For an Equitable Sharing of National Revenue Briefing to the Portfolio Committee on Economic Development - EDD Performance for 2012/13 financial year 12 March 2013 For an Equitable Sharing of National Revenue

Role and Function of the FFC What? Permanent statutory body established in terms of Section 220 of Constitution Independent and subject only to Constitution and the law Must function in terms of the FFC Act Mandate of Commission Makes recommendations, envisaged in Chapter 13 of the Constitution or in national legislation to Parliament, Provincial Legislatures, and any other organs of state determined by national legislation Commission is concerned with Intergovernmental fiscal relations (IGFR) Legislative provisions or executive decisions that affect either provincial or local government from a financial and/or fiscal perspective Includes regulations associated with legislation that may amend or extend such legislation Commission must be consulted in terms of the FFC Act Current research strategy focuses on developmental impacts of IGFR Financial & Fiscal Commission; 11 December 2012

Contextual Background: Economic Growth Global economic growth is expected to increase from 3.2% in 2012 to 3.5% in 2013 SA economy expected to grow but at a slower rate: 2.5% in 2012 and 2.7% in 2013 Strong capital investment by the public sector, addition of electricity generating capacity, relatively stable inflation and low interest rates are expected to support improved economic growth Current economic development challenges include: (1) high unemployment (2) poverty reduction still challenges development (3) growth of inequality is not slowing down (4) country vulnerable to climate change, water scarcity and environmental degradation (5) lack of development of small business, informal sector (6) lack of infrastructure and poor social outcomes (health and education in particular)  Briefing to the Portfolio Committees on Economic Development

Recent developments impacting on spending oversight of departments Government’s 12 outcomes and targets adopted to improve service delivery efficiency and co-ordination Departmental budget decisions must be informed by these 12 outcomes Fiscal consolidation in the face of perceived future economic uncertainties Savings and reprioritization of budgets and baselines Briefing to the Portfolio Committees on Economic Development

background to economic development department (edd) Four main programmes: Administration, Economic Policy Development, Economic Planning and Coordination, Economic Development and Dialogue Core functions are: Implement the new growth path, oversee the policies of Industrial Development Corporation (IDC) of SA and the Small Enterprise Finance Agency, Promote competiveness and decent work by overseeing the Competition Commission, Competition Tribunal and the International Trade Administration Commission (ITAC) of SA Briefing to the Portfolio Committees on Economic Development

Key 2012 MTEF Spending Policy Priorities Promoting investment for economic development and trade competitiveness by: Increasing the provision of developmental finance Implementing and adjudicating competition policy more effectively Creating an efficient system of international trade administration Briefing to the Portfolio Committees on Economic Development

programme spending and mtef budget (1) The department’s spending increased from R400 million in 2010/11 to R696 million in 2012/13 due to: Increases in compensation of employees Additional funding (R30 million) allocated for building capacity in competition regulation within the economy Increase in transfers to public entities Briefing to the Portfolio Committees on Economic Development

programme spending and mtef budget (2) Over the MTEF period, spending expected to increase to R987 million, representing an average annual real growth of 8.1%. This amount includes: R450 million for the capitalization of the Small Enterprise Finance Agency (New entity established in 2012. It combines the operations of Khula Enterprise Finance, South African Micro-finance Apex Fund (Samaf) & Industrial Development Corporation (IDC)) R35,5 million for improving conditions of service in public entities Economic planning and coordination programme consumes on average, 86% of total allocated funds. The programme consists of several tribunals and development finance institutions which the Department oversees Expenditure on this programme is expected to increase from R613 million in 2012/13 to R866 million in 2015/16 at an average rate of 8.3% in real terms due to The capitalisation of the Small Enterprise Finance Agency . Briefing to the Portfolio Committees on Economic Development

spending programme spending Briefing to the Portfolio Committees on Economic Development

Spending by economic classification (1) Briefing to the Portfolio Committees on Economic Development

Expenditure Outcomes per program: 2011/12 Briefing to the Portfolio Committees on Economic Development

Expenditure Outcomes per program: 2011/12 Explanations of variances from allocated amounts

In-year Expenditure – 2012/13 The department spent 82% of its total budget by January 2013 compared to 90% of total budget at the same time last year (i.e. January 2012) against a benchmark of 83%. A definite spending cycle is observable over the two years, with May, July, October and January months typically high spending months, largely because of transfer payments to public entities Spending behaviour is smoother in 2012/13 than 2011/12, although significant spikes in May and January. Briefing to the Portfolio Committees on Economic Development

HOW WELL DID THE DEPARTMENT DO IN 2011/’12 EDD met 67%% of all its targets in 2011/’12 By program, Policy Development met 20% of its targets, Planning and Coord 80% and Development and dialogue 100%. No real reasons cited in narrative why outputs were not achieved. In total, department reported on only 16 indicators Briefing to the Portfolio Committees on Economic Development

Quality of non-financial information for oversight purposes Some indicators are vague ‘No. of arrangements in the establishment of economic development institute’ Unclear how indicators are measured ‘Number of sector, spatial and economic plans reviewed or developed’. Yet. narrative only mentions engagement by department on economic development and do not make reference to plans reviewed. Indicators have more than one output No of reports produced, strategy developed and meetings held with provincial and local government Some indicators overlap ‘Number of economic policies and sector strategies developed’ and ‘policies developed to maintain second economy’ The AG made no material findings on the reliability and validity of performance information at the department. Briefing to the Portfolio Committees on Economic Development

FFC Recommendations – 2013/14 Annual Submission The Commission has made a number of wide-ranging recommendations on intergovernmental fiscal relations as part of its 2013/14 annual submission to Parliament Government has only responded to recommendations directly related to the Division of Revenue Government has proposed that recommendations indirectly related to the Division of Revenue will be considered through another process Briefing to the Portfolio Committees on Economic Development

ffc recommendations related to economic development – 2013/14 annual submission Government Response Unemployment and job creation Government should re-direct government spending towards activities that directly or indirectly create jobs through enhancing productivity performance. Activities such as health care, durable goods manufacturing, agriculture, community services, and hospitality and food service should also form the basis of much of the expanded infrastructure expenditure plan which traditionally have gone chiefly to construction activities (e.g. building highways and bridges, dams and flood control structures). Government already has a number of job creation initiatives Briefing to the Portfolio Committees on Economic Development 17

Thank You. Financial and Fiscal Commission Montrose Place (2nd Floor), Bekker Street, Waterfall Park, Vorna Valley, Midrand, Private Bag X69, Halfway House 1685 www.ffc.co.za Tel: +27 11 207 2300 Fax: +27 86 589 1038