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Honourable Mister Speaker
Honourable Premier of our Proud Province
Colleagues in the Executive Council
Distinguished Members of our Legislature
Invited Guests
Ladies and Gentlemen

It is almost eight years since the first democratic elections and we are nearly half way into the second term of democratic government in South Africa. In that short period, as a country and as a province, we have gone through major changes that have altered not only the face of government at all levels, but also impacted fundamentally on the very fabric of South African society. The development and progress that we have made is a result of commitment, vision and collective endeavour.

A democratic tradition of critical reflection and engagement has been built. The basis for a more caring society has been laid. The significance of partnership building has been established beyond any doubt. We have all come to accept that these are critical elements of the new society we are trying to build; of the new South Africa we are attempting to remodel. The Budget we are presenting today is an embodiment of this new era of democracy, development and growth.

Mr Speaker, Sir, we have always maintained that the Budget is more than mere financial allocation. It represents a vision, choices, programmes and a commitment to a broader agenda for social transformation. In essence it presents a platform for reviewing not only the context within which our transition is taking place but also the progress we are making towards attaining our goals and targets.

With the Budget 2002/03 we seek to achieve the following: -

* Improved rural incomes through implementation of an integrated sustainable rural development programme
* Increased efficiency and effectiveness of the public sector
* Increased capital expenditure and infrastructure development
* A renewed focus on poverty alleviation through strategic stimulation of our economy; and
* Increased attention to HIV/AIDS and improved delivery of social and welfare services

Honourable members, these objectives and programmes are under-pinned by an understanding that government intervention constitutes just one, albeit significant, part in a nexus of development efforts. Public spending constitutes more than a third of our Gross Provincial Product. The challenge is how we use resources at our disposal to work collaboratively with others in an effort to effect social change.

If you may allow me, Mr Speaker, it is important to briefly sketch the context under which this Budget proposal is being tabled.

We think that it is generally recognised that in 1994 we inherited a very weak economy. Weak not just because of sanctions and revolutionary turbulence of the 1980s and early 90s, but structurally weak, due to the peculiar and unbalanced nature of capital accumulation in the South African economy during the twentieth century

The economy that we inherited was based on huge capital accumulation around mining and minerals, but little else. Industry was inward-looking, isolated and uncompetitive in world terms. Skills development was restricted to the white minority, and regions such as the Eastern Cape, which had no value in terms of minerals and mining, were rural backwaters, home to migrant labourers and lacking basic infrastructure.

The challenges of this inheritance therefore included:-

* A contracting national economy
* High unemployment, particularly among the unskilled majority
* Uncompetitive industries; and
* Huge infrastructural backlogs.

It is these challenges that we have been addressing since 1994, both nationally and provincially, and progress has been made:

* From negative rates of economic growth prior to 1994, we have achieved annual national and possibly provincial growth rates since then of nearly 3%. Despite the world-wide economic slowdown this year we should achieve 2.3% growth.
* Our economic policies are transforming industry to become competitive world-wide: Our manufactured exports grew from 9% of GDP in 1990 to 20% of GDP in 2000.
* Real wages and productivity have increased by over 20% since 1994, bringing rising living standards to millions of people and strengthening the competitiveness of industry.
* Foreign Direct Investment multiplied by 21 times in the five years after 1994, compared to 5 years before.

We could continue with this list of progress, but Minister Manuel has already done the job for me!

At the provincial level we are also making progress:

* Our industries are expanding, primarily due to exports growth. Our leading sector, automotive, is particularly strong (primarily as a result of the Motor Industry Development Programme: MIDP). DaimlerChrysler SA recently reported an amazing 64% increase in turnover to R13, 9 billion, and for this they must be congratulated. Despite the recent labour problems, Volkswagen is also showing good performance and so are Delta and Ford.

* Our Industrial Development Zones are progressing! Coega has investments in the pipeline that could create 20,000 jobs.

* The tourism industry is quietly expanding; witness the growth of private game reserves and hunting and the mushrooming of backpacker lodges along the Wild Coast.

* Steady progress is being made to address the challenges of poverty, infrastructural backlogs and the skills deficit.

