The Ad Hoc Committee on Provincial and Local Government, having considered Budget Vote 5: Provincial and Local Government, reports as follows:

1. The budget review of the Ministry and Department of Provincial and Local Government and the statutory bodies accountable to the Ad Hoc Committee was undertaken on 1, 2, 3, 4 and 7 June 2004.
   
2. In view of the general elections and the brevity of this first term of the new parliament, the Ad Hoc Committee had very limited time to prepare for the budget hearings.
   
3. The majority of the Ad Hoc Committee members are new. The budget briefings also served to introduce new members to the Department and acquaint them with the plans, programmes and projects of the Ministry and Department of Provincial and Local Government. This also limited the space to fully scrutinize the Ministry and Department’s budget, as well as the budgets of the statutory bodies for which this Committee has oversight responsibilities.
4. The report is longer than usual. This is because there are many issues that we have to follow up on and because it contains elements of the Ministry’s, Department’s and our own programmes for the overall five-year term of this new parliament.

1. Those who appeared before the Committee included Minister F S Mufamadi; Deputy Minister N E Hangana; Director-General Ms L Msengana-Ndlela; Deputy Directors-General Mr E Africa, Mr P Flusk, Ms J Manche, and Ms M Molapo; Chief Directors Mr L Buys, Ms G Gumbi-Masilela, Mr N Jack, Ms B Leon, Ms C Makotoko, Mr P Matomela, Ms B Mdaka, Ms T Mketi, Mr L Mosia, Ms M Montwedi, Mr Sol Morathi, Mr Y Patel, Mr M Ratanga, Ms X Sibeko, Ms Y Silimela and Prof W M Sobahle; Directors Mr A Fray, Mr S Muthotho and Ms B Mkulu; and Chief Financial Officer Mr C Clerihew.
   
2. The South African Local Government Association (SALGA) was represented by members of the Executive Committee Mr A J Lamont, Mr G M Lobelo, Mr R T Matseke, Mr S Somyo, Ms E Waugh and Mr M Xaba; and CEO Mr T Mokwena. The Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities was represented by Dr M Guma and Ms M Bethlehem. Local Government: Water and Related Services SETA (LGWSETA) was represented by its Chairperson Mr S J Mohlala; Chief Executive Officer Mr W Nkosi; Western Cape Provincial Manager Mr S Jappie; Administration and Communications Manager Mr E Mnyakeng; and Learnership Manager Mr S Mofekeng. The Municipal Demarcation Board was represented by its Chairperson Dr V Mlokoti; Chief Financial Officer Mr R M Somanje; Head of Research Mr R G Williemse; and Manager Mr R H Monare. The National House of Traditional Leaders was represented by its Chairperson Inkosi M B Mzimela; Deputy Chairperson Morena M F Mopedi; members Khosi F Kutama, Hosi P C Ngove, Kgoshi C Mathebe and Prince Z S Makaula; Chief Executive Officer Mr M E Gobe; and Communications Officer Mr S P Nkosi. The delegation from the Municipal Infrastructure Investment Unit (MIIU) consisted of Board Member Ms N Mjoli-Mncube; Chief Executive Officer Ms K Mathebula; and Financial Manager Mr J Lesaoane.

C. POLITICAL OVERVIEW OF THE BUDGET

1. The Minister for Provincial and Local Government, Mr F S Mufamadi, identified the key challenges as unemployment, poverty and underdevelopment. He referred to the President’s stress in his State of the Nation address on the "challenges of exclusion and inclusion which are occasioned by the duality that characterizes our national economy"
   
2. The "macro-organisation of state organs", which includes the establishment of three spheres of government, was intended to "provide a framework for alleviating the reproduction of duality in the economy and for realizing the goal of sustainable development."
   
3. The Minister referred to the many benefits of the transformation, including the "equitable share", increased levels of social spending, and the potential to empower local government.
   
4. He also pointed to the challenges. "The increase in social spending has resulted in a balance between social expenditure and investment in growth which is not right". The first decade of democracy has "seen a significant decline in levels of private and public investments." He also pointed to the lack of capacity of municipalities.
   
