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Address by Gauteng Finance and Economic Affairs MEC, Jabu Moleketi, on the tabling of the Gauteng Provincial Budget for 2004/2005 Financial Year to the Legislature
24 February 2004

Introduction

Honourable Speaker
Honourable Premier
Honourable Members
Honourable mayors and other representatives of local government
Other distinguished guests
Ladies and gentlemen.

Honourable Speaker, as a people we have over the last ten years patiently and painstakingly steered the course. We have weathered the global financial storms and boldly confronted socio-economic challenges arising from centuries of injustice, oppression and exploitation.

As we celebrate this decade of freedom we cannot but observe that we emerge tempered, determined and with an undying hope of a better life for all.

As Pablo Neruda observed in his Nobel Lecture, 13 December 1971, "Our original guiding stars are struggle and hope. But there is no such thing as a lone struggle, no such thing as a lone hope. In every human being are combined the most distant epochs, passivity, mistakes, sufferings, the pressing urgencies of our own time, the pace of history."

We have over the last ten years used the budget to deal with our painful legacy. Our budget became an instrument through which increased access to education, health and basic needs generally was attained.

"How should I then have been able to raise my brow, illuminated by the honour (of tabling this budget) if I had not been able to feel some pride in having taken part, even to a small extent, in the change which has now come over my country." (Pablo Neruda)

2004 sees South Africa prepare to celebrate ten years of democracy. Ours is a stable and maturing democracy and we are certainly regarded as the benchmark in the world. We are looked upon as a leader amongst our peers and have certainly driven key global initiatives.

When looking back over the past ten years, we can feel truly proud. Our democracy is vibrant, allowing for open debate and engagement. No subject is taboo. Development in our country is almost unparalleled when compared to elsewhere in the world. South Africans are passionate about our country and are positive about its future.

The management of our economy has been nothing short of spectacular. Access to and provision of basic social services today does not discriminate on the basis of race, colour or creed. Each of our children has the same opportunities to education, our public health care is open to all and our most vulnerable, the aged and the children have access to a social security safety net.

Ten years of Budgets

President Mbeki in ANC Today Volume 4 Number 7 states, "The Budget is one of the principle instruments in the hands of the democratic state to bring about the changes we need to make, to achieve our revolutionary goals. For us, the Budget is not merely an annual record of revenue and expenditure figures decided by government to address whatever issues might seem important during a particular year. It represents the financial interventions of the democratic state to give effect to the dialectically interconnected processes of revolution and reform."

Let us trace a path through the budgets that have been presented to this House over the past decade to determine how true we were as a government to this statement.

The first Budget speech to this house was on 1 March 1995. Technically, the Budget was tabled for the 1994/1995 financial year on that day. I say, technically because for all intents and purposes the spending had already taken place under the auspices of the national appropriation act. We had just created the institutional framework that allowed for provinces to assume their functions. These included the Provincial Exchequer Act, the Tender Board Act, and the award of the banking tender.

Two weeks later the first full Budget of the Gauteng Provincial Government for the 1995/1996 financial year was presented. We noted the poor Budget process characterised by functional committees that did not allow for provincial priority setting in shaping the Budget. Already, potential spending pressures in Health, Education and Welfare were reported.

The 1996/1997 Budget marked the first stamping of its authority on the budget by the Provincial Executive. Although the functional committee system still prevailed, the Gauteng Executive shaped the budget driven by its own priorities. These were:

• Job creation
• Improved safety and security
• Rapid delivery of services
• Administrative transformation.

We challenged the function committee allocation system by reprioritising resources to more than double capital expenditure to R1 billion. Our Budget process was radically revamped to include the Budget Lekgotla that allowed for the Executive to shape the final allocations based on the outcomes that we sought. Funds were set aside to build police stations, invest in road infrastructure, hospitals and clinics, schools and information technology.

The Constitution in 1996 heralded the beginning of a new dawn in intergovernmental fiscal relations. Gauteng led the way in shaping those relations and the budgetary processes. Major reforms were starting to take shape. Rather than discuss and debate these reforms, Gauteng began implementation. Our October 1996 Budget Lekgotla saw the Executive utilise the five-year medium term expenditure model to make trade-offs in balancing the budget. In tabling the Budget, we published the first set of multi-year Budgets in the country.

Subsequent budgets further entrenched the reforms that were taking hold. Formats of budgets were changed; budget documentation allowed for more transparency and accountability, multi-year budgeting became the norm. Above all, the budget was shaped by the priorities of the Executive. Those remained unchanged and focused on transforming this country into one where all its citizens were equal.