It is these challenges that remain the priority of this Budget and probably for many future Budgets to come.

2. REVIEW OF THE 2001/02 FINANCIAL YEAR

In tabling the Budget for 2001/02 in this Legislature, Honourable Members will remember that we emphasised that our focus for that year was going to be to steer the provincial government beyond the period of stabilisation of the previous financial year (2000/01). We made a deliberate shift towards prioritisation of targeted expenditure, for example, in capital infrastructure projects and enhancing delivery in all critical areas. The following were key programmes that we adopted: -

* Integrated rural development
* Social welfare services improvement
* Transformation of Government machinery
* HIV/AIDS Programme

With regards to integrated rural development the following was achieved: -

* An Integrated Sustainable Rural Development Programme was developed. A process of concretising development plans for all four nodes identified as priority areas is already underway. Substantial funding for all the key projects in the nodes has been secured from both national and provincial government departments. The collaboration between national, provincial and local government has been enhanced.

* Two critical components of the programme, namely Livestock Improvement and Rural Infrastructure, are already receiving serious attention. In regard to livestock improvement, dipping material has been distributed and planning for livestock commercialisation in targeted areas has been completed. It is our hope that with the new allocations these programmes will be further enhanced. Rural Infrastructure has also received attention, particularly in the former Transkei area. For instance substantial investment in infrastructure since 2000 and including 2001 Budget to the tune of R451, 3 million was made, 75% of which was in the former Transkei, as outlined below.

Former Transkei

Schools: R108.94m (74%)
Clinics/hospitals: R122.62m (84%)
Roads: R104.52m (66%)
Total: R336.12m (75%)

Other areas
Schools: R39.31m (26%)
Clinic/hospitals: R22.47m (16%)
Roads: R 104.52m (66%)
Total: R115.14m (25%)

Total spending
Schools: 148.29m
Clinic/hospitals: R145.09m
Roads: R157.87m
Total: R451.26m

There will be further extensive rollout of infrastructure in the next two financial years throughout the province, particularly in northern areas such as Sterkspruit, Venterstad and Molteno, etc. The poor state of infrastructure in most of our areas was particularly noticed during the Executive Council's visits to various districts of the Province during the past two years.

With regard to Social Welfare improvement the following was achieved: -

* The outsourcing of social security grant payments has been completed with a contract being awarded to two companies for administering the payment system. That will relieve the Welfare department and enable it to give more attention to the processing of applications in order to meet the significant target of 1.4 million beneficiaries by the end of the next financial year. Hopefully our people will no longer die when queuing for benefits. Our database on welfare is also improving.

* In addition to social security, the poverty alleviation programme has taken off fairly well in this financial year. The integration of the programme into the overall programme of government is one of the major achievements.

With regard to transformation of government machinery the following has been achieved: -

* The process of decentralisation of services, functions and powers to local authorities has begun. Many departments are beginning to work co-operatively with local government in the delivery of services. An example of this is in the Integrated Sustainable Rural Development Programme.

* The skills development programme has also been prioritised in the past financial year. Through the bursary scheme we have funded 1249 students studying in all the eight tertiary institutions in the province. An amount of R11 million was spent in this regard. The Transversal Management and Governance Training Programme has also been adopted and is allocated resources in this Budget.

* There has also been a progressive reduction of personnel, a process that is likely to have impact on the overall structure of our Budget in the long term. This is the effect of the dual strategy of containment and targeted deployment, as well as attrition.

* The programme of appointing CEOs for major hospitals is also in full swing. Three have been appointed so far.

* Our anti-corruption drive has been equally successful. During the last financial year R7.8 million has been recovered, assets worth R7.0 million have been frozen (pending legal remedies), and we are currently instituting claims against alleged perpetrators to the value of R3.4 million. Our systems and capacity are continuously improving so as to control corrupt practices.

* The absorptive capacity of line departments is improving tremendously. Most of the provincial government departments will spend 93% of their allocated amounts this financial year. This is a consequence of two critical factors, namely the effectiveness of the Early Warning System (periodic reports to Treasury), as well as the improved programme implementation capacity of departments. Another problem that we need to pay attention to is the practice of line departments dumping funds with municipalities.

