is thus a lot in the pipeline.

On whether the strategic investment project will create more jobs, the Minister replied that this was still a new incentive and the department was still feeling its way around it. It is a difficult incentive and there are some hurdles to be overcome because there is a lot of money to give. He was pleased with the fact that there is something like 60 applications that have already been filed. The SIP projects are not designed in their own right to necessarily create jobs or employment opportunities. Some of them qualify on that basis such as big textile or clothing companies. However, others may create very little employment.

Mr M Masutha (ANC) remarked that one of the thrusts of the Minister’s address is that there will be an heightened emphasis on boosting the small and medium enterprises. There are some governmental projects that also gravitate towards the realisation of this goal such as the poverty alleviation program. To what extent is the sum coordination between all these initiatives to promote entrepreneurial skills within communities so that they can utilise the available opportunities.

Minister Erwin said that there is some coordination. The Department of Trade and Industry has a Council of Trade and Industry Institutions which meets four times in a year. This organization is a Chief Executive Office of all the Department of Trade and Industry’s structures. This organization then looks at coordinating with small and medium enterprises and also coordinating on the rural development strategy.

Mr Kgalane (ANC) asked if the Minister could quantify the number of small and medium enterprises that have succeeded and those that have failed and what is the extent of their impact on the South African economy.

Minister Erwin replied that it was difficult to give an exact quantum of the SMMEs but said that there are many. The South African company registration office registers approximately 800 000 companies each year. It was also difficult to say how successful these companies are. Everywhere in the world there is a high failure rate for SMMEs. However, the Department of Trade and Industry will start looking at ranking companies and calculating their impact on the economy. There was no doubt, however, that the contribution that SMMEs make on the South African economy is growing.

Mr Zitha (ANC) asked if the generalized improvement of the economy that the Minister spoke about is linked to the depreciation of the Rand. He asked if the new economic improvement is based on productivity and how sustainable it is.

Dr Conroy (DP) asked what effect does the depreciation of the Rand have on the South African exports.

Minister Erwin replied that this was an important point because the previous structure of the South African economy and the previous monetary policies of the old regime were anti-manufacturing because they were not prepared to have a flexible currency. A flexible currency is the correct policy instrument for manufacturing because it allows the manufacturers to benefit from growth and exports. Productivity is improving. It is even improving faster than Australia’s productivity in the 1990s and this is a very positive sign.

Mr D Hanekom (ANC) asked if the South African currency exchange rate was not affecting some industries because of their dependence on imports which are now more expensive. Secondly, he asked if it was not desirable to initiate some government initiative or intervention to set up industries that create a market rather than supporting or assisting small SMMEs on the ground. For example, India has an extensive recycling SMME industry.

Minister Erwin replied that the most important thing about growth in SMMEs is that one cannot bring about a growth in SMMEs in an economy that is not growing. It is difficult to bring about growth only through SMMEs and no economy has ever done that. The main objective that the Department of Trade and Industry has is that as it promotes growth it also develops more SMMEs. This is what will spread growth.

Mr Sigwela (ANC) expressed concern as to how the Department plans to improve the marketability of hides and skins that are produced in the townships and in rural areas. He remarked that it was easier to sell these products in the past but the market for these products had been restricted and has changed.

Minister Erwin replied that the Department of Trade and Industry has a few leather projects in the country such as in the Free State, Grahamstown and in the Pietermaritzburg area. People must identify the projects and the Department will intervene to help.

The Chairperson expressed concern that there is no skills transfer built into the investment incentive scheme. She asked if these schemes cannot be used to boost the skills level in the country.

Minister Erwin replied that these projects are the ones that require skills. The Department works with the companies right from the beginning with regard to skills training.

Presentation by the Minister of Public Works
Minister Stella Sigcau made introductory remarks and said that the Department of Public Works ensures that the type of infrastructure that government departments require is provided for either through erecting new infrastructure or upgrading existing structures. The department is also involved in the poverty relief program through the creation of employment opportunities so that the poorest of the poor can benefit. The department is currently involved in a program to ensure the sustainability of these employment opportunities so that they do not last only for a short period of time.

The government invests money in capital projects which makes planning important. The provinces and the municipalities are also used to implement and monitor the programmes for the department. The department still however feels that there is a need to create further capacity in local authorities in the implementation of the projects.

The funds that have been allocated for poverty relief address the core of the poverty problem in the rural areas. The department has to date created 60 000 job opportunities with women being a primary target. The department also spearheaded a program whereby about 750 disabled people were included.

One area that has been an Achilles heel for the department is around underexpenditure on capital projects. Public works money has not been spent fully on capital projects in any particular year. It is one of the challenges that faces this department. The department has however devised strategies to ensure that the department will improve. It was embarrassing for the Department to make a discovery that there was an underexpenditure of about R700 million in the previous year.

The Department also much rehabilitation to do and has a maintenance backlog. However, it has established initiatives to deal with this problem such as the repair maintenance program. The Department will introduce its first facilities management contract in the next financial year. This is an area in which the department has strongly felt that the private sector should intervene in to manage some of the department’s facilities. The department will also look at the reestablishment of a state property management company. The department is of the opinion that this would increase its levels of efficiency and also help with some of the achievements that are beginning to come out of capital expenditure.