5. "We aim to significantly increase the stock of public investments in the economy through such programmes as the Expanded Public Works Programme and the Municipal Infrastructure Grant…We intend to be out there, working with municipalities and taking them through a process of learning-by-doing. We want to help improve their capacity for addressing the needs of the indigent and for operationalising government’s policy on free basic services. We shall be working with provinces in order to ensure that they too pay systematic attention to issues of economic development." The Minister also stressed the need to strengthen ward committees.
   
6. In response to questions from Committee members, the Minister clarified the following, among other, issues:
   
1. The time frames set out by the President in his State of the Nation Address would be adhered to. The Committee might also want to define its role in this regard.
2. The "trouble-shooting" unit to be established by the Department will serve to act swiftly to deal with problems in local government. Provinces will also set up such units, and the Department will work closely with them.
3. Cabinet has taken a decision to do away with cross-boundary municipalities. Legislation would be brought to parliament soon to effect this.
4. The Department was engaged in discussions with the Department of Water Affairs and Forestry to ensure the transfer of water projects to municipalities was dealt with appropriately.
5. The important Intergovernmental Relations Bill will be introduced to parliament later this year.
6. The Department would work closely with the provinces to finalise their Provincial Growth and Development Strategies that will take into account municipal IDPs.
7. The Department would assist municipalities with their responsibilities in respect of the Expanded Public Works Programme.
   

1. The Director-General reviewed the achievements of the first decade of democracy. She pointed to the fundamental transformation of the state which "saw a shift from over 1200 racially-based local authorities, four provincial administrations and ten Bantustans into 284 democratically elected municipalities, nine provinces and a strong national government." She referred to the establishment of a new system of developmental local government, and the increasing co-operation across spheres of government on key national programmes such as municipal infrastructure investment, free basic services, and the Urban Renewal and Integrated Sustainable Rural Development Programmes. Through these and other programmes "massive public and state resources have been set aside to create quality jobs and alleviate poverty."
   
2. The Director-General said that "2004 has provided our Department with an opportune moment of strategic reflection, informed by the voices of our people during election period. The budget for the 2004/5 financial year and the medium-term has therefore been informed by the electoral mandate that our government has received from the people and the appreciation of the road we have traversed thus far."
   
3. The Department’s priorities and programmes have been aligned to government’s broad strategic outlook, which includes:
   
1. Building a people’s contract that will unite South Africans in efforts to create work, fight poverty and reinforce national pride.
   
2. Improving the performance of the State through focused implementation, better integration, and alignment across all spheres of government and direct contact with the people.
   
3. Addressing the consequences of social transition, including interventions to address the two economies paradigm and better focus on the National Spatial Development Perspectives (NSDP).
   
4. Improving the regional environment and implementing the New Partnership for Africa’s Development (NEPAD), including interventions to restore socio-political normalcy and achieving high growth in the Southern African Development Community (SADC).
4. The Strategic Plan of the Department has the following key focus:
   
1. Bringing greater stability and predictability to the entire governance system, including the intergovernmental system.
2. Building key capabilities of a developmental state in all spheres of government in order to address the challenges of the two economies.
3. Establishing and implementing sustainable monitoring and evaluation systems and indicators to assess performance and service delivery.
4. Strengthening the Department’s corporate capability, which includes staff and institutional capacity, training, corporate systems and a public sector service excellence orientation.
5. The above strategic focus areas are based on: challenges and priorities arising from the first ten years of freedom; the fifteen areas of intervention for local government transformation adopted by the President’s Coordinating Council; the State of the Nation Addresses by the President on 6 February and 21 May 2004; and the discussion of the Cabinet Lekgotlas of January and May 2004.
6. The Department’s budget increased from R9, 4 billion last year to

R12, 8 billion this financial year, an increase of 35,8% over the medium term. The budget is expected to increase to R14,3 billion in 2005/6 and R15,9 billion in 2006/2007.


7. The Department transfers 98,3% of its budget to provincial and local government and to statutory bodies. Last year the Department spent 99.7% of its budget.
   
8. The equitable share allocation to local government has increased from R6,3 billion last year to R 7, 6 billion this financial year, an increase of 20,6%.
   
