Economic Governance and Management: submissions by StatsSA, Auditor General, Trade & Industry Department
AD HOC JOINT COMMITTEE ON ECONOMIC GOVERNANCE AND MANAGEMENT
1 November 2005
SUBMISSIONS ON ECONOMIC GOVERNANCE
Chairperson: Mr V Smith (ANC)
Documents handed out:
Powerpoint Presentation by the Statistician-General
Fundamental Principles of Official Statistics
Powerpoint Presentation by the Auditor-General
Powerpoint Presentation on the African Peer Review Mechanism by the Department of Trade and Industry
SUMMARY
The purpose of the meeting was to aid the Committee in preparing a report on South Africa’s readiness for economic governance and management as part of the African Peer Review Mechanism (APRM). The Committee was basically gathering information in order to anticipate and answer questions from the South African community at large as to what the government was doing to ensure this. Presentations were given by the Statistician-General, the Auditor-General, and the Department of Trade and Industry.
MINUTES
Presentations
Mr P Lehohla (Stats SA; Statistician General)
Mr Lehohla emphasised the importance of the role of statistics in economic governance. In order to make the right decisions policy makers needed information. SA had national legislation in the form of the Statistics Act, 1999, which prescribed a statistics organ with a statistician general. Within the international arena this was governed by the Fundamental Principle of Official Statistics as adopted by the UN. The IMF also prescribed special standards.
SA was compliant in the three areas of state statistics; government statistics; and social statistics. State statistics could be understood as those collected irrespective of which government was in power. Examples of such statistics were CPI, PPI, GDP and GNP. Government statistics were those collected to advance particular programmes of action in the country. Social statistics dealt with emerging issues such as education and health.
The timeframes for the release of each series of statistics were outlined. 256 series were released a year. Taken together these provided a report on the country. Statistics have to be evaluated and peer reviewed. The African Peer Review should be based on sound statistics. Reviews were made by organisations such as the IMF. These covered Stats SA, the Reserve Bank, and the National Treasury. Such reports were available.
In conclusion, SA was compliant nationally in terms of the national legislation and on the international level in terms of the UN Fundamental Principles of Official Statistics and the special standards of the IMF. SA was a member of the UN statistics commission and was chair of the African Statistics Board. It also participated in many other entities. Such involvement was evidence that SA was held in high regard for its statistics.
Mr S Fakie (Auditor-General)
Mr Fakie briefed the Committee on the African Peer Review Mechanism. Discussion points included the role of the Auditor-General in APRM; the importance of accountability and transparency; promoting sound public finance management; and zero tolerance to corruption and mal administration. The Auditor-General’s Office was highly respected in terms of quality and audit mechanisms. It had been appointed to prominent international organisations such as the UN and the WHO.
The background to the context the Auditor-General Office has played amongst its peers was outlined. In 1997-1998 the A-G as a member of SADC decided to establish an organ in order to respond to the need to build capacity and share expertise. SA had played a leading role in this initiative through extensive donor funding to promote its goals and in the role of secretariat. In April 2005 a new institution was inaugurated broadening the grouping to include 23 African countries which were predominantly English-speaking with similar audit systems. The plan was to expand the initiative throughout the continent. SA was currently the vice president for this congress and would expect to be the chair for a three-year period beginning in 2008. SA played an active role in building capacity within Africa amongst auditors general. When seen within the context of NEPAD and the APRM initiative, a strong audit office would produce greater accountability in Africa.
A fundamental principle of good governance was the separation of powers. The Auditor-General provided the legislature with credibility and support in order to facilitate its role in overseeing the executive. This was done by supplying it with reliable and credible information. The independence of the Auditor-General was therefore an important consideration. The International Organisation of Auditors-General understood this concept to mean the absence of undue subordination, direction, and interference from government. For instance many Auditors-General in Africa fell under the Ministry of Finance. They are funded by this Ministry and have to report to it. There were three forms of independence: constitutional or legislative independence, which most countries had in some form; financial independence, which many countries did not have; and administrative independence, which countries such as the UK and Australia could not claim to have as their Auditors-General were under the control of various public service rules and regulations. SA had all three forms of financial independence.
