RESEARCH UNIT
FACT SHEET: FINANCIAL FISCAL COMMISSION SUBMISSION FOR THE DIVISION OF REVENUE.
2008/09 (FFC) -IMPLICATIONS FOR THE DEPARTMENT OF PUBLIC WORKS
4 October 2007
1. Introduction
The brief is a study of the Financial Fiscal Commission Recommendations for the
Division of Revenue for 2008/09, with a specific emphasis on the Department of
Public Works. The brief will focus on the implications of some of the FFC
recommendations on the Department of Public Works, especially, how it will
implement, monitor and evaluate the outcomes of the suggestions on the
functioning of the Department.
1.1. Background to the FFC
The Financial and Fiscal Commission (FFC) was established by Section 220 of the
Constitution as an independent and impartial statutory body. The Constitution
mandates the Commission to make recommendations on the vertical division of the
nationally raised revenue among the three spheres of government, the horizontal
division of revenue among provinces and among municipalities. The Commission is
required to make recommendations under legislation pertaining to the issuing of
loan guarantees by the three spheres of government, provincial tax legislation,
municipal powers and functions; and provincial and municipal borrowing powers.
Sections 214 and 222 of the Constitution, Sections 9 of the Intergovernmental
Fiscal Relations Act (1997) provides for the Commission to make annual
recommendations to Parliament and the Provincial Legislatures on the vertical
and horizontal divisions of revenue; Section 10 requires that Government
considers the Commission's recommendations. In performing its functions, the
Commission takes into account the fact that those listed in section 214 (2)
[a-j] of the Constitution and the Provisions of the Bill of Rights in Chapter 2
of the Constitution.
The Submission of the Financial Fiscal Commission Review: Submission for the
Division of Revenue 2008/09 in its recommendations contains a review of the
equitable sharing mechanisms and policy instruments. Chapter 13 Section 214 of
the Constitution is explicit in its prescription that nationally collected
revenue should be collected and shared such that the sphere of Government is
able to provide the basic services to perform their functions. For the
Financial and Fiscal Review Commission the key task in equitable sharing is balancing
the imperatives of providing constitutionally mandated basic services (as
required in the Bill of Rights) against the conditions specified in Section
214(2) of the Constitution.
Following from the above overarching mandate stating how the revenue should be
appropriated, the brief 'takes note of the key areas that affect the Department
of Public Works at National, Provincial and Local spheres of government. The
implications of these interventions on the part of the Department in future
will be noted later in the document.
2. A Summary of the Review
The Review of the FFC is a broad overview of key focus areas such as the impact
of the 2010 FIFA World Cup; the Extension of the National School Nutrition
Programme from Primary to Secondary Schools; the Financing of Learner Support
Materials; School Infrastructure and Education Outcomes; Roads and Transport
Infrastructure; as well as Housing Delivery. But, this section of the brief
studies the overview of the FFC Review as it relates to the mandate of the
Department of Public Works and the recommendations made by the Commission in
this regard.
This section will briefly summarise some of the areas noted by the Review as
they will impact on the Department of Public Works. As the Department is the
implementing agent for most of the Government departments and one of its
mandates is to 'provide and manage accommodation, housing, land and
infrastructure needs of national departments, to co-ordinate the national
Expanded Public Works Programme and to optimise growth, employment and
transformation of the construction industries'.
Chapter 1 of the Review studies the economic impacts of the 2010 FIFA World Cup
on South Africa. The financing of the World Cup is viewed from a macroeconomic
perspective and is regarded as a mega-project which will cost Government an
estimated R 17.4 billion, based on 2006 estimates. The budget will be spent on
three provincial functions, namely, transport, health, sports and recreation.
The immediate legacy of the investment in the 2010 FIFA World Cup is an
improvement of the infrastructure, in terms of the 10 stadiums which will be
built or refurbished in the chosen provinces. The improvement of the
transportation infrastructure linked to the event, as well as eventual influx
of tourists into the hosts cities which it is hoped will benefit economically
from the event.
