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Eastern Cape Government Budget Speech 2004, MEC for Finance, Economic Affairs, Environment and Tourism, Honourable Enoch Godongwana
26 February 2004

Honourable Speaker
Honourable Premier of the Eastern Cape
Colleagues in the Executive Council
Honourable Members of the Provincial Legislature
Invited guests
Ladies and Gentlemen.

"Sometimes it difficult to fully understand the fact that we are barely ten years away from a time in the lives of our people when our collective future was very uncertain".

President Thabo Mbeki: State of the Nation 2004

The dimensions of what has been achieved in those ten short years are quite remarkable; no less so in our Province than it has been in the country as a whole. However, while we marvel at the clear progress that has been made, we must remain mindful of the scale of the challenges that still remain to be addressed.

Since the beginning, in 1994/95, nine Provincial budgets have been introduced in this House. On each of those occasions, we looked back to what had been achieved with varying degrees of satisfaction, and sometimes with concern. But on each of those occasions, we looked ahead with a confidence that we will succeed!

The first formal budget for the Eastern Cape Government was presented in 1995/6 and amounted to R12,4 billion. Last year, in 2003/04, the Province's overall budget amounted to R27,9 billion; and today we will present a budget aggregate of over R31 billion for 2004/05.

Last year, we said that the tide had turned and that we had taken the flood tide. I believe that we are still riding that flood tide, and that it continues to grow stronger as we learn more and more about how to manage volatile situations and to cope with the challenges of poverty and unemployment that are still evident in the Province.

As we move towards the tenth anniversary of freedom and democracy, it is instructive to consider the progression that has occurred in the Province's evolution in terms of governance and financial management.

I would suggest that four distinct phases can be identified.

The first phase extended from 1994 to 1998, and represented a steep learning curve. We had to deal with the complexities of amalgamating five systems of administration characterised by varying degrees of integrity, record keeping and basic principles of accounting for public funds. Inevitably, this was a period of uncertainty and crisis management.

The task of organising the Provincial public sector into a unified and cohesive organisation was immense. Crafting appropriate budgets for a new spatial entity characterised by extreme disparities in economic circumstances, employment, health services, educational systems and social development posed enormous challenges.

It is a tribute to the diligence and commitment of many of those involved in the early years that we survived those pressures and tensions. What emerged towards the end of 1998 was a clear trend towards a focus on planning and improved organisation; particularly in terms of financial, administrative and operational systems.

In hindsight, the progress secured in the first four years of this Provincial administration was remarkable, given the enormity of apartheid's legacies.

The second phase takes us to 1999-2000, which was a period of stabilisation and consolidation based on the broad foundations that were established. This period witnessed the liquidation of the Provincial overdraft that had accumulated through capacity and systemic problems surrounding the integration of the previous five administrations.

This provided a basis of confidence for sustained financial and administrative improvement, which has been maintained ever since.

The third phase was in 2001, which was a watershed year in many respects. This was a period of institutional reform, consolidation and re-organisation that saw Provincial Departments strengthened in terms of their operational responsibilities and strategic planning. The fundamental importance of strategic planning linked to a 3-year rolling budget cycle, was established and adopted.

Public entities were rationalised, reconstructed and given new meaning in the context of delivery.

The new local government system, consisting of demarcated wall-to-wall Municipalities was instituted, together with comprehensive Integrated Development Plans (IDPs) at the local, district and metro levels.

For the first time since 1994, government and governance was organised according to a comprehensive and cohesive system that linked Provincial Government Departments and Local Government structures together in the common pursuit of overall social and economic development.

The fourth phase extends from 2002/03 to the present and was a period in which real delivery began. I will return to this phase and its extension into the future.

Government spending trends since 1994

Since our first budget of R12,4 billion in 1995/96 to the budget presented here today for 2004/05, Provincial Government expenditure has increased by 10% a year, and the aggregate expenditure over the 1995 to 2004 period amounts to some R194 billion. This represents an enormous injection of financial resources into the Provincial economy over a nine-year period.

The principal objective of this spending by government has been to fashion a facilitating environment that is conducive to sustained private sector investment in productive economic activity (by providing infrastructure and services, for example) and to provide a sound basis for social services, ranging from education, health and welfare to sport, arts, culture and security.

It is instructive to consider several aspects of that spending as it has evolved over the period from 1995/96 to the present.