In stressing the importance of accountability and transparency in the accountability cycle the need for accountability to be output, outcomes and results based was emphasised.
Many countries in Africa were lacking the financial framework necessary to effectively promote sound public finance management. SA had an ambitious framework with the PFMA but to what extent was this framework complied with? Financial management was a key driver to accountability. Enforceability was a political role. A financial capability model was outlined with six levels of development. SA was placed somewhere between level two and three as the control framework was in place but compliance was not yet institutionalised.
There was a need for zero tolerance to corruption and maladministration. Prevention was better than cure. The cost of such corruption was estimated at R40 billion a year in terms of money lost along with a substantial knock on effect. Economic growth and development and therefore the wider goal of alleviation of poverty throughout Africa were stifled. Such corruption was picked up but strong political will was needed to deal with this effectively. Strong punitive and enforcement measures were required. There were critical issues for investor confidence. Investment was a key factor for economic growth.
Mr G Monyemangene (DTI, Chief Director: ITED)
The presentation focused on NEPAD and regional economic integration within the context of the APRM. Within the African economy, SA contributed one third of the continent’s GDP; was the largest provide of FDI on the continent; and was the largest trading partner of most of the countries on the continent. The IMF had carried out studies showing SA’s domestic growth had wider effects in terms of the growth of the rest of the continent. SA was therefore an engine for growth for Africa. This idea was rooted within NEPAD.
The challenges faced with regard to regional economic integration were well documented and included market access; infrastructure; supply-side constraints; and small, fragmented markets driven by primary commodity exports. SA was currently pursing a policy to promote regional industrialisation and trade among African countries which was currently only 10% of African global trade. Where there was trade the balance was skewed in favour of SA which was not sustainable in the long term. There was a need to encourage SA companies to source from the region itself. This would require comprehensive and integrated strategies. SA was the chair of the Southern African Customs Union which would give it the opportunity to develop and harmonise policies within this structure in order to deepen regional integration.
There was also a need to focus on integration at the level of SADC. SADC was hoping to become a free trade area with a view to becoming a customs union by 2010. SA would have a role to play in this in terms of capacity building; strengthening institutions; and transferring technology. Within the context of NEPAD and Special Development Initiatives they were currently hoping to involve Angola, Namibia and the DRC. This was key to unlocking potential for investment and growth within the various regions of the continent. There were also projects underway with Tanzania, Malawi and Mozambique, among others. The funding for these was channelled through the Department of Trade and Industry and the SA Development Bank. They also were involved in increasing linkages between various institutions for capacity building across the continent.
In conclusion there was a sound policy framework for engaging with the continent in the context of the APRM. The use of best practice and assistance among member states was specifically provided for and would therefore be increased and enhanced. Improving support for NEPAD as a whole would provide a platform for regeneration across the continent.
Discussion
The Chairperson asked whether there were any gaps that the Committee needed to be aware of. He stressed that they were gearing themselves for interaction with the South African community at large. They needed to be able to second-guess the questions that might arise. What gaps were there and what should be done to close these gaps? For instance if SA was between levels two and three of the financial capability model what should be done to improve this?
Mr D Gumede (ANC) asked the Statistician-General whether there were any standards to ensure that the statistics made available were accurate, precise, and independent. For instance, were there national and/or international benchmarks?
He also asked the Auditor-General whether, in spite of the fact that the UN utilisation of the office could be said to imply that it had high international regard, there were objective standards to be attained. Parliament had defended the MFMA. What should the country put in place to ensure implementation in line with the available resources and capacities, in order to achieve sustainable development?
He also noted that there were often a number of vacancies in the Department of Trade and Industry. Was there enough capacity for the future?
