1. 1 EPWP INCENTIVE GRANT MODEL REVIEW PROPOSAL PRESENTATION TO SELECT COMMITTEE ON APPROPRIATIONS 11 OCTOBER 2011

2. 2 Background on EPWP SA was experiencing unacceptable levels of structural unemployment, worsened by global economic crisis EPWP was seen as an opportunity to address the social welfare gap EPWP would enable government to act as an employer of last resort as part of the Anti-Poverty Strategy However, the scale and impact of EPWP Phase I was limited Key Issues identified as affecting impact in Phase I: 1.Duration of work opportunities were shorter than anticipated 2.Training framework was not effective 3.Need for more focused targeting Key Issues identified as impeding EPWP growth: 1.DPW had very limited authority to drive the programme 2.No effective mechanism to mobilise funds to scale up performing areas 3.Need to switch the programme to a demand driven approach 4.Need for uniform wage structures

3. 3 Background on EPWP Key Issues identified as impeding EPWP growth continued…: 5.Need to increase the labour intensity of projects without an excessive long term fiscal burden 6.Need for capacity support for implementing bodies As a result, the following changes were made in EPWP Phase II: 1.Make the creation of paid work the primary objective of EPWP 2.Locate clear political and administrative accountability for EPWP job creation targets across all spheres of government 3.Provide fiscal incentives to accelerate the scaling up of EPWP (allow incentive to be performance/demand driven) 4.Mainstream EPWP criteria & outputs with the core mandates and programmes of implementing public bodies 5.Mobilise non-state capacity to deliver additional EPWP work opportunities 6.Technical Support to spheres, sectors and implementing bodies

4. 1. A wage subsidy2. Expansion Incentive3. Performance based incentive Provided to existing non- government organization who: ₋ already create work for poor communities ₋ have programmes that can be expanded in terms of size, reach and coverage ₋ are able to secure funding for all other programme related costs ₋ Involves the payment of a minimum daily wage ate for very day of work created Pays all wages (monthly) as work is created Applied to the non-state sector (NPO pilot & CWP) Provided to existing performing government programmes: ₋ that have a performance track record and have met a high performance criteria ₋ that have the potential to immediately expand due to demand ₋ that have the capacity to manage expansion ₋ that has capable implementers ₋ where all operational/management costs (funds small % of operations) Incentive is dedicated to expansion costs (funds small % of operations) Targets attached incentives efficiencies in job creation Applies to national E&C and SocSec government programmes Provided to provincial and municipal public bodies who participate in EPWP: Allocation is based on how many jobs can be created with funds already being received by prov depts/ munis through grants Provided in the form of a performance bonus ₋ performance is counted as the number of days of work created ₋ performance each quarter is assessed ₋ a quarterly reward is earned ₋ reward = min daily wage ₋ once the ‘ reward ’ is paid, it can be used for job creation in any programme/area Provided as an incentive to provincial and local government Background on EPWP Incentives Public Works set out to pilot a number of funding models: 4

5. 5 Introduction to the Integrated Incentive Grant Aim: The original intention of the EPWP Incentive Grant was to increase job creation efforts by provinces and municipalities by providing a financial performance reward. The incentive grant was premised on the assumption that a financial reward would motivate provinces and municipalities to create more EPWP work primarily by shifting towards more labour intensive methods of construction. Assumption: Government was investing large amounts of public funds into infrastructure; and government wanted to maximise this existing investment for the purposes of job creation; incentivising public bodies to implement infrastructure projects more effectively, efficiently and labour intensively. For the incentive to work as intended, the following pre-conditions are necessary: Agreed, dedicated focus and political will to mobilise job creation Concerted effort to shift current project design/ implementation methodology towards labour intensive construction methods Implement more projects (and thus create more jobs) Accurately report performance. Key issue

6. 6 Performance on the Incentive: past 2 years The number of public bodies eligible has almost doubled each year Provinces - from 17 (2009/10) to 32 (2010/11) to 59 (2011/12) Municipalities – from 68 (2009/10) to 126 (2010/11) to 198 (2011/12) showing tremendous progress in public bodies understanding how to access the incentive grant In 2009/10 only 3 provinces accessed the Incentive Grant (KZN, EC, WC) but in 2010/11 only 2 provinces did not access their Incentive Grant allocations (NC, NW) KZN & EC lead provincial performance 13 municipalities with an incentive allocation did not report in 2009/10 and 12 in 2010/11 Gauteng municipalities account for almost half of municipal performance There is still a clear need for dedicated technical capacity to support project design and implementation as well as reporting.