In 1995/96, around 72% of the Provincial budget was allocated to the social needs sectors (Health, Education and Social Development), and this proportion has increased to over 80% for the 2004/05 budget. This represents a significant shift in expenditure (nearly 10% points) towards social needs and is a reflection of the extent to which the Provincial Government has risen to the task of addressing the incidence of poverty, deprivation and inequality over the past decade. It is an imperative that we cannot avoid.

Expenditure on economic development accounted for 15% of the 1995/96 budget and this proportion has increased marginally to around 16% of the 2004/05 budget. This involves allocations to housing, local government, agriculture, economic affairs, roads and transport, which represent crucial components of the economic development process in terms of infrastructure development, investment in job-creating productive activities, small business development, housing and services. I will later demonstrate the increased effectiveness of our economic sector spending.

The critical challenge for Provincial Government is to strike a balance between these imperatives. Social needs must be provided for; but, at the same time, we must make provision for establishing an environment that is conducive to economic development, particularly through investment.

Two fiscal ratios might help to illustrate the progress we have made over the last few years:

• In 1999/2000 personnel costs accounted for 58% of total planned spending, while in the Budget I table today, the same ratio is down to 45,6%
• In 1999/2000 capital expenditure accounted for 1,9% of total planned expenditure, today we are pushing the same ratio to 10%.

It is also important to understand the importance of this Budget in our Provincial economic life. The fiscal expansion since 2001 in South Africa, that Minister Manuel recently spoke about in his budget speech, has been mainly achieved by increases in real provincial government spending. Because of the greater importance of provincial government spending in the economy of this Province, compared to other Provinces, the impact of the nationally-driven fiscal expansion, is having a relatively greater effect here.

Honourable Speaker, I believe that the changes and shifts in Provincial Government expenditure outlined above, provide real indications of the way in which this Government has responded to the challenges posed by the legacies of apartheid and has sought to build a platform for sustained socio-economic development for the next decade. We have not, by any means, resolved the critical issues of deprivation and exclusion, but I do believe that we have made significant progress. I also believe that the Provincial Growth and Development Plan, together with the associated Municipal IDPs, provide an important framework within which we will be able to further address the challenges that lie ahead.

I will now try to present a view of our Province from a fiscal perspective (both historical from 1994, and planned), so that the choices implicit in this year's budget allocations are contextualised and made clear.

Spending Priorities: Continuity and Change

Over the past ten years, our spending priorities have centred around three strategic imperatives:

• Redressing the historical legacy of unmet basic needs and poverty;
• Building the Provincial economy and enhancing the global competitiveness of our industrial sector; and
• Socio-economic transformation aimed at addressing the structural weaknesses of the Provincial economy and labour markets.

Honourable Speaker, I will speak to each of these imperatives, indicating where we are on track, what we have achieved over the past ten years, and where we need to place emphasis for the next three years.

Redressing the legacy of unmet basic needs

With respect to the first of these imperatives - redressing the legacy of unmet basic needs - we feel we have made huge strides in the Eastern Cape. This is reflected in the improved Human Development Index - the international measure of quality of life, and a composite index of life expectancy, literacy and incomes - which was up from 0,49 in 1996 to 0,53 in 2002.

We have progressively extended the social security system to cover 1,3 million beneficiaries. Since 1994 we have put R33,5 billion directly into the pockets of the Province's poorest and most vulnerable households.

We have also prioritised the alleviation of hunger poverty, through initiatives such as the Primary School Feeding Programme that has been designed to ensure there is no child in any primary school in the Province who should go to bed hungry.

We have built 127 500 new houses since 1994, and a further 105 000 are nearly completed. We have delivered water to the yards of 114 000 households, and a further 136 400 households now have access to water from public taps. We have electrified 325 600 homes and 1 130 schools, and extended telecommunications access to 401 000 homes.

We have also built 492 schools, and a further 141 schools should be completed by the end of next month. 11 100 classrooms have been built. We have built and/or renovated 97 hospitals, and built 131 new clinics and renovated a further 216, primarily in the former bantustan areas where service and infrastructure backlogs are most severe.

We will continue to prioritise meeting the basic needs of our people. In view of our Provincial Growth and Development Plan, the strategic interventions we will be making in this three year MTEF include extending social security benefits; accelerating delivery of social infrastructure and basic services; improving efficiencies in the social service departments, and launching two new initiatives - the Expanded Public Works Programme, and the Comprehensive HIV and AIDS Programme. Honourable Speaker, I will turn to the details of these initiatives and their resource implications shortly.

