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INTRODUCTION

A government's annual budget process is arguably the most strategic encounter during which a critical glance can be cast at the reason for the entire existence of government. It is a process that, if carried out in earnest and approached with an attitude of critical rationality, results in an incisive confrontation with the reality of the human condition. It is in this spirit that the 2001/2002 budgetary allocations need to be prefaced.

President Franklin D. Roosevelt once said:

"The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little."

Our Government has always engaged itself in those activities that will result in economic growth to improve the life of the majority of South Africans, both by raising their living standards and enhancing their economic power. Experiences from around the world, and particularly from South East Asia, demonstrate that sustainable and robust growth requires more equitable distribution of income and wealth. Successful economic strategies must ensure that growth helps eliminate poverty and increase the assets of the poor. Yet ensuring greater equality in income and wealth is not all that easy and often initially disruptive.

The Reconstruction and Development Programme essentially argued that massive inequalities and poverty in themselves restrain economic growth. On the one hand, they limit domestic demand. On the other, they lower productivity by constraining skills development, undermining health, destabilising working-class communities and fostering crime. At the same time, concentration of capital, largely in the hands of interests associated with mining and the financial sector, leads to conservative, capital-intensive patterns and renders us vulnerable to rising capital outflows.

The World Bank's Voices of the Poor Study, based on the realities of more than 60 000 people in 60 countries, reminds us that the predominant reality of the human condition is one of destitution and abject poverty. This condition of destitution persists even though for some the human condition has improved more in the past century than in the entire history of mankind. As we speak, more than 2.8 billion people on this planet live on less than $2 per day.

In the Voices of the Poor study, when confronted with the question of what poverty is, one man in Kenya responded "Don't ask me what poverty is because you have met it outside my house. Look at the house and count the number of holes. Look at the utensils and the clothes I am wearing. Look at everything and write what you see. What you see is poverty." A marginalised woman from Latvia responded by saying that "Poverty is humiliation, the sense of being dependent on them, and of being forced to accept rudeness, insults, and indifference when we seek help". In South Africa, a country often described as consisting of two nations, poverty and destitution has assumed a socially-divisive and conflict-inducing profile, one aspect of which has been reflected in the South African Participatory Poverty Assessment when a woman declared that "In our culture, women tend to feel very small. Men have always been the leaders, their voice is final".

ECONOMIC ROLE OF THE STATE

Economics is about people, their work, their ownership of productive assets or lack of it, their share of what they produce, what they buy and sell, their accommodation, their recreation, in fact every element which we describe as quality of life, flows from the structure and management of the economy.

The traditional justifications for the economic role of the state can be illustrated from the subjective experience of human reality as described above, namely the allocation function, the distribution function and the stabilisation function. Government can allocate goods and services that the market cannot, such as so-called public goods that are characterised by non-rival consumption or positive externalities. Education, environmental protection, provision of information, and safety and security are all examples of these goods and they are all goods whose absence would result in poverty. Secondly, through distribution society as a whole can be made better off in welfare terms and a more efficient utilisation of scarce resources can be obtained. Thirdly, through stabilisation a state can protect its citizens against external and common shocks that can induce inflation that erodes the income of people.

However, if we focus too narrowly on these three economic functions of the state, we will not be recognising some of the most fundamental causes, characteristics and factors contributing to the miserable state of human existence across much of the globe. We will be blind to problems such as lack of human dignity and lack of freedom alluded to in the descriptions of poverty by the two women speakers quoted above. We will be missing the fact that state obstruction of human dignity and human freedom has been an important cause of poverty and destitution in much of the world, especially in our own beloved continent and country.

One of the most valued contributions made by the economic sciences has been the recognition that morally repulsive and economically inefficient outcomes such as inequality and deprivation are to a large degree due to market failures. Markets fail due to various reasons and it is often incumbent on government to rectify these market failures. A further notable contribution of the more recent institutional economics is the recognition that democratically elected governments and free and open societies are better equipped than repressive regimes to rectify market failures and to avoid governance failure.

The fundamental insight that we all have to share and promote is that human freedom and human rights are not only outcomes of economic development but they are means to economic development.

Because of its nature as a public good, we must see individual freedom as a social commitment. To this end, we can be proud as a country that our Constitution is abundantly clear on safeguarding this commitment. It should however be translated into practical reality by all South Africans.

Our budget this afternoon must reflect our commitment as elected government towards enhancing individual freedom in our society. This, Mr. Speaker, must be the ultimate test as to the adequacy or not of our budget.

