BUSINESS NEWS - National Treasury can’t be faulted for being under ambitious and too pessimistic when it presented the 2020/25 Strategic Plan (StratPlan) to the Standing Committee on Finance on May 5 – setting out the priorities and service-delivery focus areas for the next five years.
Deputy Minister of Finance David Masondo, in the foreword to the StratPlan Report, states that government has committed itself to addressing the “twin challenges of revitalising economic growth and strengthening state institutions”.
He optimistically continues: “We will streamline the system of public procurement, reduce barriers to entry in the financial and other sectors, and incentivise labour-intensive parts of the economy.”
Undaunted, he affirms that National Treasury is on track to “grow the economy and reduce unemployment, and re-emphasise Treasury’s plans to support SMMEs [small, medium and micro-sized enterprises]”.
Masondo glosses over the cost of malfeasance, fraud and corruption that has taken place at many state-owned enterprises (SOEs) with a fairly trite comment: “governance challenges will continue to be addressed through appointing the most suitable and qualified office bearers and executive managers.”
The StratPlan does not include the impact of Covid-19, and forecasts GDP growth of 1.2% in 2020, 1.6% in 2021 and 1.7% in 2022.
This is surprising, as on 30 April National Treasury addressed the Joint Standing Committee and Select Committee on Finance and Appropriations on the financial implications of Covid-19 on both the economy and budget. The address cites the GDP growth per the South African Reserve Bank and the International Monetary Fund (IMF), albeit on the assumption that the lockdown measures are less intense than advanced economies.
The three views:
The StratPlan depicts a graph from the 1960s to 2019, showing the declining economic growth, which somewhat mutes the massive upward spike when Trevor Manuel was finance minister, and the very low point reached in the Zuma years.
The “chronically low growth” is explained away by blaming “structural faults in the South African economy, low swings in commodity prices and a depressed consumer and business confidence leading to contractions in private investment and consumption demand”.
According to Treasury, structural faults include poor education, low creation of jobs, lack of skills, “fragmented spatial urban landscape and highly concentrated industrial structures”, limited competition, high barriers to entry, and inefficient public monopolies.
There is no need to point out to the readers the large elephants in the room.
Financial crises in municipalities and SOEs
The StratPlan treads softly around the reasons for the financial crisis in municipalities and SOEs, and appears to naively expect that this can be sorted out by introducing sound financial controls:
1. A stable macroeconomic framework and sustainable fiscal policy will be secured by utilising “fiscal multiple planning tools” including “PESTEL [analysis of political, economic, social, technological, environmental and legal factors], SWOT [strengths, weaknesses, opportunities, and threats], internal focus group consultations, key external stakeholder surveying, theory of change in respect of impact and purpose clarification and project management”. Whatever this means.
2. Treasury plans to deal with wasteful and fruitless expenditure by taking the 2018 figure as a baseline, and then incrementally reducing this to zero over five years. Similarly, irregular expenditure will be dealt with by taking the 2018 figure as a baseline, and then incrementally reducing this by 75% over five years.
Apart from the unworkability of the above solution, using as the baseline an amount expended on wasteful, fruitless or irregular expenditure which smacks of corruption, is unacceptable. With the exception of extreme circumstances, there should be zero wasteful, fruitless or irregular expenditure. A more pragmatic suggestion would be that the baseline is zero.
3. Qualified audits in the public sector will be reduced by 75% over five years.
4. A number of initiatives will be rolled out: the Integrated Financial Management System (IFMS) in the departments and provinces by 2024; the municipal financial systems strengthened by 2023; supply chain management support programme implemented in departments, entities and municipalities by 2023; and a programme to strengthen asset management in the Public Sector to be developed and rolled out by 2023.
5. Effective provincial and municipal budget systems will be introduced, with the aim of having zero municipalities with unfunded budgets in five years.
Imagine the outsourced consulting fees …
In my view, many large SOEs have been hollowed out by a combination of state capture, cadre employment, corruption, and incompetence. These SOEs flout the laws and regulations under which they operate.
National Treasury has not acted on crucial findings elaborated on in external audit reports. Common external audit findings include faulty procurement processes, proper and complete records not maintained, no consequence management, insufficient appropriate audit evidence, financial statements not submitted for audit within the prescribed period, internal control deficiencies, and accounting errors.
As at March 31, 2018, 23 SOEs had racked up R178.5 billion irregular expenditure, never mind fruitless and wasteful expenditure.
A number of “high risk” SOEs were reviewed by Treasury: five have been identified, the governance systems will be reviewed by 2021, and recommendations implemented by 2023.
In my view, the number of high-risk SOEs exceeds five, and it shouldn’t take two years to review a governance system.
Hint: National Treasury should kick off by studying the external audit reports.
Institutional policies and strategies to be rolled out over the next five years
- Review tax policy and strengthen financial sector regulation
- Manage future spending growth and fiscal risk
- Manage government’s assets and liabilities
- Make government procurement more efficient
- Strengthen government financial management
- Facilitate regional and international cooperation
- Support sustainable employment, and
- Support infrastructure development and economically integrated cities and communities
Other five-year targets
- Establish and operationalise the Infrastructure Fund.
- Mobilise international financial institutions support – the $10 billion financing from multilateral development banks has been taken up.
- Compile and implement investment and support strategies for township economies – five townships in five metros with Township Economic Development Strategies that are resourced and integrated in the strategic plans and budgets of the metros and other spheres of government, including SOEs that have successfully leveraged private sector investment.
- Reduce illicit financial flows: a “national policy approach” will be implemented to combat, track, stop illicit financial flows and recover and repatriate assets, to developed by 2024.
- Develop and issue policy directives in preferential procurement in regard to sex/gender, age and disability.
National Treasury is aiming high. At the end of five years, how much would have been accomplished? Time will tell.