Building the economy and enhancing the competitiveness of our industrial sector

With respect to the second of the strategic imperatives that guided our policies and plans over the past ten years - building our economy - the facts (which are only reliable for the period 1996 - 2002) speak for themselves.

Firstly, the trend is one of growth - both in the economy and in per capita income.

• The average real annual economic growth rate in the Province between 1996 and 2002 was 2,1%, compared to the national growth rate of 2,8% a year over the same period. Total population growth was 1,0% a year over the period, resulting in an average growth of 1,9% a year in GDPR per capita in the Province. This was significantly higher growth than South Africa as a whole.
• This demonstrates that, in terms of overall economic development, the Eastern Cape has made significant progress over the past six years, largely because economic growth has outstripped population growth.
• In line with national and global trends, the fastest growing sector has been the tertiary sector (which grew by an annual average of 2,1%), followed by the secondary sector (with 1,6% per annum growth) and the primary sector (1% pa growth).
• Manufacturing dominates the secondary sector and accounted for over 80% of secondary output in 2002. The growth rate in the manufacturing sector between 1996 and 2002 was 1,6% pa.
• The automotive sub-sector accounted for over one quarter of manufacturing output in 2002 and grew at 3,8% pa between 1996 and 2002.
• Construction accounted for 11% of secondary output and grew at an annual average rate of 1,4% over the period, this growth being substantially driven by the provision of new public infrastructure.

Secondly Mr Speaker, showing how globally competitive our manufacturing sector has become, and reflecting an investor confidence that has never been higher, we have witnessed a spectacular growth in exports.

• Growth in exports peaked at 250% in 2001 making the Eastern Cape the province with the fastest growing exports. The contribution of exports to GDPR increased from around 9% in 1996 to 34% in 2002.
• The Province's imports and exports are concentrated in the manufacturing sector, and 96% of exports and 98% of imports were of manufactured goods in 2002, while agriculture accounted for 4% of exports and 2% of imports.
• Exports in the Transport Equipment sub-sector, which includes the motor industry, increased by over 55% pa between 1996 and 2002, while textile and metal product exports increased by 28% pa and 27% pa, respectively.
• In the Transport Equipment sub-sector, imports were 1,6 times the value of exports in 2002, which reflects the extent to which the automotive sector has become an integral part of the global supply chain.
• All of our key exporting sectors (with the exception of clothing and textiles) have a high import-export ratio, which indicates a high level of intra-industry trade and close associations with global supply chains.

This spectacular growth in exports reflects the success of policy instruments such as the Motor Industrial Development Programme (MIDP), and underpins a key industrial development strategy in the Eastern Cape: namely to promote export-oriented manufacturing through investment in IDZ infrastructure. Together with National Government we have succeeded in building a more conducive environment for investment and growth: not just for "greenfield investments", but also the so-called "brownfield investments" or expansions of existing industries; and not just export industries, but also industries with strong inward linkages.

Socio-Economic transformation: building a more cohesive and integrated provincial economy

Historically, the main role of the Eastern Cape in South Africa's industrial development under apartheid was a labour reserve for mining. This locked the Eastern Cape economy, and particularly the former bantustan economies, in a dependent status with income inflows from remittances. The decline in mining has meant falling incomes and rising unemployment.

Our high levels of poverty and unemployment are a direct result of this legacy. The consequence is a Provincial economy characterised by a sophisticated manufacturing base located in our two urban centres, sitting alongside an extremely underdeveloped and impoverished rural hinterland (what the President refers to as the "second economy"). By way of example, the per capita income in Alfred Nzo District Municipality is 12% that of the Nelson Mandela Metro.

Key initiatives that we have taken to address this uneven development include the packaging and delivery of strategic economic infrastructure in the rural economy, aimed at enhancing linkages between our manufacturing base and the agrarian economy. Key here has been the rapid delivery of road and agricultural infrastructure, as well as the Kei Rail Project, of which I will later speak more.

Our intention, over the next ten years, is to increase the scale of delivery of economic infrastructure in the agrarian economy as a catalyst to building productive capability in agriculture and agro-processing. We will be looking to our district municipalities to partner with us in identifying and delivering such projects. In all of these infrastructure programmes we intend using the principles of the Expanded Public Works Programme in order to optimise job creation and Black Economic Empowerment.