Mr Thami Sokutu (Director General: Department of Public Works) gave a PowerPoint presentation that firstly indicated the department’s budget up to 2005.

He illustrated the type of work that the department does by showing the support it has provided to the integrated criminal justice system by creating fixed assests such as police stations, community safety centres, courts and prisons.

The presentation also referred to:
- The department’s wide asset management strategy framework. This framework will draw parameters within which property management should take place in South Africa.
- The Construction Industry Development Programme launched in April this year. One of its function is to implement government policy in the construction industry.
- Community based public works program, designed for poverty alleviation, will create useful community infrastructure. The Department has an oversight role in overseeing the implementation of this project.
- The 2001/2 targets for the Community based public works program: 40 000 employment opportunities created and the establishment of 300 community assets with 50% of the people employed being women.
- The department has also initiated cholera projects as a result of the recent cholera outbreaks in Natal and 1276 sanitation units is the target.
- The department has also had success in rehabilitating clinics for an HIV/AIDS project in partnership with the Health, Social Development and Education Departments.
- 24 multipurpose community centres have been constructed. They are one-stop-shops for rural service delivery designed to bring the government departments rendering services to communities in remote rural areas.
- The department has also effectively contributed regarding the land rehabilitation programme in spate of the recent floods. It has done a lot of work in erosion protection, donga repairs and rehabilitation of communal lands.

Due to time constraints, the members were asked to put their questions in writing.

The meeting was adjourned.

Appendix 1
Minister of Communications presentation to Joint Budget Committee on MTBPS

Thursday 1 November 2001

Policy priorities identified in MTBPS and IGFR

· Restructuring of Post Office
· Increasing capacity of ICASA, and
· Emergency Communications

Restructuring of the Post Office
The context of restructuring:
· Postal service is a basic means of linking the entire population
· Providing an accessible and efficient postal service essential for social and economic development
· Increasing new communication technologies
· New e-commerce environment
· Inequalities in :
accessing postal services
employment practices
procurement practices

Restructuring Challenges
· Universal Access
· Enterprise reform
· Post Bank restructuring

Universal Access
Basic postal service a right to all citizens
· Increasing postal outlets
· Targeted network expansion in underprivileged areas
· Address provision
· Upgrading of postal infrastructure

Enterprise Reform
· New management team
· E-commerce initiative
· Focus on growth businesses
· Zero tolerance to crime
· Re-engineering of processes
· Improved resource utilisation
· Regional hub on international mail

Post Bank Restructuring
· Financial institution for the unbanked
· Diversification of services
· Reducing institutional barriers to providing credit to SMME's (women & PDI)
· Institutional support and network for low cost housing
· National infrastructure for welfare payment, including pensions
· Post Bank funds to be ring-fenced
· New corporate governance structure
· Separation of assets from SAPO

SAPO SUBSIDY
2001/02
SAPO Allocation: 600 m

ICASA
Increase capacity of ICASA to ensure liberalisation of telecommunication sector i.r.o
· Licensing of second national operator,
· Spectrum licenses to fixed line and mobile operators,
· Telkoms IPO,
· Sentech license for international telephony,
· Monitoring of license conditions, and
· Collection of license revenues

ICASA BUDGET REQUEST
2001/02
Allocation 10,0 m

Emergency Call Centres
Mission of the national emergency 112 centres:
· Is to provide a singular national contact point to service people in need of emergency assistance

that is
· Accessible to anyone requiring emergency services 24 hrs per day from anywhere in SA through fixed line, mobile and radio communications infrastructure

EMERGENCY COMMUNICATIONS SERVICES
2001/02
Allocation 20,0 m

Appendix 2
MINISTRY OF PUBLIC ENTERPRISES
HEARINGS ON THE MEDIUM TERM BUDGET POLICY STATEMENT (MTBPS)

VISION
To have Restructured SOEs in a
globally competitive
environment, promoting economic growth and a better
life for all
MISSION
To direct and manage the accelerated restructuring of SOEs to maximise shareholder
value

BALANCED SCORE-CARD 0BJECTIVES
Strategic Objectives - Economic
· Maximise shareholder value to realise the economic and social objectives of the state

Strategic Objectives - Innovation
and Learning
· Develop strategic management capability within the DPE
· Develop the DPE human Resources to enable delivery on the restructuring objectives
· Develop a sourcing strategy for specialist skills required by DPE

Strategic Objectives -Stakeholder/partner
· Develop stakeholder management plans to promote the DPE's restructuring programme
· Develop communication plans to promote the DPE's restructuring programme
· Create restructuring frameworks for strategic SOEs
· Promote SOE capabilities globally and in the rest of Africa

Strategic Objectives - internal
Processes
· Ensure sound financial management of the DPE
· Ensure adequate DPE resourcing and support
systems to deliver upon the DPE mandate
· Launch the DPE process benchmarking program
to achieve globally recognised practices
· Introduce enabling IT systems to interface with
the SOEs and other stakeholders
· Develop appropriate organisational structure and
culture to foster internal efficiencies and
effectiveness