* Revenue collection has also been a major success. As opposed to projected revenue of R290.5 million, our revenue as at the end of January 2002 was R315 million. This is as a result of improved systems of collection as well as enhanced capacity of our revenue collection organs.

* Procurement reforms: The term of office of the previous Tender Board ended on the 31st of December 2001. A new Board, which is much reduced in size, has been appointed as an interim board until a new legal framework is in place. The envisaged procurement system, in line with national legislation, will give greater preference to PDIs to win tenders. Against all odds, empowerment through procurement is being achieved.

With regard to the HIV/AIDS programme, we have achieved the following: -

* The AIDS awareness programme is picking up fairly well, but there is room for improvement.

* The condom distribution network is also working relatively effectively.

Whilst we are satisfied with the progress we are making, there are still a number of critical challenges that we need to overcome. These include the following: -

* Improving the effectiveness and efficiency of the public sector: Critical in this area is the need to ensure that all programmes are implemented and that the cost of running the provincial administration is kept within a reasonable limit. Financial management is obviously one of the critical elements of a better functioning public service. Another related factor is the organisational re-engineering of government.

* Improving the human resource base: It is clear that we still lack skills in critical areas and this is an issue that this Budget will attempt to address.

* Enhancing our delivery systems: it is clear that most of the services we are delivering could be delivered differently and with greatly improved quality. This entails exploring creative possibilities for strategic partnerships to improve delivery.

* The need for a well co-ordinated strategy of decentralisation: The process of devolving powers and functions to local authorities needs to be managed in such a way that it enhances delivery and increases capacity, without growing the government machinery unduly.

* The need for a more systematic co-ordinated and integrated focus on the depressed geographical areas: Uneven development is not going to just disappear. It requires careful planning and targeted intervention.

* Better co-ordination of planning and budgeting. We still need to synchronise our budgeting and planning systems, in order to enhance mutual communication.

It is these issues that this Budget is responding to.

3. STRATEGIC OVERVIEW OF THE BUDGET 2002/03

We will now present a brief strategic overview of the Budget.

The strategic focus of this Budget is on:

* Addressing Infrastructure backlogs
* Improving social services delivery; and
* Strengthening support for private sector growth and development

Since our budgeting allocations are largely linked to national priorities, our emphasis generally must be on improving the quality of delivery with the available financial and human resources.

With the limited resources that we have discretionary control over, our emphasis must be to address the most critical provincial priorities to reinforce and augment directed spending. Here we have the opportunity to use the limited space for manoeuvre to approach urgent problems in our own unique way.

Informed by this strategic focus and the challenges outlined earlier the following are the priorities for this Budget:

Integrated Sustainable Rural Development Programme: This will continue to be our priority for the financial year 2002/03. The key components of the strategy are:

* Integrating planning and ensuring synergy between national, provincial and local government
* Focusing on the nodes, which are by far the most depressed areas of the province
* Building local institutions for sustainable development
* Developing and implementing projects

This programme is tightly linked to the decentralisation process through which resources and capacities are to be devolved to local government. In all the nodes, project design processes are almost complete and identified anchor projects are poised for implementation.

Whilst the various activities are linked to line departments we would want to highlight a few to underscore our commitment to the programme:

* Provincial/local integrated planning: An amount of R5m for implementation of the Integrated Sustainable Rural Development Programme was given to Housing and Local Government in the 2001/02 financial year. R2m for project initiation and R3m for institutional development. A further amount of R20 million was allocated by the National Government during this financial year and is upped in 2002/03 to R91.3 million and to R96.5 million and R102.2 million respectively in the outer Medium Term Expenditure Framework (MTEF) years. The Provincial Government allocates a further R25 million. A challenge that will be faced here is the integration of the functioning of district municipalities and provincial departments and their programmes towards ultimate delivery of services to our people. The Integrated Development Plans (IDPs) that are linked to a Geographic Information System (GIS), resource planning and economic profiling must be vehicles for delivery for all three spheres of government.