7. PROVINCES 2009/10 Earnings2010/11 Earnings 2009/10 Incent ive Alloca tion (R'000 ) 2009/10 Incenti ve Earne d (R'000) % Earned in 2009/ 10 2010/11 Incentive Allocation (R'000) 2010/11 Incentive Earned (R'000) % Earned in 2010/11 KZN84,18084,854101%169,470135,61380% EC29,99217,45758%60,35433,23255% GP50000%39,1542,4986% WC50014,2692854%23,2181,7007% NW7,19200%2,89700% LP50000%2,9036,790234% FS23,00800%13,7672,38017% NC50000%1,16700% MP5,04700%18,0748,29346% Total151,419116,58177%331,004190,50658% Provincial Performance on the Incentive: past 2 years 7

8. PROVIN CES 2009/10 Performance2010/11 Performance Number of provincial departments 2009/1 0 Incenti ve FTE targets 2009/10 Actual FTE Perfor mance 2009/1 0 % Target Reach ed 2010/11 FTE Target (Excld Housing) 2010/11 Actual FTE performa nce (Excl. Housing) 2010/11 % Target Reached 2009/1 0 2010/1 1 2011/12 KZN16,55113,06179%29,18316,91058%267 EC9,3148,56792%15,90610,05763%579 GP2,6512,04277%6,5611,76027%128 WC2,0612,464120%4,8151,16724%122 NW3,56595127%3,35655817%224 LP5,26768813%3,9802,18355%138 FS5,07563913%5,0791,78335%2611 NC1,16121919%2,34345319%126 MP3,34537311%3,2842,74484%224 Total48,99029,00459%74,50637,61650%173259 Provincial Performance on the Incentive: past 2 years (Cont.) 8

9. MUNICIPALITIES 2009/10 Earnings2010/11 Earnings 2009/10 Incenti ve Allocati on (R'000) 2009/10 Incentive Earned (R'000) % Earned in 2009/ 10 2010/11 Incent ive Alloca tion (R'000 ) 2010/11 Incentive Earned (R'000) % Earned in 2010/1 1 KZN39,97426,10265%123,61346,11337% EC53,5597,81815%97,80637,53238% GP35,67460,488170%168,098133,39479% WC7,2881,27117%26,0382,54910% NW8,9012,17424%32,99917,13552% LP18,3296,14033%55,35523,06042% FS9,0731,95622%31,4006,07119% NC15,4965,76937%50,3993,9658% MP13,4542,45318%37,2883,4889% Total201,748114,17057%622,996273,30744% Municipal Performance on the Incentive: past 2 years 9

10. MUNICIPALIT IES 2009/10 Performance2010/11 Performance Number of provincial departments 2009/10 Incentiv e FTE targets 2009/10 Actual FTE Performa nce 2009/10 % Target Reache d 2010/11 FTE Target 2010/11 Actual FTE performa nce (Q1- Q3) 2010/11 % Target Reache d (Q1 - Q3) 2009/ 10 2010/1 1 2011/12 KZN10,5459,06886%18,5702,39613%91320 EC11,2423,86234%9,8763,38334%122537 GP17,97321,392119%32,1558,43626%61113 WC3,2351,65251%6,1441,44824%7720 NW1,5481,36788%3,49382524%61723 LP3,1882,13767%5,3591,26524%101827 FS2,44871129%4,6051,05123%41024 NC2,69570026%5,0582254%5813 MP2,34044119%3,48893327%91721 Total55,21441,33075%88,74819,96222%68126198 Municipal Performance on the Incentive: past 2 years (Cont.) 10