The future impact of the 2010 FIFA World Cup is hoped will have a sustained
legacy both at a local specific and a countrywide level in terms of
·
Increased economic investment.
·
Football and sporting development.
·
Human capital development.
·
Social and political development.
·
Infrastructure and to technology development.
Chapter 3 of the FFC is titled 'A Review of the Financing of School infrastructure
and Education Outcomes', and deals specifically with the school infrastructure
backlog in South Africa. The Provincial Infrastructure Grant (PIG) is the fund
that is meant to be used in a proportional manner to eradicate the
infrastructural backlog which was created by the policies of disproportional
spending of the previous government in education, health, roads and
agriculture. A review by the Commission has found that while the purpose of the
PIG is to have its funding allocated in a proportionate manner on the above
identified priorities, in reality, in many instances the allocations will only
be directed to a single sector.
It is argued that the legacy of apartheid continues to be express in
educational inequality which is manifested in school infrastructure. This
inequality is especially noticeable in school infrastructure (which are
considered unsafe as they are made of mud or asbestos) that was usually built
in historically disadvantaged communities, and which now forms part of a massive
backlog that needs to be eradicated. Apart from the identified shortages of
classrooms which need to be provided, the eradication of the inferior school
infrastructure provided in the past also needs to be cleared. The effect on the
outcome for students of learning in these inferior learning environments has
been identified as follows in terms of:
·
inferior academic performance.
·
lower attendance and morale of both teachers and
pupils.
·
a reduction in teacher effectiveness
In its presentation to the Portfolio Committee on Finance in 2005, the
National Department of Education indicated that there were still 4771 schools
without access to water and 4226 schools without sanitation facilities. 11
Attendance has been identified as one of the key factors necessary for
effective schooling, but the absence of sanitation facilities and water in some
schools has been identified as a barrier to achieving this, despite the fact
that between 1996 and 2004, the classroom needs had been reduced from 57 499 to
31 254. In addition, attendance has also been restricted in other provinces by
other infrastructural challenges, such as lack of roads and bridges in
KwaZulu-Natal particularly during rainy seasons.
The provincial infrastructure grant formula has suggestive proportions for
backlogs in education, health, roads and agriculture. However, it has since
been discovered that in practice the actual allocations are not directed to
these functions. Therefore, it is recommended that a new and improved Register
of School Needs would enhance the targeting of the education component of the
grant. There has been evidence in the past that in many instances in some
provinces the allocation have only been utilised exclusively in one sector.
Coordination of planning between the Municipal Infrastructure Grant (MIG)
funded infrastructure outside the school and infrastructure in the school
premises is critical to deal with sanitation and electrification challenges.
Highlighting the above observation, during a recent oversight to the Northern
Cape Province, the Portfolio Committee on Public Works discovered that a
contractor was struggling to complete a school because there was no access to
electricity or water on the site, which would only be provided in December
2008. Equally, the Review reiterated the importance of co-ordination and
planning when it noted that the existence of a school library without any books
did not serve any useful purpose.
Based on the above analysis the Commission made two recommendations namely
that:
·
The conditions of the PIG b~ directed at targeting
educational infrastructure specifically and indicate that provinces need to use
these funds to support the development of infrastructure in areas where the
need for the improvement of school outcomes is likely to be dependent on these
developments.
·
The effective coordination and planning for the
various provincial and municipal infrastructure grants are instituted to ensure
optimal outcomes from school infrastructural investment.
During oversight visits to the Free State, KwaZulu-Natal and Northern
Cape, the Portfolio Committee on Public Works encountered some of the issues
raised above. Issues of access to schools in remote and often inaccessible
areas were encountered in most of the provinces visited by the Committee. The
Committee was shown infrastructure development under the Expanded Public Works
Programme where the MIG and PIG funding was used to building schools on behalf
of the Department of Education. In some areas visited the lack of co-ordination
between the department providing electricity and sanitation, after the
infrastructure was built was also highlighted.