9. As mandated by Cabinet and the President in his State of the Nation Address, the Department will work with the National Treasury and Financial and Fiscal Commission (FFC) to review the intergovernmental fiscal relations system, especially as it relates to local government.
10. The Director-General explained that the Municipal Infrastructure Grant (MIG) represents a rationalization of several different grants. R15,6 billion has been allocated for the MIG over the next three years, of which

R4,4 billion is earmarked for this year. The aims of the MIG essentially are to improve access to basic services, facilitate Local Economic Development (LED), and increase job opportunities. A major focus of the infrastructure programme will be the 21 urban and rural development nodes.

11. The Director-General explained that the Department was more active in the SADC. The Minister chairs the SADC Local Government Forum which is to be strengthened. The Department is also contributing to the establishment of an African Union committee of ministers of local government. "In the long term", noted the Director-General, "international initiatives will bring further impetus to our domestic programme on good governance."
    
12. The Committee welcomes the greater clarity, coherence and focus of the Strategic Plan. The restructuring and streamlining of the Department’s programmes and subprogrammes are also welcomed. The Strategic Plan and Programmes are also much easier to understand and more user-friendly. However, the Committee feels that the Department needs to disseminate more information about its work in a popular form and in different languages so as to reach people on the ground more effectively.
    

1. The allocation to administration has increased by 17,4% to

1. Some of the functions are now performed through three newly created branches – free basic services and infrastructure, urban and rural development, and corporate governance, compliance and due diligence.
   
2. The Department has established two chief directorates on communication. One will be internally focused and the other will deal with external communication and market the Department’s programmes.
   
3. The Department has also developed a new information management system to assist it to more effectively monitor its performance.
   
4. 751 posts have been approved for the Department. Only 261 have been filled. There are 146 females and 115 males employed. 82,1% of senior managers are black, 35,7% are women, and 1,2% people with disabilities. The Department explained that vacant posts will be filled in a prioritized manner within the available budget.
   
5. The Department acknowledged that a significant number of its staff has left. But most of them have taken other jobs in the public sector and so they are not a loss altogether. However, the Department is to develop a retention strategy to avoid a high staff turn-over.
   
6. The Department is still having difficulties in attracting people with disabilities but is to attend to this.
   
7. The Committee welcomes the finalization of the Department’s restructuring and the improvements that have flowed. The Committee is concerned that less than half of the Department’s posts have been filled. The Committee welcomes the establishment of the Corporate Governance, Compliance and Due Diligence Unit. The Committee is concerned by the turn-over of staff, and hopes that the Department’s retention strategy will be effective.

1. R1 558 000 has been allocated to the new Provincial Co-ordination and Support Programme. This is aimed at supporting the Premiers offices to co-ordinate IGR and strengthen provincial government support for local government.
   
2. R4 576 000 has been allocated to the Development Planning sub-programme, a 5% increase on last year. The Department has completed guidelines for MECs on IDPs. 47 Planning and Implementation Management (PIMS) Centres have been established.
   
3. The priorities in the Development Planning sub-programme for this financial year are securing Cabinet approval of the Intergovernmental Planning Framework; the full roll-out of IDP Nerve Centres; ongoing support for PIMS Centres; and further development of IDP guidelines.
   
4. R3 120 000 has been allocated to the LED Chief Directorate, a 4% increase on last year. The LED Fund has been incorporated into the MIG.
   
5. 3040 jobs were created by the LED. 1551 of these were permanent jobs. 55% of the jobs were taken by women and 14% by youth.
   
6. The priorities for the LED sub-programme for this financial year are to get Cabinet approval of LED policy and implement LED more effectively through support programmes for provinces and municipalities.
   
7. The Committee is keen to engage further with the Department on its IGR work, and awaits the Bill. The Committee welcomes the new Provincial Co-ordination and Support Programme. The Committee would like to see more effective PIMS Centres and believes much more work needs to be done on LED. The Committee will follow up on the joint meeting it had with the Trade and Industry Committee on LED last year, and engage further with the Department on this.
   
   

4. Compared to 115 anchor projects in the ISRDP last March 2003, there were 177 projects in March 2004. The value of the projects was

R168, 5 billion in December 2003, and the investments by the national departments was R5, 9 billion.