The 2000/2001 budget began a new journey for Gauteng. The Budget Speech of 29 February 2000 stated that bold efforts were required to foster economic growth. We launched a range of economic infrastructure investments that was set to change the face of the Gauteng economy under the banner of the Strategic Economic Infrastructure Investment Programme or SEIIP. This initiative, today known as Blue IQ is certainly beginning to achieve that goal.

We went further in announcing the Shared Services Centre initiative that sought to reinvent government. Today, Gauteng is a reference site in the public sector. Recently, we hosted a delegation from the Victoria Government in Australia as part of their site visit process in evaluating the benefits of the model.

On the 27 February 2001, we spoke of our historic past, our determined present and our unstoppable future. Using just one example to illustrate this unstoppable future, let us look at property prices in the CBD of Johannesburg. Blue IQ has invested over R350 million into Newtown and over R420 million into the Constitution Hill Precinct. Not so long ago, apartments and penthouses in Corner House, in Harrison and Commissioner Streets, were fully sold out at prices ranging from R699 000 to R1,2 million.

In introducing the 2002/2003 Appropriation Bill on 26 February 2002, the need for partnerships to build this democracy and create a 'better life for all' was emphasised. Until all of us can say we are citizens and we are free, then only can we say that we have created a better life for all. Our role in contributing to the development of Africa is no less than our role to build a vibrant democracy with political, economic and social stability.

In tabling the Appropriation Bill on 4 March 2003 we placed in perspective the budgets and how this province has grown. Education spending had grown from R607 to R1106 per capita over the period from 1995 to 2003. Health per capita spending had risen from R396 to R1014 over the same period. Our endeavours to find the balance between social service delivery and investment to grow the economy is starkly demonstrated by the growth in capital spending from 5% of budget in 1995 to 19% in 2003.

Yes Honourable Speaker, "Only with a burning patience can we conquer the Splendid City which will give light, justice and dignity to all mankind." (Pablo Neruda)

The Gauteng Economy

The stirring of Gauteng's soul is perhaps nowhere more evident than it is in my submission to you today on the progress of our economy over the last 12 months. Fourth quarter statistics for 2003 will only be released next week, so please bear in mind that the figures presented here today only account for the first three quarters of 2003.

To understand what happened in Gauteng's economy in 2003 it is necessary to look at national economic trends. Gauteng has a particularly intimate relationship with the rest of the country's economy as this province is the major producer of agricultural, mining and manufacturing inputs, as well as, capital machinery. As such when growth in any of these sectors declines nationally, fewer inputs are purchased from Gauteng based firms and hence the growth of Gauteng is adversely affected. Historically Gauteng as a province has always been harder hit by downturns in growth than the national economy as a whole.

In terms of National GDP, growth 2003 was a challenging year to say the least. Gross Domestic Expenditure remained firm and interest rates and inflation decreased; however, real GDP performed poorly. In the first three quarters of 2003 National GDP growth was a mere 0.8 percent compared to the 3,6 percent increase enjoyed in 2002. If a similar trend is shown in the fourth quarter then it looks as if national GDP growth for 2003 will be around 1 to 2 percent. This lack lustre performance has mainly been due to poor performances by the agricultural and manufacturing sectors. The agricultural sector declined by some 16 percent due to adverse weather conditions and a decrease in demand for exports due to the stronger Rand. The manufacturing sector which was also severely hit by international currency volatility contracted by 3,5 percent. The only sector which continued the 2002 growth trend into 2003 was the tertiary sector which grew at a constant 3% per quarter for the first three quarters of last year and which managed to attract in Gauteng R1,6 billion worth of Foreign Direct Investment.

Given that the Gauteng Government's economic growth strategy has been predicated since 1997 on growing the contribution of the services sector to GDP and supporting high value added manufacture for export, which is less responsive to international price changes, I believe that when the final GDP figures are released we will see that the Gauteng economy has out performed the national economy and has weathered the storm of unfavourable international economic conditions better than the rest of the country.

This may appear to be small consolation for an economy which has enormous pressures to grow rapidly and generate employment, but, we have always held firm in Gauteng that we are seeking sustainable growth and we are confident that while we will not achieve last years 5,3% provincial GDP growth, our decrease in growth will be less marked than that for the country as a whole and may possibly be as high as 3,5 percent. This would be a major achievement for Gauteng - not only will it show that the province's economic structure has developed such that it can weather a substantial decrease in demand for goods and services from the remainder of the country as has been the case in the past; but even in difficult international circumstances it can continue to maintain its economic base and in fact grow. We now have a robust and resilient provincial economy.

Blue IQ

A solid contributor to this new found economic resilience and continued growth in the face of adversity has been the Gauteng government's unwavering commitment to changing the trajectory of the provincial economy, which has instilled a level of certainty and continuity for investors and enterprises which has allowed them to increase investment in the growth areas of the future. Leading the charge to support, accelerate and catalyse this behaviour is of course Blue IQ and it's newly created juristic persona BIQ Investment Holdings.