With respect to BEE, we have intensified our strategy of unbundling tender contracts to provide economic opportunities to emerging contractors and black owned businesses. If one analyses the tenders that went through the Provincial Tender Board only (excluding those handled directly by Departments), in 1997 only 12% of total tender awards went to black owned businesses. By 2002, this had increased to 46%.

In line with our strategy of moving dependent consumer households into active producer households, we have also launched a number of agricultural programmes aimed at increasing food production. I will refer later to the impact of some of these programmes, such as the Massive Food Production Programme.

Looking Ahead: spending priorities for the 2004 MTEF

Based on the RDP, both the ANC Manifesto and our Provincial Growth and Development Plan (2004-2014) highlight jobs and poverty eradication as our two policy priorities for the next 5 years. In order to address these overarching priorities, we have designed and packaged PGDP Flagship and Medium Term Programmes in a number of strategic focus areas, that we are confident will impact significantly on the lives of the poor and unemployed in our Province. What remains for me to do is to illustrate the practical measures and budgetary commitment that we as Government will be taking in this regard. My input centres around seven strategic focus areas:

• The fight against poverty
• The delivery of basic services
• Building an integrated provincial economy
• Increasing food security, agricultural output and employment
• Human resource development
• HIV and AIDS
• Service delivery improvement.

Fighting Poverty

Despite the improvements noted earlier in our Human Development Index, we are still confronted with high levels of poverty in our Province. This poverty is most concentrated in the eastern regions of our Province (Alfred Nzo and OR Tambo), as well as in pockets in our small rural towns, on farms, and in the informal settlements of Nelson Mandela Metro and Buffalo City.

The PGDP has set a bold target of reducing by two thirds the number of households living in poverty by 2014. One of the key measures that we will be taking to alleviate the burden of poverty faced by those households who find themselves outside the mainstream economy, is to ensure a more comprehensive and targeted coverage of social security benefits for the most poor and vulnerable.

In the past year we made R20 million available for the Rapid Registration Campaign. This has enabled us to double the number of social security beneficiaries since 1996 (up from 596 327 in 1996 to 1,3 million in 2003, including more than half a million child support grant beneficiaries). This amounts to 20% of our total population.

To this end we have earmarked more than R24 billion for social security over the next three years. This amounts to half the non-personnel expenditure of Provincial Government over this period. Anyone who argues that this is not a pro-poor budget, I would advise to think again. More than 87% of this budget (excluding conditional grants) goes to social sector departments charged with delivering social grants, education and health services, primarily to the poor. As Minister Manuel said: "Wagwetywa ndlala!"

But this presents something of a paradox for those of us faced with the unenviable task of designing and implementing programmes that impact most significantly on poverty and unemployment.

As the President often reminds us, safety nets alone will not reduce levels of poverty at the scale and pace we would like to see. What we require are active measures to move poor households out of dependency on state grants into productive and sustainable economic activity. Despite the resource constraints we face, we will be taking innovative measures to expand the asset and skills base of the poor to allow them to take advantage of economic opportunities. In addition we will launch agricultural and agro-processing initiatives to create jobs and raise rural incomes, as well as accelerate the delivery of economic infrastructure in support of manufacturing, agriculture, and tourism. These will be elaborated below.

Further to this, we will be looking at optimising economic and job creation opportunities in the social and infrastructure spend - in the houses we build, in the food we procure for our hospitals, in the schools, roads, and other public facilities we build and maintain.

One key initiative in line with this thinking is the Expanded Public Works Programme. This programme offers an integrated development package - the delivery of infrastructure, the creation of jobs, and skills development, and will build on the success of our Vukuzakhe Programme. The EPWP will be financed from our Equitable Share, the Provincial Investment Grant and the Municipal Infrastructure Grant.

Accelerating access to basic services

Building on our current successes, we will over the next five years further intensify our struggle to eliminate historically inherited poor social services from our Province. By 2014, all households must have access to clean water, sanitation, universal primary education, and accessible health services.

At a cost of some R2,5 billion, we have built some 127 000 housing units since 1995, with a further 105 000 currently under construction. Over the next three years, an amount of R1,77 billion in housing subsidies will be disbursed in the Province. In order to ensure that we do not experience delivery blockages, we will make use of our partnership between the Department of Housing and the Rapid Infrastructure Delivery Agency (RIDA) that we have recently established. Through our procurement reforms we will also make sure that the bricks, window frames, and doors that we use on these houses are produced locally - if possible in the communities where they are being constructed.