This has a myriad of implications which I cannot all address here this afternoon, but does imply overall, that our budget must be based on the recognition, put eloquently by the Nobel-Prize winning economist Amartya Sen that "Social opportunities of education and health care, which may require public action, complement individual opportunities of economic and political participation and also help to foster our own initiatives in overcoming our respective deprivations".

In line with the approach towards this budget, there is not only an allocation role but also definitive stabilisation and redistribution roles for our government. Social spending is stabilising, but in a different way that macro-economists traditionally viewed the stabilisation role of the budget.

Its stabilisation role works primarily on the household and individual level and can be understood best if it is recognised that globalisation is the result of many processes (e.g. technology, trade liberalisation, etc) that result in the rise and fall of different industries and economic activities and is not a painless one. We have seen the changes brought along by globalisation in a dramatic way in the North West Province. A recent study on the North West economy revealed that up to 30% of manufacturing firms that existed in 1996 had closed down by 1999 or moved away from manufacturing. In total only about 48% of the manufacturing firms in North West export and of those that export only about 20% of their production is exported on average.

Between 1996 and 2000 employment in manufacturing contracted by 2%. Total manufacturing output basically stagnated. Clearly our manufacturing sector requires a process of transformation to prevent the province being caught up in a downward spiral of de-industrialisation.

The example of North West's struggling manufacturing sector is a pertinent example when one seeks to understand the stabilisation effects of the social spending in the North West budget. Social spending is an investment in the human capital of the poor. It enables them to feel less threatened by the processes of change caused by globalisation, and to be better able to cope with change. The social spending in the North West budget has since 1994 significantly increased the access of the poor to health care, education and to some form of safety net that never existed under the previous Government. Healthier and better-educated labour will provide the basis for manufacturing firms to raise their productivity and to move into new forms of production and into new industries that will generate benefits under globalisation. If we invest in human capital as the productive core of our economy we are bound to reap long-term benefits.

Four main strategies can ensure that growth promotes a more equitable pattern of ownership and income:

* Strategies for key economic sectors that create jobs and wealth distributions;
* Skills development and education;
* The provision of government services to poor communities; and
* Supportive macro-economic policies

ECONOMIC OVERVIEW

International Developments

It cannot be over-emphasised that within almost seven years of being accepted back into the world economy, South Africa has not only become a pre-eminent role player in Sub-Saharan African political economy but also a significant role-player in the wider global economy. The South African economy is therefore affected by events that occur elsewhere in the global village.

Hon. Speaker, it is pertinent at this juncture to take a wider look at the global economy before honing in to our immediate environment.

The upswing in global economic activity, which characterised the last few years, began showing signs of losing momentum at the end of the millennium. The US economy tapered off during the year 2000 leading to fears that the upswing in the global economy can no longer be sustained. The world economic outlook was worsened by the phenomenal increases in crude oil prices, which wiped away export earnings from primary products of developing countries, spiralled inflationary pressures and slowed down economic growth.

On the positive side, the turbulence experienced in the financial markets of emerging economies in the past two years stabilised to a large extent in the year 2000.

The economies of Sub-Saharan Africa however, continued to be ravaged by political instability, regional and civil wars, and the vagaries of the weather, especially floods. Growth in the region slowed down significantly after 1998 sending average gross domestic product into reverse in the year 2000.

Macro-economic Performance

It was within this global and regional context that the South African economy managed to eke out a 3% growth rate in the year 2000 and maintained inflation within single digits to an end of year figure of only 7.6%. In spite of what critics have to say about the Government's macro-economic policies, it has ensured financial and fiscal discipline necessary to maintain internal economic stability. The facts are up for scrutiny.

By astute management of our debt situation and other fiscal interventions, Government can increase its spending on public services by R10,2 billion in 2001/2002 and R16 billion in 2002/2003 above the levels projected in the 2000 budget estimates.

As mentioned by the Minister of Finance in his budget speech of 21 February 2001, the South African economy is envisaged to grow at 3.5% per annum in the next three years. Inflation is still being targeted at between 3-6% with an estimated budget deficit of 2.4% of GDP.

We are indeed facing the future with a higher degree of confidence because the fundamentals of the South African economy are inherently sound.

The North West Economy

The government of the North West Province acknowledges that the positive effects of our economic policies on the ordinary person on the street has not been as profound as we would have wanted it to be. There are still serious backlogs in human development and the level of unemployment is still unacceptably high.

In the coming year emphasis will be placed on the development of service industries in which the province has comparative advantage, especially tourism and related industries. This is necessary to counter-balance the continuous decline of the manufacturing sector. The government will continue to encourage public/private partnerships in these areas to pull resources together for the upliftment of our people.