11. 11 Experience in implementing all EPWP Incentives

12. 12 Evaluation of the Incentive: past 2 years The evaluation of the Incentive showed that public bodies are still struggling: 1.Firstly, just to implement their infrastructure programmes/ projects (Are there constraints inherent in the way MIG/IGP works? What are the MIG/IGP implementation challenges?) 2.Secondly, to design and implement these programmes/ projects more labour intensively (there is a real lack of technical expertise) In terms of technical project design and implementation, the evaluation report showed that: Many public bodies are indicating that they still find designing projects with labour intensive methods as an aim, a challenge There are still perceptions that it is costly to implement EPWP Public bodies find it difficult to integrate and align EPWP with other infrastructure policies and processes A more serious challenge highlighted relates to the lack of technical capacity in municipalities to implement infrastructure projects Public bodies indicated they would benefit from additional technical support from National Public Works in the following areas: Identifying suitable projects for EPWP Setting targets for projects Assistance with designs and contract documentation to ensure labour intensive construction Ensuring EPWP mainstreaming: policies and procedures Providing advice on alternative models on EPWP: large projects /contractor development. 3. Thirdly, to then properly report this performance (in the detailed manner required).

13. 13 Evaluation of the Incentive: past 2 years

14. 14 Measures put in place in 2010/11 to improve the drawing down of the incentive DPW Support to public bodies has been strengthened ─The capacity of DPW’s Municipal Technical Support Directorate has been strengthened by the appointment of more officials to support municipalities ─Technical support is still being provided to public bodies to implement their projects more labour intensively ─Public bodies are being provided with support to report on EPWP - 90 data have been deployed in public bodies capturers employed are helping in this regard. Partnership Support ─A partnership with DBSA through the Siyenza Manje programme has been put in place to support municipalities ─Training of officials in municipalities in labour-intensive methods of construction with LG-SETA is currently being rolled out ─Training through the Construction SETA for municipal officials and Vukupile through the small contractor development programme

15. 15 Technical Support provided to Municipalities Technical Support provided to Municipalities entails the following: Identification of suitable projects Setting of work opportunity targets for projects Assisting with designs and contract documentation Extract project training needs Assist with procurement process Create enabling conditions: wage rates, contractors trained et Contract management Reporting Project evaluation EPWP Mainstreaming: Municipal policies and procedures

16. 16 Proposed Revisions to Improve the Incentive Model In order to improve the uptake of the incentive, a review of the incentive model is proposed. The revised model should: Take special cognisance of small and rural municipalities and other public bodies with smaller MIG/IGP allocations or limited funding, but potential to contribute to job creation Attempt to directly incentivise/implement increased labour intensity Allow for an easier flow of funds to kick start job creation Provide more certainty in the allocation to ease appropriation issues Address the issue of public bodies not earning their allocations Seek to have a greater oversight in the incentive being spent to further increase job creation Enhance ‘packaged’ technical support to public bodies, particularly small and rural municipalities In a snapshot: ─Public bodies will receive an allocation based primarily on past performance but also taking into consideration the distribution of the poor and a special dispensation for poor municipalities in the form of a schedule 5 EPWP grant ─for which they need to plan labour intensive projects to implement, within the focus areas specified ─while using existing budget allocations (MIG, etc) more effectively and efficiently to increase the access to further EPWP grant allocations. In a snapshot: ─Public bodies will receive an allocation based primarily on past performance but also taking into consideration the distribution of the poor and a special dispensation for poor municipalities in the form of a schedule 5 EPWP grant ─for which they need to plan labour intensive projects to implement, within the focus areas specified ─while using existing budget allocations (MIG, etc) more effectively and efficiently to increase the access to further EPWP grant allocations.