We understand that there has been a significant growth in the number of households using flush or chemical toilets across all district municipalities, but there are still far too many households who report no access to any form of household sanitation. Similarly there still exist a large number of our rural households who collect their water from unsafe sources. We have been working closely with National Government and municipalities to ensure accelerated delivery of water and sanitation, and are pleased that DWAF have recognised the urgency to scale up delivery, allocating R600 million over the next two years. This expenditure will be routed through our municipalities, which will have to be capacitated in this regard. We also note with satisfaction the increased equitable share allocation to municipalities to enable them to extend coverage of free basic water to the indigent.

As Province, we will also continue to prioritise the eradicating the degrading "bucket system" from those areas where it is still in use. Over the next two years we will be spending a further R56 milllion for this purpose, targeting municipalities such as Makana, Sundays Valley, and Nkonkobe; and towns such as Ngangelizwe, Sada and Cradock, where the system is still evident.

Building an integrated Provincial Economy

Our strategy to grow the Provincial economy is two-fold - consolidate and diversify out of the strengths of our globally competitive industrial sector, particularly the auto-sector, while at the same time building productive capability in our rural economy around agriculture, agro-processing and tourism.
Our manufacturing sector, and particularly the export-oriented industries within the sector, continues to yield growth. We have focused our attention on taking full advantage of our coastal location and established manufacturing base built around the auto sector to leverage domestic and international investment in support of labour- intensive industries such as metal products, textiles and plastics, and agro-processing.

To this end we are establishing world-class infrastructure and logistics capability at Coega and the East London IDZ. By the close of books next year we will have invested more than R1,2 billion in the Coega IDZ, and will have netted a R16 billion anchor industry. The proposed international freight airport at Coega will further consolidate the IDZs position as a globally competitive investment location. We will also be investing just under R400 million in the ELIDZ over the next three years.

I am happy to report, Honourable Speaker, that our joint venture with VW to develop a supplier park in Uitenhage is progressing well, with the first tenant expected to take occupation in September 2004. In addition, the partnership presently being forged between DaimlerChrysler and the East London IDZ bodes well for future economic activity in that city.

Key to making these IDZs work for the Province is to ensure linkages to our impoverished rural economy. Here we have initiated the Kei Rail Project, at a cost of R663 million over the next three years, to ensure integration of the former Transkei economy with the IDZs. The project will also serve to stimulate the agricultural, agro-forestry and furniture industry in the area, including the development of a chipping plant at Langeni. In particular, the upgrading of the Ugie-Langeni Road, will open up forestry development in the area, having a major impact on employment creation.

Recognising the importance of transport and logistics infrastructure in stimulating economic growth, we will also be scaling up our investment in road infrastructure, and once again I will provide the investment figure at the end of this speech. Many of these roads will be constructed in the rural areas of the Province in order to enhance the economic competitiveness of emerging industries and businesses in the region.

Over and above delivering enabling infrastructure to stimulate economic growth, we have also established institutional capability to leverage investment and promote BEE and SMME development in identified growth sectors. The transformation of ECDC is complete, and we will be allocating R283 million to this agency over the next three years for investment promotion and SMME support. This will allow us to identify opportunities in the value chain, particularly in the automotive, textile and clothing, food, and wood products sub-sectors, with a view to package projects for investment.

In line with our policy goal of building a more integrated and equitable Provincial economy, a key activity of ECDC over the short to medium term will be to identify sources of local demand, and orient our industry towards producing for these markets (for example food products, housing materials, infrastructure inputs, clothing, consumer durables etc). State sector markets will be key here. It is estimated that Provincial Government will procure R17,5 billion of goods and services over the next three years. This presents a substantial opportunity for Eastern Cape SMMEs to access sustainable markets. Improved synergies between ECDC and Uvimba could be beneficial in this and other respects.

Another initiative that warrants mention is the five-year EU-funded Local Economic Development Programme for the Province, valued at 30 million Euros (approximately R300 million). This programme is particularly exciting because it will introduce to the Province some new developmental methodologies that have been applied successfully elsewhere in the world.