Mining continues to be a dominant contributor to the gross geographic product (GGP) of the province. The high cost of extracting depleting gold reserves coupled with falling export prices have led to a decline in its share of GGP and employment. However, platinum continues to be on a high. In a recent media release, Anglo American Platinum Corporation Ltd. expressed the intention to undertake an expansion programme that will cost R12,6 billion and create about 13 000 jobs in the province.

Government has devoted a record R1,024 billion to infrastructure development in this financial year. The increased capital spending on infrastructure development has the potential for enormous employment opportunities. This is in addition to the Platinum Spatial Development Initiative (SDI) due for construction this year on which a total investment of R1,5 billion is envisaged. These capital projects hold the promise for major economic spin-offs in our province.

The government will also continue to encourage and support the development of SMMEs, which it sees as an important vehicle for job creation, and development.

Our land reform programme is on track, which will open up enormous possibilities for the employment of rural communities in the agricultural sector.

The continued marginalisation of the black majority requires an integrated effort aimed at enhancing the distribution of wealth and substantially increasing access to productive assets, especially in poor communities. To this end, government is keenly awaiting the outcome of the Report of the Black Economic Empowerment Commission.

Key considerations for an empowerment strategy should include:

* Collective forms of ownership, such as co-operatives and broad-based share schemes
* SMME support through subsidy and credit programmes
* Strategies, which enhance meaningful, black participation in the ownership, management and control of South Africa's financial and economic resources.
* Affordable access to financial services for households especially in rural areas

OUTCOME OF THE 2000/01 BUDGET

Before outlining our plans for the future, let me highlight some of our experiences over the past financial year:

* I am pleased to announce Hon. Speaker that for the fourth year in succession we achieved a balanced budget.
* Through sound cash flow management we started the year off with a surplus enabling us to fully fund all our activities notwithstanding substantial cost pressures on social welfare grants.
* Our Internal Audit Unit has completed a risk profile of all government departments. This will result in the reduction, mitigation and elimination of risks by implementing new and improved controls.
* We dealt successfully with the implementation of phase 1 (one) of the Public Finance Management Act ((PFMA). Chief Accounting Officers will be appointed in all departments before the start of the new financial year.
* The wage bill as a percentage of total expenditure increased by 1% to 57% against a budget of fifty six per cent (56%). This increase was occasioned by a decision to bring forward payment of the thirteenth cheque for officials whose birth dates fall in January through to March from April to their months of birth. We however managed to curb drastically on the discretionary portion of personnel expenditure.
* During the first year of its existence we were able to disburse R249 million through the capital development fund resulting in forty two-road maintenance and new projects and other major infrastructural projects like sanitation, electricity and community facilities.
* A task team of traditional leaders under the leadership of Kgosi Mabalane did a sterling job in assisting us to finalise the tribal and trust accounts. We now have a final set of figures to expedite interest distribution. An estimated R50, 2 million will be available for rural development projects by winding down some of the dormant trust funds.

KEY POLICY CONSIDERATIONS

To maximise utilisation of public resources, the following aspects will receive our urgent attention during the next financial year:

* Procurement reform

Reform of procurement practices in the public sector is inevitable if we are to accelerate service delivery. The complex procurement process inhibits delivery of goods and services timeously.

Our benchmark is the Public Finance Management Act, which holds accounting officers responsible for delivery. The question one asks in this regard is whether these accounting officers will indeed deliver because procurement is done outside their domain of control.

We have started a process of empowering the accounting officers to build strong institutions of delivery in their departments. The second phase is higher participation by accounting officers in the tender board so that they can play an active role in making sure that tenders are correctly prepared for adjudication.

Treasury is busy establishing a compliance unit whose role will be to ensure that procurement practices comply with the policy procedures and regulations.

* Own Revenue

A revenue project, which was commissioned during 1999, revealed fundamental flaws with regard to motor vehicle licensing. Firstly, it identified poor service quality in some licensing authorities. The project went on to identify the inability of some of our collecting agencies to deposit moneys collected on our behalf into our bank account.

In some instances there is high proliferation of fraud of the funds collected. We have also not been able to recover our debts currently estimated at R100 million. Though some progress has been made to correct some of these anomalies, we want to move in decisively to reclaim what is due to the fiscus.

To this end the Executive Council approved the outsourcing of motor vehicle licensing and the collection of outstanding amounts on licenses and fines. We believe that this approach will bring about efficiency and maximise own revenue collection. The costs of rendering this service will also be greatly reduced.

As an incentive to departments, the Executive Council also approved revenue retention for those departments who collect more than their budgeted revenue.