2003 was a great year for Blue IQ; yet 2004 may well surpass even the heady heights of 2003 - although probably not the unique moment when Madiba cut the ribbon on the Nelson Mandela Bridge on his birthday and sent off 15 000 runners on the first ever Blue IQ Jo'burg City Challenge.

As an indication of the level of Blue IQ activity in 2004, next month alone we launch Blue Catalyst, a mentoring and funding vehicle established to assist in the commercialisation of new knowledge intensive business opportunities developed by entrepreneurs. Later we launch the logistic centre of the Automotive Supplier Park, which will provide industry specific transport solutions for the motor vehicle industry resulting in lower total costs and hence increased international competitiveness. The ASP, which has already been operating for a year, has been a major contributor to assisting Gauteng's share of national new car exports to rise from 19% to 39% in the last 12 months. Finally on the 21 March, Blue IQ will be officially handing over the Constitutional Court to the Department of Justice.

Construction on the Innovation Hub began in January and the first Science and Technology Park in Africa will now meet its opening deadline for November this year. In addition, the hubs first anchor tenant has also begun to build their state of the art technology facility, and the hub is in second round negotiations with 70 potential tenants ranging internationally from a small Danish bio technology company, to a medium sized American software company to a multi million dollar Indian technology company. Locally, demand for hub space is also crossing the complete spectrum of firms and enquiries from large parastatal as well as micro businesses who want to join the Park's hatchery and incubators are being followed up.

The urban regeneration and tourism projects of Blue IQ are also flourishing. In December for example, Blue IQ and JDA called for proposals for 5 parcels of land in the Newtown area, which are now being released for private sector development. With rental rates in the area increasing from R25 a square meter to R68 a square meter in just 3 years it is easy to see why over 30 developers attended the recent proposal call briefing. Demand for space at the Constitution Hill precinct is also strong and three key anchor tenants are in negotiations to take over 60% of the phase one office space which will come onto the market in 2005; a well know hotel chain will also be putting up a hotel in the precinct. The Cradle of Human Kind project signed their PPP agreement to build a world class interpretation centre in October and construction on the Walter Sisulu Square in Kliptown is not just progressing well but is starting to appear in tourism brochures as a 'must visit' site in Gauteng , fuelling our hopes that the Blue IQ Kliptown project may inject some badly needed new economic activity into the area.

In a stable and consistent policy environment, the strategic economic infrastructure projects of Blue IQ appear to be fulfilling their vision of catalysing and accelerating private sector business activities in areas identified in the Industrial strategy of the province as key to ensuring sustainable growth. I believe we are now firmly on a sustainable , high growth economic path. While we cannot take our eye off the ball, we now have the space to focus additional efforts and resources into ensuring that this growth translates into a tangible improvement in the quality of life for everyone in Gauteng. In this next ten years we must look at furthering our institutional depth and the character of our channels that link government to communities and individuals; and we must ensure that our hard fought growth is shared by all. Our efforts must be felt as strongly in the spaza shops of Soshanguve and the home based factories of Katorus as it is in the boardrooms of Sandton.

Main features of the Budget

To quote President Mbeki's article in the ANC Today, "In reality, each annual budget is a programme and instrument of reform." I now move on to show how the 2004/2005 will seek to not only support this growth trend but to actively ensure that everyone in Gauteng benefits from this growth via improved delivery of government goods and services.

The budget continues to be shaped by strategic priorities of the Executive, which are:

• Economic growth, development, employment creation and infrastructure;
• Quality social service delivery; and
• Good governance and transformation.

Revenue budget

Gauteng receives R29 billion in 2004/2005 from nationally collected revenue. This grows to R34 billion over the MTEF for 2006/2007. The equitable share attributed to Gauteng is R24,5 billion for the 2004/2005 financial year with R28,5 billion earmarked for 2006/2007.

Conditional grants of R4,4 billion will be received in year 1 of the MTEF with R5,4 billion due in year 3. Two new conditional grants for provinces were introduced in the Division of Revenue Bill tabled in Parliament last week. These are the conditional grants for farmer support and for sports. In the case of Gauteng, these are small grants with Health grants still comprising the major share of conditional grants.

Own revenue is budgeted at R1,4 billion for year 1 growing to R1,6 billion over the MTEF. Motor vehicle license fees account for over 47% of own revenue generated. Understanding the concerns of the Governor of the Reserve Bank in his quest to keep inflation within the target band on issues of administered prices, license fees will be increased by between 5 and 5,5% for the different categories.

Total revenue available over the MTEF is R30,3 billion in 2004/2005, R33,1 billion for 2005/2006 and R35,5 billion in the outer year.