Increasing food security, agricultural output and employment

The agricultural sector is key to stimulating our rural economy. We import far too much of the food we consume in the Province. Our PGDP suggests we need to be food self sufficient by 2014. We also recognise and have long spoken about the under-utilised agricultural potential of the Province, and particularly regions such as OR Tambo. We are now taking decisive action to increase food production.
Last year we launched the Massive Food Production Programme as part of our Rapid Impact Programme, and we are pleased to hear from the lead department Agriculture that the programme is netting good returns. Some 12 500 ha in the former Transkei and Ciskei have been put under cultivation, which is expected to yield 40 000 tons of maize. This will nearly double grain production in the Province, and will raise an income of R130 million.

In addition, as one of the PGDP Flagship Programmes, we are launching an Agricultural Infrastructure Package. This will comprise dipping tanks, fencing and small-scale irrigation infrastructure in support of the economic production of livestock and the development of sustainable agricultural enterprises.

Human Resource Development

Over the past ten years we have made strides in extending access to basic education. This has translated into the reduction of the educator: learner ratio from 40 learners on average per classroom to 30 learners in 2003. We are beginning to see the returns from this investment, with a record matric pass rate recorded last year.

At the same time however, recent studies of the Eastern Cape labour market reveal low overall levels of educational attainment in the Province; a labour market still heavily segmented along racial lines; and reflected in the high number of unemployed graduates we have in the Province, training outputs that are insufficiently aligned with the skills requirements of the private and public sectors.

To address these challenges, in the short-to medium term, we need to accelerate the supply of critical skills in support of economic growth and improved service delivery, as well as improve the capacity of our Further Education and Higher Education Institutions to respond more coherently to HRD challenges in the Province.

One of our priority HRD spending areas over the next three years will be transforming and gearing the FET sector to supply intermediate skills in support of identified growth areas such as agriculture, agro-processing, construction, and tourism. Our allocation to the FET sector for 2004/05 to 2006/07 is R643 million (a 70% increase over the previous three year allocation). This allocation will serve to upgrade human resource and physical infrastructure at the colleges, as well as develop the curricula to more effectively meet our skills requirements and equip our learners to become active labour market participants.

Given the scourge of illiteracy that continues to retard both personal and societal development, we have prioritised the Adult Basic Education and Training Sector, and are allocating R410 million over the next three years. We are confident that we will meet the PGDP target of improving literacy by 50% by 2014.

Our commitment to both Early Childhood Development and the General Education sector is reflected in the increased allocation to the Provincial Education Department. This year the department gets R10,8 billion - over the three year MTEF it will receive a whopping R35,2 billion. Within this allocation, we will see increased spending on school infrastructure, as well as on learner support material. It is interesting to note in this regard that some research shows that spending on school materials has a much greater rate of return than additional spending on personnel.

As announced by the Premier in his State of the Province, in an effort to address youth unemployment, we are drastically scaling up the supply of bursaries and learnerships as a PGDP Flagship Programme. To this end an amount of R90 million will be administered by the Office of the Premier over the 3 year MTEF for bursaries and learnerships in agriculture, tourism, nursing, medicine, engineering, finance, marine biology, and information technology.

To further build capacity in financial management an amount of R30 million is allocated to the Provincial Treasury over the next three years.

Recognising the capacity constraints many of our Provincial Departments face, and the impact this has on service delivery, there is also an amount of R180 million over the next three years to develop critical skills for improved service delivery.

HIV and AIDS

HIV and AIDS, as well as TB, is increasingly becoming a priority spending area for Government. This includes measures to strengthen our health system to cope with the pandemic. Over the past 10 years, our health care infrastructure has been extended and upgraded particularly in the poorest areas of the province. The building of 131 new clinics has significantly increased the number of health services access points, thereby reducing the vulnerability of the rural poor.

We have developed an integrated and comprehensive HIV and AIDS Plan aimed at maintaining the HIV negative status of 5,9 million people in the Eastern Cape, as well as maintaining the well being of the estimated 534 000 HIV positive and 53 000 with full-blown AIDS.

Our HIV and AIDS interventions over the past few years have had an impact. We now have 220 voluntary counselling and testing sites across the Province, with the Prevention of Mother to Child Transmission Programme (PMTCT) being offered in 156 health facilities.

Our HIV and AIDS Strategy for the period 2004 - 2007 is premised on the following pillars - social mobilization, awareness and prevention, comprehensive treatment, care and support for people living with AIDS and AIDS orphans, poverty alleviation and nutritional support.

Soon we are launching our Comprehensive Treatment Plan. Health professionals have been trained, and we are gearing hospital complexes, community health centres and clinics at six complexes across the Province to deliver treatment to people living with AIDS.