Capital development fund

In pursuit of expansion of infrastructure development and in line with what the Honourable Premier mentioned in his state of the Province speech we are continuing with the top slicing of funds for capital development.

To this end an amount of R250 million will be earmarked for this purpose. This amount will increase to R275 million and R300 million respectively in the outer years of the MTEF. Some indicative allocations have been made to departments to allow them to have sufficient time to prepare business plans by 31st March 2001. This will ensure that the lead-time for project implementation is drastically reduced.

As a flagship project R86 million has been set aside to deal with the backlogs in educational infrastructure.

We also received a supplementary grant of R69,4 million for the maintenance and construction of infrastructure.

In addition there are ongoing capital projects of R107 million, a housing grant of R256,7 million and R340,9 million in respect of other capital projects bringing the total for capital development to an all-time high of R1,024 billion.

Full costing of departmental programmes

In preparation for the accrual system of accounting, the Executive Council approved a full costing approach to departmental programmes. This means that departments who are currently paying for services on behalf of other departments will no more budget for such expenditure. Such expenditure will be budgeted by the consuming departments.

This approach I believe will promote better management of resources as it will eliminate wastage and improve co-ordination.

Implementation of the Public Finance Management Act

We are starting with the implementation of phase two of the PFMA.

We see the main challenges of phase two as:

* transfer of specialized skills and knowledge
* development of systems to ensure high standards of financial management
* production of quality reports
* good procurement practices
* full operationalisation of internal audit.

The above-mentioned issues will be done in partnership with a consortium from the private sector to ensure best practices. An amount of R7 million has been set-aside for this purpose.

Internal Audit

Although the Public Finance Management Act expects from accounting officers to establish an internal audit function, and the appointment of an audit committee, the treasury regulations places the responsibility of deciding whether to establish a shared or non-shared audit function on the treasury.

Our experience with the difficulty of securing suitably qualified finance personnel suggests that the best route to go is to have a strong shared internal audit function which will service all the departments.

We will be appointing a central audit committee consisting of professionals from the private sector and departmental representatives before the beginning of the new financial year.

We see the functions of the audit committee as follows:

* Approval of an annual audit plan
* Monitoring and evaluation of the work of the internal audit unit
* Approval of an audit charter
* Preparation of reports to the MEC for Finance in respect of all the committee's activities undertaken during the year.

We envisage the promulgation of legislation to give statutory powers to the internal audit unit.

HIV/AIDS

Fighting HIV/AIDS is one of the key provincial priorities. The potential socio-economic impact of the HIV/AIDS epidemic cannot be overemphasised.

Each Department has budgeted for HIV/AIDS interventions. The total amount committed by this Province toward HIV/AIDS activities is R204 million.

There will be greater co-ordination of programmes between various departments to enhance efficiency. AIDS Education will form a central part of the curriculum in all public schools.

Local Government

We have just emerged from a revolutionary change on the local government sphere. The North West Government is committed to work in a spirit of co-operative governance with the newly elected local and district municipalities to ensure that we better the lives and freedoms for all.

In order to redress inequality, our budgetary programmes will be targeted towards the poor, as well as address racial, gender and spatial imbalances in accessing basic services. This calls for greater co-ordination between us and local government structures in as far as project implementation is concerned.

We have set aside R10 million in the next financial year as a local government development fund to build capacity at this sphere. The amount will increase in the subsequent years.

Fraud and Corruption

Fraud and corruption incidences have been on the decline since 1999. Unlike in 1999 where eighty-seven new cases were registered, only thirty-five cases were registered during the year 2000.

It must be noted that between 1996 and 1999 one hundred and nineteen cases with a monetary value of R180 million were investigated and finalised. The bulk of this amount was recoverable through our swift intervention.

The problem being experienced with reported cases is that prosecution takes a long time to finalise and as a result there has been a build up of backlogs.

To obviate delays in misconduct cases a specialised misconduct unit has been established in the Department of Traditional and Corporate Affairs.

SPENDING PLANS FOR 2001/02

Mr. Speaker, let met turn to the proposals for the 2001 budget.

Revenue

Revenue is budgeted at R9,830 billion for the year 2001/02. It will increase to R10,533 billion in 2002/03 and R11,195 billion in 2003/04.

Own sourced revenue which is budgeted at R369,5 million accounts for four per cent (4%) of the total revenue requirement while the balance of 96% is made up of national transfers. Own revenue will increase to R378,6 million in 2002/03 and R397,9 million in 2003/04.

Expenditure

Total proposed expenditure amounts to R9,829 billion. This amount increases to R10,545 billion in 2002/03 and R11,224 billion in 2003/04.