Mrs F Mahomed (ANC) asked about social statistics, especially in relation to challenges such as AIDS and corruption. With regard to the problem of implementation keeping SA between levels two and three of the financial capability model, what was the way forward? In view of the challenges highlighted above, how could implementation be improved? In relation to the inevitable impact on FDI of problems of corruption how could punitive measures and a regulatory framework be ensured?
Dr E Nkem-Abonta (DA) asked the DTI what was being done on the domestic level. Did the country have an effective industrial strategy, appropriate to make the economy strong? The presentation was too focussed on the continental strategy. What were the challenges preventing the country from moving beyond levels two and three of the financial capability model outlined by the Auditor-General? What efforts were being made to ensure this? He also asked the Statistician-General what liabilities were undertaken for the information given.
Mr L Greyling (ID) said that statistics had improved but asked the Statistician-General about available information on household income and spending. This had implications in terms of policy making and grants and was difficult to find.
Mr Lehohla answered that the international standards referred to in his presentation were complied with. There were however some problems, in that such standards were often set without reference to the environment for their application. For instance, standards of national accounts allowed for no flexibility in the face of challenges provided for rapidly changing economies of developing countries. There were other attempts to measure the formal economy. Short-term indicators were always a danger.
In relation to social statistics, there was a need for more attention to areas such as health and education. There was a lack of available management information systems. There were no studies on corruption. There was one on victims of crime. However, there was a need to be seen to be looking at these areas. Gaps were covered annually. In comparison with other countries such as India, SA did well in terms of economic reporting but still had a long way to go in terms of social statistics.
As for information as to how households were spending their money there were data sets available that were taken from 1995 and 2000. However, there were problems in comparing these sets of data. Those taken in 1995 were not suitable for measuring poverty as they were directed solely at discovering the CPI. These surveys had been used to try and measure poverty but were not fit for this. That taken in 2000 and those taken after this date would be good for both purposes.
Mr Fakie said that there was a problem with capacity at local government level. There was a maturity existing at provincial and national levels that was not found in the local government context. This gap revolved around lack of skills, experience and expertise. The extent to which local governments were currently dependent on external expertise was unsustainable. There was also a problem in that local governments often found themselves faced with unfunded mandates. Projects were given to them for implementation without the resources with which to do so. There were therefore many ideas in place to attempt to assist the issues raised. For instance the DPLG had a current programme in place called ‘Project Consolidate’. This was a sound programme but would most likely fail due to poor implementation. There was a need for stringent review at the national level. Frameworks were in place but policies needed to be implemented.
In relation to objective standards that the Auditor-General was subjected to, SA was subject to international auditing standards. There was also an annual quality control review by an independent body mandated to assess compliance with these. These were however, on the technical side. There was perhaps a need to improve relations with stakeholders in order to assess stakeholder satisfaction. There may also be a need to question the National Treasury on providing guidance to local governments. However there was a capacity problem at the national level itself which may pose problems. The issues and skills capacity of the local government sphere were necessarily complex. There was so much legislation and guidelines issued to local governments that most of the resources were used in compliance with these rather than in service delivery.
As to the questions as to how to move beyond level two and three of the financial capability model, there was progressive improvement year on year. This would happen but a level of skill and maturity in quality and capacity of management was required that would take time. An impetus from the National Treasury was also needed.
Mr Monyemangene said that he was not in a position to answer the question as to vacancies within the department, or to comment on the available capacity for the future. A written response could be provided at a later date.
In response to the need for synergy between different departments, he replied that there were bilateral forums with neighbouring countries. There were also multilateral forums such as SACU and SADC. There were therefore relations in place to seek to address issues such as the movement of persons.
The focus of the presentation was due to the nature of the APRM and our focus on the acceleration of regional economic integration. However, they were in the process of compiling comprehensive reports which would be available by the end of the week on cross cutting issues. Specifically the Department of Trade and Industry was in consultation with other key stakeholders, both inside and outside of government. They were finalising the industrialisation strategy through an extensive consultation process. They would then be seeking government approval in the usual method. There were however, strategies in place for growth in the long term, such as BEE.
The Chairperson invited further submissions in writing.
The meeting was adjourned.