17. Model ElementCurrent Incentive ModelProposed Improved, Simplified incentive Incentive Allocation Eligibility based on: ─ Having reported in a past year ─ Having created a minimum number of jobs in the prior year Eligibility based on: ─ Having reported in a past year ─ Implement a specific category of EPWP, with a focus on the following areas :  economic and social infrastructure  tourism and cultural industries  agricultural support and landcare  primary healthcare Basis of the Incentive Allocation: ─ Based on past performance ─ Based on the number of jobs that can be created from existing budget allocations ─ A zero threshold for poor municipalities - every job created will attract an allocation ─ FTE reward @ R60 per day of work Basis of the Incentive Allocation: ─ Should still be primarily based on past performance ─ Should take into consideration the potential number of jobs that can be created from existing budget allocations ─ Should also take into consideration the distribution of the poor and unemployed ─ Will include a higher allocation for those public bodies achieving a higher labour intensity Will create a special dispensation for poor municipalities within the grant ─ Classify a set of poor municipalities that will be provided with a special additional allocation for planning and capacity building ─ Should also provide enhanced packaged technical support (procurement, design, planning, reporting) to these municipalities ─ Will amend the thresholds for public bodies (under review) ─ Will maintain the zero threshold for poor municipalities - every job created will attract an allocation ─ FTE reward @ R60 per day of work Conceptual basis of the Improved Incentive Model 17

18. Model Element Current Incentive ModelProposed Improved, Simplified incentive Incentive Allocation EPWP Planning Reporting Method of Allocation: ─ Incentive Allocation is regarded as indicative only ─ Schedule 8 incentive is still to be earned in-year Planning ─ Public bodies plan the number of jobs to be created from existing budget allocations Method of Allocation: ─ Incentive Allocation is regarded as certain ─ Schedule 5 allocation that is based on past performance Planning ─ Planning for job creation from existing budget allocations will continue ─ In addition, incentive use will also be planned for, with a concentration on labour intensive projects across EPWP sectors - via a project list or business plan Reported EPWP performance determines the incentive earned and paid out EPWP performance is counted against the FTE Target (based on MIG & past performance)  Reporting via the EPWP MIS supported by DPW Reported EPWP performance only informs the incentive allocation for the following year EPWP performance is counted against the FTE Target (based on a number of factors indicated above) Reporting via the EPWP MIS supported by DPW Conceptual basis of the Improved Incentive Model 18

19. Conceptual basis of the Improved Incentive Model Model Element Current Incentive ModelProposed Improved, Simplified Incentive Basis of Disbursement Paid based on quarterly performance (number of jobs created above the threshold) FTE Reward = R60 per day of work created 50% paid at the beginning of the year on approval of the public body's EPWP project list or business plan Second payment midyear in line with: ─ progress in implementing the project list or business plan ─ Progress in utilising existing budget allocations towards FTE target FTE Target Determined by: ─ Applying a Threshold FTE factor to MIG/IGP to get a threshold (floor) ─ Applying a Performance FTE factor to MIG/IGP to get a ceiling target ─ Adjusting the ceiling target depending on performance of the previous year Performance against the final FTE target is assessed quarterly to determine the incentive amount earned and paid out Set a baseline MIG target ─ Applying a Performance FTE factor to MIG/IGP to get a MIG target Set an incentive target ─ Set a target based on how many jobs should be created from every Rand million ─ Performance against the incentive target will be assessed midyear to ensure the public body is implementing its project list or business plan Performance against the MIG target + incentive target will be assessed annually to inform the following year's allocation 19

20. 20 Summary of proposed review to the Incentive The proposal to the EPWP Integrated incentive is to change the incentive from a Schedule 8 to a schedule 5 grant. This will help with predictability of funding to Public bodies. The eligibility of Public bodies for the incentive grant will still depend on them having reporting to the National Department of Public Works in a Prior financial year. The incentive allocation to Public bodies will depend on their report in the prior financial year. 50% of the allocation would be made at the beginning of the financial year. The remaining 50% will be made depending reporting by the Public bodies. Public bodies would submit their business plans in line with their incentive allocation. Technical Support would be made to Municipalities to implement EPWP. Focus would be given to rural municipalities.

21. THANK YOU!