* Agricultural revitalisation: In order to reinforce this programme an amount of R19.75 million is allocated for veterinary services, as part of the drive to improve livestock farming in the province. R25 million is made available for fencing and other related activities. This will contribute towards the agriculture revitalisation initiatives.

Public Sector Transformation: A comprehensive programme to develop our human resource capacity will be undertaken in line with our drive to improve the services provided by our government. This programme will be greatly assisted by the skills levy charge, which amounts to R111.4 million for 2002/03. The major elements in utilising this amount will be the bursary scheme (R12m), adult basic education and training (R10.4 million), Transversal Management and Governance Training (R18.4 million).

* Long-term comprehensive multi-level financial management training, learning and education, and support programme is underway. This joint venture with tertiary institutions will develop a core of finance specialists and also functionaries within the provincial departments.

This initiative will link with a number of local, national and international agencies and universities in providing solutions to both practical and theoretical financial problems within the Eastern Cape public finance environment. R100 million over five years is set aside to finance this programme.

Infrastructure: Investment in capital infrastructure development has grown substantially by 37% to R2.3 billion in the 2002/03 financial year, and up to R3.5 billion in 2004/05. An amount of R616 million is dedicated to improving the roads network in 2002/03. This is almost a 50% increase on last year's allocation on roads and maintenance.

Transport infrastructure: Feasibility studies have been undertaken for the resuscitation of the Umtata/East London railway line. To that extent R44 million is being made available for the implementation of this project.

Economic Intervention: On the economic development side we are excited by the progress made in respect of the Coega project, which the National Minister has declared as an Industrial Development Zone. The President signed the proclamation for the construction of the Port of Ngqurha on the 23rd of January 2002. The Coega Development Corporation (CDC) has been given a provisional license to operate the IDZ. In order to consolidate the operation of the IDZ, the provincial government has made available R80 million to the CDC as part of the commitment that was made in the previous Budget speech of March 2001.

On the marine side of the project, the Port Authority has set aside approximately R3.2 billion (taking into account the rand exchange pressures) over a period of four years to construct a deep-water port.

On the East London IDZ we are expecting confirmation soon of its declaration by the National Minister. More work will be done to make the IDZ operational in the coming financial year. Consequently R50 million has been made available.

In addition we are strengthening our business support institutions (these include UVIMBA, ECDC and ECTB) and improving co-ordination between these institutions and other support agencies, provincial and national.

Social services: Spending on Social services constitute a significant portion of the Eastern Cape's Budget, representing 85.5% of total expenditure. Social services spending constitute a mechanism for poverty alleviation, and for dealing with high-impact diseases. The expenditure on these services has grown by R1.783 billion since last year.

This is due to increases in the number of social grant beneficiaries; above inflation grant increases and response strategies to the impact of HIV/Aids. We will now outline key social services programmes:

Health care improvements: Hospitals in the province suffer from serious deficiencies, as the standing committee on health discovered. These highlight the need for a sustained intervention strategy to address the need to modernise hospitals, and improve hospital management capacity. In order to strengthen this programme 20 hospitals have been added to the original 10 and an amount of R100 million has been set aside for the combined programme.

HIV/AIDS: The government is implementing an enhanced strategy for the prevention of HIV/AIDS, with a focus on care and support for children and youth. R85 million is allocated to prevention programmes targeting schools, communities, hospital treatment, and home-care. This allocation will strengthen home and community based care, support for voluntary counselling and testing and will provide for the integrated mother-to-child transmission prevention programme.

Welfare: Social grant payments are a significant and effective tool for alleviating poverty. The province has made provision for an increase in the number of beneficiaries from 760 000 to an estimated 1.4 million social grants. This increase caters for more than 700 000 children in need of child support grants.

The amount allocated is R5,149 billion.

Social workers in NGOs play a considerable role in supplementing and supporting the work of government programmes. In recognition of the critical role played by social workers in NGOs, and the existing salary disparities, the government has allocated additional funds to increase subsidies paid to NGOs.
The amount allocated is R9 million

The inflation adjustment to social grants announced by the President and Minister of Finance will be effected from 1 April 2002, instead of the 1st of July as previously practised. It is important to note that this is above the inflation rate.