DPE ORGANOGRAM
To achieve it's strategic objectives the department's organisational structure is as follows;

MINISTER
I
SPECIAL ADVISOR
I
DIRECTOR GENERAL
I
PROGRAMMES:
- MANAGEMENT & ADMINISTRATION
- RESTRUCTURING
- IPO OFFICE
- PERFORMANCE MONITORING & BENCHMARKING
- STRATEGIC ANALYSIS
- ALTERNATIVE SERVICE DELIVERY

OUTPUTS AND SERVICE DELIV~RY TRENDS
The department's outputs and targets are broadly defined in the Department's Strategic Plan, which spans the period 2000 - 2004.
The annual business plan of the department details these outputs to a greater extent

Whilst the department only spent R 34.2 of the R 47 funds that were voted in 2000-2001, all the targets set out n the business plan were achieved. Some of the achievements included; (The under spending was primary as a result of the delays in recruiting appropriate staff and procurement delays - R4.8 million donor resources utilised)

Policy
· The Policy Framework: An Accelerated Agenda for the Restructuring of Enterprises was released in August 2000

Restructuring
· The restructuring of Transnet's debt burden
· Preparations for Eskom's incorporation and the Eskom Conversion Bill
· The divisionalisation of Portnet in preparation for restructuring
· Preparations and Cabinet approval for the introduction of strategic equity
partners for Denel
· Preparations for the Telkom IPO including the setting up of an IPO office and appointment of global co-ordinators
Development of a restructuring proposal for Petronet
· Full evaluation of Spoornet restructuring models
· Alexkor Amendment Bill
· Establishment of Arivia.kom
· Progress towards the finalisation of offerings on some SAFCOL packages
· Sale of 75 million M-Cell shares for R2.5 billion

OUTPUTS AND SERVICE DELIVERY TRENDS
Corporate Governance
· Changing Eskom's status to a tax and dividends paying entity
· Preparation of shareholder compacts
· Improved corporate governance for state owned enterprises
· Development and implementation of a financial performance models SOEs
· Database on state owned enterprises
· Database on guarantees for all state owned enterprises

Alternative Service Delivery
· Process initiated to ensure a consistent procurement in state owned
enterprises that achieves Government's procurement goals
· Made inputs to the Black Economic Empowe;ment Commission on the
black economic empowerment within the restructuring ambit.

Achievements internal to the Department
· Achieving an unqualified audit report for 2000/1
· Establishing fully functional internal audit component and Internal Audit
Committee
· Implementation of a performance management system
· Upgrading of the IT infrastructure to meet the needs of the Department

In the current financial year, the foIIowing progress has been made
ENERGY - ESKOM
· Incorporation of Eskom into a company (Eskom Conversion Act - July 2001)
· Commencement of process of identifying an SEP for ROTEK

TELECOMMUNICATIONS
· Telkom IPO - preliminary filling with the SEC, in principal agreement with Thintana
shareholders agreement and articles of association
· MCEL phase 2 disposal - RFP's issued to potential buyers in May 2001
· Participation of Esi-Tel and Transtel in SNO - Model of integrating businesses
to participate in SNO nearing finalisation

TRANSPORT
· Portnet - Divisionalisation of Port Authority and Port Operations complete
· Spoornet - TWG completed recommendation on he detailed restructuring model
of Spoornet
· SAA - Discussion initiated on Swissair's 10% call option
· Detailed restructuring model for Petronet nearing finalisation

DEFENCE - Denel
Negotiations with potential SEP - BAE advanced, transaction scheduled for completion in December 2001

FORESTRY - SAFCOL
Eastern Cape North transaction concluded(R 17 Million) Kwa-Zulu Natal Transaction nearing finality - conclusion of sale October
2001 ( R 100 Million)

MINING - ALEXKOR
Alexkor Amendment Bill tabled to Parliament
Issuing of RFP for 25% SEP scheduled for February 2002

Performance Monitoring and Benchmarking
Shareholder compact signed with Transnet. Shareholder compact with Denel and Eskom scheduled for signing in October 2001

Alternative Service Delivery
Development of a uniform procurement framework for SOEs well advanced. Full implementation including monitoring evaluating system to be in place by the end of the financial year.

SUMMARY OF PROJECTED EXPENDITURE PER PROGRAMME

	2002/3
	MTEF BASELINE	CHANGE TO BASELINE	REPRIORITISD BASELINE
PROGRAMS	R'000	R'000	R'000
Administration	26 429	( 878)	25 551
Restructuring of SOEs	14 808	1 326	16 134
Performance Monitoring of SOEs	11 808	(166)	11 241
Alternative Service Delivery	2 376	(282)	2 094
Total	55 020	-	55 020

KEY CHALLENGES
· Managing stakeholder relationships
· Volatile Capital Market conditions (unlikely that R 18 Billion fiscal target will be met)
· Managing variables within government
· Inappropriate procurement regime