Mr. Speaker, our expenditure is once more biased towards social spending as is evidenced by an allocation of R7,829 billion. This amount represents 80% of the total budget and is 2% more than the 2000/01 allocations. Social spending increases to R8,459 billion in 2002/03 and R8,943 billion in 2003/04.

Capital projects accounts for 9% of the budget.

Personnel expenditure is budgeted at R5,451 billion and makes up 55% of the total budget, a reduction of 2% against the 2000/01 adjusted budget.

The budget is allocated as follows:

Economic development and infrastructure cluster

An amount of R1,577 billion has been allocated to the economic development and infrastructure cluster. This amount increases to R1,713 billion in 2002/03 and R1,894 billion in 2003/04.

The cluster will address the question of the promotion of SMMEs both in the agricultural sector and other entrepreneurial initiatives. To this end an amount of R34 million has been set aside.

An amount of R491 million has been set aside for economic infrastructure. This amount increases to R616 million in 2002/03 and R724 million in 2003/04.

Invest North West has been allocated R6,4 million to continue with efforts of investment promotion.

Social Cluster

The Social Cluster has been allocated an amount of R7,824 billion for 2001/02. This amount increases to R8,459 billion in 2002/03 and R8,943 billion in 2003/04.

Education is allocated 40% of the budget, Health 18% and Social Welfare accounts for 21% of the budget.

Governance Cluster

The Governance Cluster has been allocated an amount of R427,7 million. This amount increases to R372,6 million in 2002/03 and R396,9 million in 2003/04.

This cluster manages the governance issues and consists of:

* Finance
* Safety and Liaison
* Traditional and Corporate Affairs
* Office of The Premier
* Office of The Legislature

Contingency Reserve

An amount of R57 million has been allocated as a Contingency Reserve; R7 million of this amount is a conditional grant earmarked for the implementation of phases two of the PFMA.

The balance of R50 million is a contingency reserve, which caters for unforeseen and unavoidable expenditure.

Statutory Payments

An amount of R104,5 million has been budgeted for repayments of debts of which R70 million is in respect of a repayment to the tribal trust fund and R34,5 million is the repayment of the South African Revenue Services debt.

CONCLUSION

Hon. Speaker, a budget exists because we've got to balance the needs of our people with the available resource base. Well-defined policy directives within a strategic and coherent approach underpin this process. The key consideration in this process is to what extent it can improve the quality of life of our people.

For us, expanding individual freedom should be the outcome of development but more so, individual freedom should be the major way in which development is obtained. Political freedom has been achieved in South Africa, but we are still far away from economic freedom.

The present budget makes a substantive contribution towards economic freedom as it provides health, infrastructure, housing and welfare grants which acts as safety nets; it provides our youth with skills needed to enter and participate more easily in the labour market; it provides through various rural development and small business initiatives access to product markets for our isolated and marginalised producers and it contributes towards the reduction of inequalities in our society. It is in itself a reflection of the fact that expansion in political freedom can meaningfully contribute towards expansion of their economic freedom. And need we remind this house Hon. Speaker that expansion of economic freedom is the surest way of safeguarding and strengthening our democracy?

Important as the full realisation of our people's economic and other types of freedom are, the fact that there is a budget reflects that we were confronted with choices.

There is therefore a great and significant role to play for our social partners in business, labour and the broader civil society in expanding people's freedom. Our challenge to them is to share our belief in striving for a better society and to judge ourselves ultimately on the extent to which we progressively and jointly realise this goal.

Hon. Speaker allow me to express my profound gratitude to:

* Premier Molefe for your exemplary leadership and the challenges you always put before us in pursuit of a better life for the people of the North West
* Colleagues in the Executive Council, particularly the members of the Provincial Treasury Committee, for your principled approach in dealing with very complex fiscal issues
* Hon. Z Sebekedi and Hon. A. Venter, respective Chairpersons of the Finance and Public Accounts Standing Committees; your role has always been of a constructive nature to enhance accountability
* "Team Finance" ably led by the Head of Treasury, Mr. Phines Tjie. I count myself as very fortunate to be surrounded by such highly professional and dedicated staff.
* The Office of the Auditor-General; we've come a long way to ensure that norms and standards are maintained in the application of public resources (hoping for a more accurate definition on unauthorised expenditure).
* Our extended stakeholders in A-Re-Aging for your inputs to enhance the policy environment that shapes the budget process
* And then there is "Team Family". Thanks to my wife Liz and the kids for keeping me in good spirits.

To the audience out here; thanks for coming to listen to us, your presence is highly appreciated.

I thank you Hon. Speaker.

Issued by Finance, North West

27 February 2001