In its presentation to the Committee in Gauteng, the Independent Development
Trust (lDT) indicated that planning was a crucial issue. The lack of adequate
planning that occurs at the beginning of a project often causes delays, not
completing on time, the project running into financial difficulties, and is
sometimes abandoned because the contractor does not have adequate running costs
or did not budget correctly at the start of the project. The lDT recommended
that before the actual cycle of construction occurs, whether it is 6 months or
2 years, a time for planning be allowed. This year should be called year zero
before the actual, tendering, procurement and building phases commence.
Chapter 5 of the FFC Review is titled 'The Financing of Roads and Transport
Infrastructure', and is related to the Department of Public of Works in so far
as the EPWP programme allows for the upgrading the road network utilising the
MIG and PIG funding respectively. According to the FFC Review in the 2008/09
Submission for the Division of Revenue, it was noted that funding for road and
transport infrastructure occurred in a fragmented manner. The fragmentation is
expressed in a lack of co-ordination among the different spheres. of government
responsible for roads and transport infrastructure.
The FFC Review indicates that "72 percent of the national road network,
with an asset value of R50 billion and carrying over 70 percent of the national
road freight, is nearing the end of its design life, placing additional
pressure on the maintenance and rehabilitation backlog. However, of greater
concern is that the condition of the provincial and municipal road networks, with
an estimated combined asset value of approximately R260 billion, generally
continues to deteriorate". The two issues raised, with regard to the
effect of physical and monitory deterioration of the infrastructure due to a
lack of maintenance is of serious concern.
Some of the reasons stated for the deterioration of the roads are as follows:
19
(a) Insufficient funding in the past resulting in significant backlogs.
(b) Increased traffic volumes and heavy vehicle usage.
(c) Aging network conditions.
(d) Unreliable road network condition data (i.e. a large number of road
authorities capture road condition
data haphazardly).
(e) The short supply of engineering skills.
The 2006/07 Annual Report of the Department of Public Works takes note of the
human capacity constraints present, which the Department has to contend with.
It reports that while it has 223 Permanent sciences related positions
available, it only managed to fill 121 of those by 31 March 2007.20
Furthermore, of the 106 Permanent Engineers and related professionals posts
available within the Department, it only managed to fill 48 positions within
the same period. While, of the 80 designated permanent posts for Quantity
Surveyors and related professionals, only 66 were filled.
The shortage of qualified engineers was highlighted in the Northern Cape when
it was revealed that the people currently employed in the Department were not
certified by the Council for the Built Environment (CBE). This situation arose
when the Department depended in the past on outsourcing its engineering
requirements. The Department is planning to remedy the situation, and is in
discussion with the CBE. It must also be highlighted that another factor which
contributed to this shortage is the non-competitive remuneration packages
offered by the Department in relation to the private sector. It has been
highlighted that often the Department acts as an excellent training ground for
Engineers who later move into the private sector or overseas.
As noted above however, the deterioration of the road network for example, is
an unintended outcome of the above points noted, and not a deliberate policy on
the part of Government. In order to deal with the backlog of the road
maintenance, provinces need to implement more effective road management systems
to enable them to prioritise spending more effectively.23 In 2000/01, it was
estimated that backlogs for the rehabilitation of national and provincial roads
were between R 25 and R 35 billion, and annual backlogs for road maintenance in
order of R 4.5 billion for surfaced roads, and R 6.4 billion for gravel and
access roads. These figures are at best estimates and more accurate data will
only be received once an updated road needs study has been undertaken.
During the recent oversight visits undertaken by the Portfolio Committee on
Public Works to the Free State and Northern Cape, the condition of the roads
was of concern. The vast distances that needed to be covered by road meant that
poorly maintained roads, or gravel roads made the work of the Committee harder.