Given the envisaged impact of HIV and AIDS, we are prioritising the strengthening of the health system to cope with the unfolding pandemic.

Service delivery improvement

As Government we recognise that some of our Departments have not performed as efficiently as they should. As the executive arm of Government, we have become less tolerant of inefficiency among our officials. We have put "turnaround plans" in place for departments such as Health, Social Development and Education. As agreed, we trust that Departments will re-prioritise their budgets to finance these turnaround plans.

In respect of financial management systems we continue to place a high priority on ensuring that the Provincial Government as a whole adheres to the highest standards of financial control and reporting. I am pleased to report that in the last financial year, the Auditor General issued a first set of Departments with unqualified audit reports and that is a testimony of the extent of improvement in financial management.

Honourable Members, the Provincial Government has also achieved significant successes in dealing with fraud and corruption, which have generally been of four kinds:

Firstly, and contrary to common perceptions that such practices are the sole prerogative of civil servants, private sector syndicates that target provincial assets have been exposed and dealt with. In many instances, the criminals concerned have been prosecuted and sent to prison; and their assets have been forfeited to the state. To date, Treasury has recovered some R10 million. Related to these cases, more than R7 million worth of assets owned by colluding government officials have been frozen pending further investigation.

Secondly, since 1999, some 800 disciplinary cases involving civil servants have been identified, and 702 of these have been finalised. Of these cases, more than 280 were fraud and theft-related, and 30% of these resulted in dismissals.

Thirdly, in terms of social pensions, almost R20 million in fraudulent claims were identified between March 1999 and January 2004. These cases are in the process of being prosecuted through the judicial system. To date, R1 million has been recovered and the remainder is being finalised by the Asset Forfeiture Unit.

Fourthly, irregularities related to duplicate and false claims by educators in the Education Department were exposed. A sample of these cases indicated that a total of 950 irregular payments were made to 443 officials between 1999 and 2003. Disciplinary enquiries regarding these cases are currently in the process of being dealt with and will be resolved before the end of the 2004/05 financial year.

Honourable Speaker, we will not tolerate such activities in our Government. We shall not rest until the perpetrators of these crimes are brought to book.

Honourable Speaker, I will now turn to the details of the funding and allocations of the 2004/05 Budget.

Funding Sources

Our funding structure is dominated by transfers from nationally raised revenue. Own revenue remains at more or less 3% of total provincial revenue over MTEF, whilst the equitable share and conditional grants remain at approximately 88% and 9% respectively over the MTEF period. Transfers in the form of the equitable share grow from a revised R26,99 billion in 2004/05 to R30,913 billion in 2006/07 representing an average annual growth rate of 4,8% from 2003/04 to 2006/07. Conditional grants are R3,138 billion in 2004/05 and planned to grow at the same rate over the period.

The main budget provides for total revenue of R31,149 billion in 2004/05, that increases to R36,342 billion in 2006/07. Own revenue is estimated at R458 million in 2004/05 and grows to R546 million in the outer year of MTEF. As will be noted, the Province is moving into a deficit due to a rapidly rising social grants trend line that is leaving little room to manoeuvre.

In past years the Eastern Cape has had a policy of tabling surplus budgets, to deal with unforeseen and unavoidable expenditures that may arise during a year. However, this year we are budgeting for a deficit of R565 million, which is equal to 1,8% of planned expenditure.

It is proposed that this deficit could be funded as follows:

• Surrenders from 2002/03 of R96 million.
• Rollovers from 2003/04 estimated at R41 million.
• Improved liquidity management, which could bring in R426 million
• Bank bridging finance

Spending Proposals

The budget deliberations between departments and the Provincial Treasury were enhanced by a greater focus on the pursuit of the policy goals of PGDP. The second enhancement of the budget process was that departments had to establish a measurable link between their activities and the goals of the PGDP. In this way departmental spending plans are more embedded in the development challenges of the provincial economy than was previously the case.

Over this MTEF period starting on the first of April 2004, the Province proposes to spend an additional amount R8.4 billion over the next three years. Our budget for 2004/05 is R31,149 billion, which is R3,2 billion more than tabled in this House a year ago. This represents a 11,5% increase.