5. Urban nodes have 98 anchor projects valued at R1, 95 billion in December 2003. The investment by national departments is

1. The Committee refers the Department to its views on the remuneration of councillors as expressed in various reports.
11. The Committee is concerned that the allocation to disaster management is to be reduced from R25 075 000 this year to R13 413 000 next year in terms of the MTEF projections, especially in view of the need for adequate funding to implement the new Disaster Management Act.
12. The Committee welcomes the Department’s decision to organize workshops for municipalities on the Property Rates Act. It is important for the Department and SALGA to organize a public education programme on property rates, and disseminate information on the Property Rates Act in all languages.

1. The allocation to this programme has increased from R19 016 000 to

1. The municipal financial year is from 1 July to 30 June. This shapes the way SALGA expends money and reports to Parliament.
2. SALGA reported that its total income for the 2002/03 financial year was R47 408 333. SALGA received R21 907 089 from its affiliates and R4 077 662 from donor funding. It received R22 000 000 from the national fiscus in 2002/3 and R20 250 000 from the national fiscus last year.
3. R17 300 000 has been allocated to SALGA for the 2004/05 financial year. The amounts allocated in the 2002/03 and 2003/04 financial years included an amount for the SALGA restructuring exercise. Hence the allocation for the 2004/05 financial year does not provide a growth factor. SALGA feels, however, that its allocation is inadequate.
4. SALGA reported that there has been significant progress in its restructuring process, and there is consensus on the need for a unitary structure. The final changes will be decided on at its conference set for September.
5. Among its activities over the past year, SALGA pointed to:
1. Its increasing involvement in the African Union of Local Authorities and its partnerships with national local government associations in the SADC region.
2. Its role in ensuring increased national government funding for free basic services.
3. Its participation in the restructuring of the electricity industry.
4. Its role in ensuring that the provisions of the Municipal Finance Management Act do not undermine the integrity of the local sphere.
5. Its participation in the Presidential Co-ordinating Council.
6. The launching of the District Learning Network as part of the roll-out of the Knowledge Sharing Programme.
6. SALGA stated that its priorities for this financial year include:
1. Improving the internal skills base and external networks in order to provide better and effective on-site support to municipalities.
2. Improving the participation of organized local government in intergovernmental relations structures and international affairs.
3. Optimizing its administrative efficiency and effectiveness.
4. Building provincial capacity.
5. Championing the interests of local government in the context of the Communal Land Rights BILL and the Traditional Leadership and Governance Act.
6. Developing an integrated energy strategy for local government.
7. SALGA reported that its Municipal Support and Intervention Unit is to play a far more active role in supporting municipalities.
8. SALGA’s report raised many issues that the Committee could not address in the limited time available. The precise outcomes of SALGA’s activities are not clear. It was agreed that the Committee would meet SALGA after its Conference, possibly in late October, to take issues further.
9. The Committee feels, however, that it is not clear precisely what its oversight role with regard to SALGA is, as SALGA represents a specific sphere of government, raises most of its own money, and is part of the NCOP. This matter may have to be cleared up with the authorities in parliament, and discussed further with SALGA.
10. The Committee believes that it is vital that SALGA is strong and effective, and hopes that its restructuring will contribute to it playing a more dynamic role. The Committee expresses its concern about the very high turn-over of staff at SALGA.
11. The Committee notes SALGA’s concerns about the effect of the restructuring of electricity on municipal finances, and will seek to arrange a meeting in parliament of all the relevant stakeholders to take the matter further.
12. The Committee stresses the need for effective co-operation between SALGA’s Municipal Support and Intervention Unit and the Department’s proposed "trouble-shooting" unit.
13. The Committee congratulates Father Smangaliso Mkhatshwa, the chairperson of SALGA for being appointed President of the United Cities and Local Government.