Expenditure budget

Our budget process has evolved over the past decade to truly reflect the priorities of government. Social services in the form of Education, Health and Welfare are the core of the functions of the provincial sphere of government. Combined spending on these functions account for 80% of the provincial budget.

Education is allocated R9,4 billion to provide for the needs of 1,6 million learners in 2 279 institutions within the public education system. The budget allocation for the outer year of the MTEF is R10,5 billion at which point it is anticipated that there will be 1,76 million learners in 2289 institutions.

The Health allocation accounts for 29% of the total expenditure with R8,7 billion set aside in year 1 with R9,6 billion earmarked for the outer year of the MTEF. This allocation is meant to treat the 750 000 admissions at 31 hospitals in Gauteng over the financial year and provide primary health care to some 11 million patients that are anticipated to visit our clinics.

We anticipate that there will be over 1,2 million persons on the social security system by the 31 March 2005. This will increase to over 1,9 million by March 2007. In planning for these beneficiaries we have set aside R5,7 billion in the coming year with R7,4 billion allocated in year 3. The allocation over the MTEF takes into account the extension of the child support grant to children under 14 years of age. These allocations also take account of the increases in grant values announced by Minister Manuel in his budget speech.

Personnel spending remains at approximately 44% of total spending over the MTEF. A change in the definition and classification of capital expenditure results in R1,8 billion being allocated to payments for capital assets. The restated comparative for the previous year is R1,5 billion. Capital transfers, including those for housing subsidies are now classified as transfers and subsidies.

Surplus

As in the past, we have provided for a surplus budget. The surplus over the MTEF has been earmarked to cater for specific spending pressures that, although known, are difficult to quantify accurately at this stage.

R200 million is earmarked for Health to cater for the impact of HIV/AIDS on the services rendered at the academic hospitals and for non-personnel non-capex inputs.

A further R100 million is set aside for Welfare should our assumption in the growth on beneficiary numbers of child support and disability grants be exceeded.

R90 million is earmarked for Education for additional teachers based on final tenth day statistics of learner enrolment and R78 million for the Shared Services Centre for additional staff. Finally, an amount of R100 million will be provided from the surplus for IT infrastructure in developing the e-government gateway to Gauteng.

These amounts once finalised, will be taken up in the adjustment budget in November 2004.

Conclusion

In conclusion I would like to quote, from an unlikely source in a budget speech - Chairman Mao Tse Tung. In his 1936 book entitled "Problems of Strategy In China's Revolution" Mao was uncharacteristically critical of some of the strategy employed in China and said, and I quote "when you do anything, unless you understand its actual circumstances, its nature and importantly its relations to other things; you will not know how to do it or be able to do it well."

When constructing a budget, we have an obligation and massive responsibility to understand its parameters, what it can and cannot achieve and most importantly what its implications are. Through the work of all the departments of the Gauteng Provincial government and particularly the work of the Treasury and Budget Office I believe that we have tabled a budget this year which understands the actual circumstances of Gauteng and its citizenry; which reflects the nature of the challenges we face and which takes into consideration the implications of resource allocation.

Acknowledgements

Ten years of experience of putting the budget together for the province certainly brings familiarity to the task. But with all of that experience, you realise that this is truly a team effort.

My profound thanks go to the Premier for his astute leadership and his wise words of guidance. My colleagues in the Executive, the budget is a true reflection of our collective efforts and accountability.

To each of the Heads of departments and their Chief Financial Officers, a huge thank you. You and your teams of officials form the engine of this government, turning all of the plans set out in these budget documents into reality.

To my Treasury team, who have been a pillar of professionalism steadfastly driving fiscal prudence in managing difficult choices over the years, words cannot say enough. My heartfelt appreciation.

And finally to my own private inspiration, my family. You have been my guiding light in the darkness, my lighthouse during the storm and the wind in my wings as I have soared to new heights. You are all truly inspiring.

With that Honourable Speaker, I table:

• The Gauteng Appropriation Bill 2004 and the accompanying explanatory memorandum;
• The Budget Statements 1,2 and 3;
• The Budget Booklet; and
• A copy of the Speech.

In closing let me reflect on the words of Oscar Sanchez, from his Nobel Lecture, 11 December 1987:

"History was not written by men who predicted failure, who gave up on their dreams, who abandoned their principles, who allowed their laziness to put their intelligence to sleep. If certain men at times were alone in seeking victory, they always had at their side the watchful spirit of their peoples, the faith and destiny of many generations."

For more information contact:
Saras Naidoo
Tel: (011) 355 8481
Cell: 082 774 0245

Issued by: Department of Finance and Economic Affairs, Gauteng Provincial Government
24 February 2004