May I present to the House the following proposed allocations:

Vote: 1
Department: Office of the Premier
Allocations for 2004/05 (R000): 232 615

Vote: 2
Department: Provincial Legislature
Allocations for 2004/05 (R000): 85 549

Vote: 3
Department: Health
Allocations for 2004/05 (R000): 5 410 294

Vote: 4
Department: Social Development
Allocations for 2004/05 (R000): 9 146 029

Vote: 5
Department: Roads and Public Works
Allocations for 2004/05 (R000): 1 846 930

Vote: 6
Department: Education
Allocations for 2004/05 (R000): 10 857 872

Vote: 7
Department: Housing, Local Govt and Traditional Affairs
Allocations for 2004/05 (R000): 1 060 864

Vote: 8
Department: Agriculture and Land Affairs
Allocations for 2004/05 (R000): 897 529

Vote: 9
Department: Economic Affairs Environment & Tourism
Allocations for 2004/05 (R000): 849 529

Vote: 10
Department: Transport
Allocations for 2004/05 (R000): 312 507

Vote: 12
Department: Provincial Treasury
Allocations for 2004/05 (R000): 171 164

Vote: 14
Department: Sport, Recreation, Arts and Culture
Allocations for 2004/05 (R000): 266 342

Vote: 15
Department: Safety & Liaison
Allocations for 2004/05 (R000): 11 788

Total: 31 149 012

Mr. Speaker, allow me to make a couple of comments on these allocations:

• Social Development will receive an additional R1,7 billion, in the main for increases of R40 and R10 in old age pensions and child support grants, respectively, and also for new beneficiaries.
• Personnel expenditure accounts for 46% of total expenditure, with R14 196 billion set aside in 2004/05. There is a marginal increase of personnel expenditure over the next three years. We will be continuing to address the skills mismatch within Provincial Government, and trying to unlock more money for critical posts.

We have no doubt, Mr Speaker, that if these resources are efficiently utilised, we will be able to make a lasting impact on the socio-economic situation in our Province.

Conclusion

Honourable Speaker, I today table the following documents for the consideration of the House:

1. The Eastern Cape Appropriation Bill, 2004
2. The Explanatory Memorandum to the Bill
3. Budget Statements No 1 and 2
4. A copy of my speech.

Let me conclude by highlighting how this Budget will give financial flesh to our PGDP:

• Our job creation target for the Expanded Public Works Programme is 200 000 jobs in the Province over the next five years, with 25 000 jobs a year in the first years. This target is equal to 20% of the national target. To this end we are allocating R1 billion from our infrastructure spend over the MTEF period. While we acknowledge that these jobs will be temporary, the Programme will create employable skills and provide infrastructure that will leverage greater private investment.
• Our road building programme is valued at R4 billion over the next three years.
• With regard to Government procurement from black-owned businesses, we are targeting to increase BEE procurement from 46% to 60% over the MTEF period. Over the three year period BEE procurement will amount to R10,2 billion. Our tool to achieve this objective is our new supply chain management framework that includes monitoring mechanisms. This new framework will replace the Provincial Tender Board and will be operational by 1 June 2004.
• We are proposing an increased allocation to the Department of Agriculture of 45,8% for non-personnel expenditure in 2004/05. In the light of the success of the Massive Food Production Programme mentioned earlier, we are committing R300 million over the next three years. We are also launching an Agricultural Infrastructure Package worth R150 million over the next two years. This gives a total of R450 million to support agriculture development.
• We will be giving R569 million over the next three years for HIV/AIDS prevention and support programmes by the Departments of Health, Social Development and Education.
• We will also be scaling up resource allocation to strengthen the health system. Over the next three years, an amount of R1,8 billion will be spent on upgrading and maintaining health infrastructure. We are also allocating R1.95 billion for Primary Health Care, and will be implementing the rural incentive to attract and retain health professionals in our rural health facilities.
• Increased spending on school infrastructure will be R960 million over the three years.
• Expenditure on learner support materials will receive an allocation of more than R1 billion over the three year MTEF.

I wish to put on record my sincere thanks to:

The Premier for his leadership, trust, advice and guidance;
My colleagues in the Executive for their support and understanding;
Each of the Heads of Departments for the role they played in the Budget preparation, and understanding that budgets are all about choices;
My appreciation to the officials of Treasury for the hard work put to ensure success of this day;
Finally, my family. Thank you for your support, understanding and warmth.

Let us make our PGDP work!

I thank you!

Issued by: Eastern Cape Provincial Government
26 February 2004