1. The Local Government, Water and Related Services Sector Education and Training Authority (LGWSETA) reported that its mandatory grant income contributed by employers was R91 900 787 for the 2003/04 financial year. Of this amount only 15,09% was disbursed. R13 867 616 (60.36%) was disbursed for planning grants as at the end of 31 March 2004. The Implementation Grant of R68 925 590 (45%) is released upon the approval of the Implementation Report which is usually disbursed after the end of the financial year.
2. The LGWSETA indicated that R165 857 946 was contributed by member companies as total gross levies (100%) in the 2003/04 financial year. It should be noted that this represents 12 months levies. The income for administration is subject to VAT and an amount of R14 209 287 was received from the Skills Development levies for the 2003/2004 financial year. The total operational expenditure for the 2003/2004 financial year was R13 784 680.

1. The LGSETA reported that it had now had a stable governance structure and a new CEO, and that the problems that afflicted it in the past had been substantially addressed.

1. The Municipal Demarcation Board budget allocation has increased by 19% from R14 311 000 in the past financial year to R17 023 000 in this financial year. The Board argued that the allocated amount is inadequate to cover the costs of fulfilling the Board’s legislated mandate properly. On the ward delimitation process alone a shortfall of more than R5 000 000 is estimated, after a grant of R2 000 000 from the Norwegian government is taken into account.

1. The MIIU’s allocation has increased by 6% from

1. The MIIU raised concerns about the capacity of municipalities to meet the requirements of section 78 of the Municipal Systems Act when deciding on restructuring municipal services.
2. The MIIU pointed out that its term comes to an end in March 2006, and that there is no clarity about whether it would continue to exist after that. The MIIU also suggested that there needs to be greater clarity on the role of the private sector in the context of the present focus of government on public sector investment and delivery.
3. Among the issues the MIIU would focus on in this financial year are removing constraints to more projects being launched; recording MIIU’s institutional memory and project documentation; completing staff development processes and undertaking monitoring and community surveys on selected completed projects.
4. The Committee complimented MIIU on the quality of its report. The Committee expressed its appreciation for the work done by the MIIU. The Committee is clear that the private sector has a crucial role to play in municipal service delivery within the regulatory framework; and that the more active role of the public sector is meant to stimulate private sector involvement, and not be a substitute for it. The Committee believes that the Ministry and Department should clarify the role of MIIU beyond 2006 reasonably soon.
5. The Committee expresses its regret that the CEO, Ms Karen Mathebula is to be leaving MIIU.
6. In view of the limitations of time, the Committee was not able to pursue several key issues with the MIIU, and is to seek a meeting with the MIIU within the next six months.

1. With the major part of the Committee’s legislative programme over, we will have more time to fulfil our oversight responsibilities over the new five-year term of parliament. We need to engage with the Department and statutory bodies more often. But we also need to do so more effectively. We need to find ways to do this.
2. To fulfil our oversight role effectively, we need to receive further training, especially in respect of budgetary issues. The Committee needs to explore the possibilities of an ongoing education and training programme for members.
3. The Committee cannot effectively fulfil its oversight responsibilities without adequate research support. The Committee is often unable to properly assess the outcomes that are claimed by various participants in budget hearings. It would also be of value if we could commission independent research on the activities and achievements of organisations for which our Committee has oversight responsibility.
4. To facilitate more effective engagement with organisations for which our Committee has responsibility, it would be helpful if budget hearings were better structured to ensure the emergence of more precise and concrete information and a better sense of the outcomes the organisations have achieved. Ideally, organisations should be more clearly briefed before the budget hearings on what precisely the Committee is seeking to establish. But to do this effectively, the Committee will need adequate research support.
5. The Committee will raise these and other issues around its oversight role with the Budget Committee and the relevant authorities in parliament.
6. While recognising the constraints of the Department, the Committee feels the Department should seek to monitor the work of the statutory bodies more effectively and support them where appropriate, without undermining their independence.
7. The Committee will seek to meet the Department in August to get a better sense of the Department’s broad programme for this new five-year term and to engage with it over our oversight role.

1. The Committee conveys its appreciation to the Ministry, Department and all the statutory bodies that participated in the hearings for their co-operation.
2. The Committee also acknowledges the assistance of Mr Chris Sibanyoni and Mr Asanda Macanda in the preparation of this report, and Mr Llewellyn Brown, the Committee Secretary, in the organisation of the hearings.