It also meant that service delivery in the provinces was slower. However, the
Department of Transport needed to address the maintenance backlog, also has to
contend with an annual maintenance shortfall which was already estimated in
2001 at R 6 billion per annum. The Department of Public Works addressed the
above concerns through the National Infrastructure Maintenance Strategy (NIMS)
which regard all forms of infrastructure including public buildings, roads,
water and sewage systems, electricity and other services, [that] supports the
quality of life and is the foundation of a healthy economy. The National
Infrastructure Maintenance Strategy (NIMS) is the programme through which
Government ensures the planned maintenance of capital projects, with the
Department of Public Works as the appointed lead department. The Department of
Public Works has been allocated a budget of R120 billion, R139 billion, and
R151 billion over the three year period from 2007/08 to 2009/10.27
The NIMS programme has four thrusts to ensure that infrastructure is adequately
maintained, to ensure sustained service delivery, growth and job creation. It
is believed that this will be achieved through improved infrastructure assets
management planning, budgeting and implementation.
(i) Strengthening the regulatory framework governing planning and budgeting for
infrastructure maintenance.
(ii) Assisting institutions with non-financial resources.
(iii) Developing the maintenance industry.
(iv) Strengthening monitoring, evaluation and reporting, and feeding this into
a process of continuing improvement.
3. Expanded Public Works Programme (EPWP)
The Expanded Public Works Programme (EPWP) is mentioned briefly in the Review.
It is noted for favouring 'infrastructure development that adopts labour- and
small contractor- intensive construction and maintenance methodologies, coupled
with access to skills training initiatives, The Review notes that apart from
prioritizing capital and training budgets; departmental or programmatic
emphases might be placed on road infrastructure (Transport), housing,
on-and-off farm infrastructure (Agriculture), schools (Education) and possibly
clinics and hospitals. The Department of Public Works' Hospital Revitalisation
Grant is used for the refurbishment and upgrading of existing hospitals and the
construction of new hospitals such as Hlabisa Hospital in KwaZulu-Natal and
Chris Hani Baragwanath Hospital in Gauteng. The Hospital Revitalisation Grant
is a programme which prioritises the maintenance of existing healthcare
infrastructure, as well as providing additional new infrastructure where
necessary, especially in areas where there was no access to adequate
healthcare.
In order to monitor and evaluate the EPWP, the Minister of Finance made
available R125 million in 2007 to the Department of Public Works to ensure that
all departments are implementing the set targets of the programme. It has been
noted that while the Department of Public Works is the lead department
responsible for the implementation for the EPWP programme, all other
departments sometimes have difficulty accepting their role in having separate
EPWP programmes.. Some departments have difficulties in implementing the EPWP
principles, especially related to using labour intensive methods in
construction, or employing, women youth or people with disabilities in some
areas. It was also noted during the recent oversight visits by the Portfolio
Committee on Public Works, that the training component of the EPWP was also not
usually implemented in some areas, due to the lack of the effectiveness of the
CETA in some provinces.31 In some provinces the EPWP was not being implemented
and the pre-2004 programme, namely, the Community-Based Public Works Programme
was still in operation in some provinces.
4. Conclusion
The Financial and Fiscal Commission Review for 2007 has some broad implications
for the Department of Public Works as some of the recommendations impact on
most aspects of the departments' work. Some of the recommendations that affect
the department and need to be noted include:
·
The effect on the tendering and procurement cycle.
What is the effect of fast-tracking projects in some provinces such as the Free
State and KwaZulu-Natal?
·
Does the department have the human resource capacity
to implement an increased budget?
·
How will the Department deal with the issue of fiscal
dumping from other departments at the end of the year as it is the implementing
department?
Sources
Department of Public Works, 2007, Annual Report of the DPW 2006/07, Republic of
South Africa.
Department of Public Works, 2007, Strategic Plan 2007- 2009, Republic of South
Africa.
FFC, 2007, Submission of the Financial Fiscal Commission Review: Submission for
the Division of Revenue 2008/09, South Africa.
Portfolio Committee on Public Works, 2007, Oversight Visit to Gauteng by the
Portfolio Committee on Public Works, August 2007.
31 Oversight visit to the Northern Cape by the Portfolio Committee on Public
Works, August 2007.
32 Observations from the Provincial Oversight visits of the Portfolio Committee
on Public Works in 2007.
[PMG Note: endnotes not included]