FUNDING STRUCTURE

Let us now briefly complete the budget picture by taking a look at our funding structure:

* Equitable Share: The total amount for 2002/03 from the equitable share is R20.497 billion. This is projected to increase to R21.856 billion and R23.323 billion over the 2nd and 3rd MTEF years respectively. The equitable share formula has been slightly adjusted by a one-percent increase in the welfare component to 18%. This was made possible by a reduction of the economic activity component from 8% to 7%.

What is important here for Members to note is that this Budget proposal entails some trade-offs that the province has had to make to accommodate increases in social services grants that were recently announced in Parliament by Minister of Finance, Trevor Manuel.

The social pensions and child support grant increases mentioned in the national Budget are accommodated and provided for in this provincial Budget proposal. They are funded from our equitable share allocation. In terms of the allocation formula used by National Treasury, the Health component is 19%, Welfare is 18% and Education is 41% of the total equitable share. However, the actual allocations made within the province are 17%, 26,5% and 42% respectively. Therefore, the total allocation for social services is 85,5%.

To address the increases that have been made for social security and education, trade-offs within provincial programmes had to be made. That explains the 2% change in Health's equitable share portion of the Budget. This does not imply a reduction in absolute terms. We also had to revise our projected increases in the infrastructure estimates to accommodate increases in social security and education allocations.

* Conditional Grants - this revenue source is crucial in dealing with specific programmes as agreed to between National and Provincial government departments. Over the past years and into the projected MTEF period, conditional grants have been projected to fluctuate:

2001/02: R1.597 billion
2002/03: R1.495 billion
2003/04: R1.754 billion
2004/05: R1.898 billion

The overall provincial expenditure at the end of the current financial year is projected to be 93% of the total Budget. The disturbing feature is that expenditure from conditional grants is just less than 50%.

* Own Revenue - revenue generated by the province is projected to increase from R290 million in 2001/02 to R400 million in 2002/03 and R450 million and R500 million in the following MTEF years. Our revenue assumptions are continuously improving and becoming more realistic than the previous years. Our new revenue collecting system is starting to bear fruit.

We have Budgeted interest revenue of R258 million compared to R164 million in 2001/02. Provincial Treasury has revamped its strategies in order to earn competitive interest rates in the market.

The gambling tax revenue is Budgeted at R40 million from R30 million in 2001/02. The collection within the horse racing industry has declined significantly since the legalisation of gambling operations in other areas.

The motor vehicle license fees have increased moderately from R41m in 2001/02 to R47m in 2002/03. This projected increase is based on the resolution by the Executive Council to raise motor vehicle licences in the coming financial years. The MEC responsible for Transport will expand on this when presenting his policy speech. Better monitoring of systems and access to a comprehensive database have allowed for this improvement in the collection system.

The total Budget for the financial year 2002/03 is R22.393 billion. We provide below the proposed allocations.

4. PROPOSED ALLOCATIONS

Before we take a look at the figures it is critical to understand the processes involved in crafting the Budget.

The determination of the provincial Budget is an extensive and intensive consultative process that begins as early as June/July of the previous year. The process begins with departments discussing their priorities with relevant stakeholders based on the MTEF estimates. Departmental clusters, having taken into account the needs identified during the Executive Council Outreach programmes, consolidate and present recommendations to the Provincial Budget Indibano where an agreement is reached on the priorities of the province for the MTEF years. Thereafter interactions take place with both National and Provincial Treasuries, before submissions to the Cabinet Budget Committee and subsequently to the Executive Council for approval.

Departmental Allocation Proposals

May we present to the House the following allocations:

Vote: 1
Department: Office of the Premier
Allocations for 2002/03 (R000)
160,696

Vote: 2
Department: Provincial Legislature
Allocations for 2002/03 (R000)
67,111

Vote: 3
Department: Health
Allocations for 2002/03 (R000)
3,916,823

Vote: 4
Department: Welfare
Allocations for 2002/03 (R000)
5,581,928

Vote: 5
Department: Roads and Public Works
Allocations for 2002/03 (R000)
1,580,974

Vote: 6
Department: Education
Allocations for 2002/03 (R000)
8,571,364

Vote: 7
Department: Housing, Local Government and Trad. Aff.
Allocations for 2002/03 (R000)
910, 066

Vote: 8
Department: Agriculture and Land Affairs
Allocations for 2002/03 (R000)
518,995

Vote: 9
Department: Economic Affairs, Environment & Tourism
Allocations for 2002/03 (R000)
323,139

Vote: 10
Department: Transport

Office of the Premier
160,696
Allocations for 2002/03 (R000)
283, 767

Vote: 12
Department: Provincial Treasury
Allocations for 2002/03 (R000)
253,152

Vote: 14
Department: Sport, Recreation, Arts and Culture
Allocations for 2002/03 (R000)
216,298

Vote: 15
Department: Safety and liaison
Allocations for 2002/03 (R000)
8,342

GRAND TOTAL FOR 2002/03 (R000): 22,392,655

Allow me Mr Speaker to make brief comments on the highlights of these allocations:

* There is a 14% monetary increase in the whole Budget compared with the figures presented in the previous Budget.

* What is reflected above is a major increase in allocations compared to last year's Budget. This is particularly so for the Premier's Office which shows a 44% increase, due to the skills levy and the consolidation of legal services into the department. The second major increase is in Roads and Public Works, which is 66% more than last year. This reflects the increased focus on capital expenditure.

* Again more resources are directed to the delivery of social services. This represents 85,5% of the total provincial expenditure Budget and has increased by R1.783 billion since last year.

* The personnel salary bill stands at 50% of total expenditure with R11.1 billion being set aside. There is a gradual decline in this amount over the next two years and in the last MTEF year it declines to 48%.

* An amount of R89 million, more or less 1% of personnel expenditure has been made available to recruit professional knowledge and skill within crucial sectors. The amount is included within the Treasury reserve account.

The overriding challenge in crafting this Budget was balancing the resource needs of various line departments/programmes versus provincial priorities. As always, needs exceed resources. In many senses this is the essential paradox of planning.

CONCLUSION

To conclude, Mr Speaker and Honourable Premier, I table for consideration of the House the following documents: -

* The Eastern Cape Appropriation Bill 2002 and its explanatory memorandum
* Budget Statements 1 and 2; and
* A copy of my Budget Speech

I have to thank the Honourable Premier for his untiring support, guidance and leadership. Without the understanding of the Executive Council and the tremendous support and dedication given to this process by the Cabinet Budget Committee, the Budget process would have been far more difficult.

I have to also take this wonderful opportunity to appreciate the co-operation we received as Treasury from the various Heads of Departments, the Chief Financial Officers and their programme managers. Needless to say, this team was capably marshalled by the DG.

I must not miss this opportunity to express gratitude to my Treasury Team. The past 10 months have been strenuous. That we have pulled it together attests to individual commitment and a collective effort that has rallied and sustained people behind the process.

It is no surprise that National Treasury has also acknowledged the good work well done on the new Budget statement. Thank You.

Last but not least, I want to thank my family for their unwavering support, patience and understanding.

Finally, in looking at this Budget, we need to be mindful of the overarching strategic goals we set ourselves, namely that of transforming South Africa in general and our province in particular. The goal of fundamentally improving living standards and creating "a better life for all". Clearly this is not a short-term project, it requires more than just throwing resources at our problems. It requires thorough appreciation of the concrete realities obtaining in the province, careful planning, effective implementation management and consistent monitoring and evaluation.

This Budget, and I dare say, the presentations that various MECs will be making to this house, is a reflection that by and large the key organs of government and political leadership are committed to realising these objectives.

The challenge now and in years to come will be our ability to develop, nurture and sustain a broader societal partnership for transformation. A partnership strong enough to subjugate narrow sectional interests to the wider goals of social transformation. I believe the basis for such a partnership is already laid.

Let us make it work.

We have presented a budget for delivery.

Let us make it work.

Issued by Finance, Economic Affairs, Environment and Tourism, Eastern Cape

7 March 2002