Provincial Treasury on: Provincial & Municipal Economic Review and Outlooks; Quarterly Performance

Meeting report

2020 Provincial and Municipal Economic Review and Outlook

Dr Roy Havemann, Deputy Director General (DDG): Fiscal and Economic Services, Western Cape Provincial Treasury explained that the Provincial Economic Review and Outlook (PERO) and Municipal Economic Review and Outlook (MERO) publications had been developed amidst a time of unprecedented uncertainty. The goal had been to navigate this uncertainty through evidence-based planning to inform integrated planning and budgeting, with fair, equitable and sustainable distribution of limited financial resources while supporting good governance and financial sustainability.

Risks to Outlook

Global

A crisis such as the global Covid-19 pandemic brought a high level of uncertainty, as the full impact was unknown and predictions had worsened as the year progressed. The sharp economic downturn was expected to have the greatest adverse effect on low-income households, eroding world progress in reducing extreme poverty.

National and provincial

The adverse economic climate due to the downturn would result in an increase in unemployment and poverty. There would be an increase in inequality due to the digital divide. People engaged in the retail, tourism, hospitality and entertainment industries were the most affected in the short term, due to lockdown measures.

Labour market trends

Dr Havemann described the main labour market trends:

• Shifts in the labour market composition, with older, more educated workers, and a larger proportion of Africans.
• Western Cape workers were more likely to express satisfaction with their jobs.
• An increase in the share of unemployed supporting themselves through access to child support and foster care grants.
• 24.5 per cent of the unemployed residing in households with no employed members.

Summary of key socio-economic indicators

• Population of the Western Cape estimated at 7.01 million people.
• Largely driven by in-migration.
• Fertility rates would drop over time.

Population growth rates

• The population of the Cape Winelands was expected to exceed one million by 2024.
• Overstrand and Bitou had population growth rates exceeding 3% a year.
• Kannaland, Oudtshoorn and Beaufort West had declining populations.

Quality of life

• Inequality had increased (0.621), but the Human Development Index (HDI) (0.73) continued to increase.

Education

• Overall there had been improved systemic test scores across grades between 2014 and 2019, but a regression in performance had been noted in 2017 and 2018. The Western Cape (WC) had the third highest National Senior Certificate (NSC) results.

Discussion

Mr C Dugmore (ANC) asked what emphasis the province actually placed on strategies to reduce inequality. What concerned him was that the issue of inequality had been referred to in parts without dispensing any comprehensive approaches. He asked if some detail could be provided on the reference made in the presentation to increased income inequality in various sectors. He asked how they would define inequality in the digital space, and its impact. What was the approach to dealing with inequalities or critical issues with regard to the National Development Plan (NDP), as there had been no consistent approach applied? He sought information as to what the contributing factors had been with regard to the decline in education quality and grades for the 2017/2018.

Lastly, he sought information as to where the Department saw public employment in the recovery plan, and what level of importance they had attached to the investment in public employment initiatives.

Mr L Mvimbi (ANC) said that there were two definitions of unemployment -- a narrow and a broad one. The narrow definition of unemployment gave the impression that the unemployment rate was low. He sought an explanation as to why the narrow definition had been concentrated on. He sought an explanation of the factors that had caused the increases in informal settlements and dwellings, after research had been conducted on the underlying causes of those issues. Lastly, he asked to what extent previously disadvantaged individuals had started taking ownership in the construction, agriculture and tourism sectors.

Mr R Mackenzie (DA) said that the purpose of the PERO and MERO was obviously to inform policy makers and the Department with regard to development, so he asked what the biggest risk was in implementing some of their key findings. Posing the question to the Mr David Maynier, Western Cape Minister of Finance and Economic Opportunities, he asked how the communication strategy of the national government on some of the key issues impacted directly on the economy of the Western Cape. He elaborated further that when people were unable to enter the country or province for a year; it had an immediate impact on small businesses.

Ms P Lekker (ANC) referred to slide three, and asked if the actual statistics of people who had been affected by unemployment could be supplied. She sought understanding of the problems associated with the lockdown and the measures that had been put in place to avoid the spread of the virus.  She asked for the actual numbers to be supplied of people who had been affected within the retail, hospitality and entertainment industry. She was curious to establish if there had been a plan in place with regard to the economic recovery of those three sectors. 

Lastly, with reference to slide nine, she asked for details of the average household income, along with a breakdown of its utilisation. 

The Chairperson asked what the MERO and PERO process was, including what other countries did, given that the Western Cape was the only province that put together such information. She felt that use of this information could be beneficial for both the province and the country. She sought understanding regarding the import and export of pharmaceutical products, and how that related to the African Free Trade Agreement. Lastly, she asked for an impact analysis of the loadshedding on industries and households.

Minister’s response

MEC Maynier responded that according to the data, inequality had unsurprisingly increased. The extent of the damage caused by the pandemic was the precise reason they had taken the issue seriously. They needed to find ways to stimulate and boost private sector investment as a response to not only the long-term sustainability recovery model for the Western Cape, but also for the immediate response. Public employment programmes were a key part of their approach to providing relief to distressed households in the Western Cape. He emphasised, however, that Members needed to wait for further announcements which would be made during the special address of Premier Alan Winde to Parliament on Thursday.

There had not been enough discussion regarding the tradeoff when it came to the travel restrictions in the red list, as it fell under the jurisdiction of the Department of Home Affairs. The impression he had received from various High Commissions and Embassies was that there appeared to not have been any consultation or prior warning ahead of the announcement regarding which countries would be on or off the list. It needed to be looked at carefully, as it created a huge disruption within the economy.

Many risks had been identified to the provincial outlook, such as the significant fiscal constraints, as well as the probability of a second wave and increased rate of infection. However, national policies, which he believed were significant constraints to the growth of the Western Cape, needed to be looked at.

Mr David Savage, Head of Department (HoD), Western Cape Provincial Treasury, said that the MERO and PERO had been set out to provide the baseline evidence, rather than to present a plan.  It had not presumed to be a strategy or plan, but rather the evidence base in which terms of trends within the economy were able to be measured. He explained that they were a little constrained in the data sets which were available to them. He added that the South African recession had been a consequence of the pandemic. Its effects were going to be difficult to disaggregate, but the impacts would be negatively felt.

Part of their procurement disclosure was a complementary platform which they were building on the transactions of Government in order to gain insights into the extent of black ownership of firms who were transacting with the provincial government. Public employment programmes at a policy level were very well suited to counter radical shocks. They were fully aware of the employment programmes, including what made them work and what made them fail.

He said that there was major opportunity for the province, in that they were attracting growth in urban centres, and had encouraged the migration towards these centres. It was likely to accelerate under the Covid-19 conditions, although they had not received any data on that hypothesis as yet. Empirical evidence supported the notion that the move from rural to urban would allow untapped potential growth to occur.

Dr Havemann responded that it was interesting that in the labour markets, both the number of employed and unemployed people was balanced, What was really happening was that the number of non-economically active people had risen, and basically more people were simply just not searching for work. This was mainly due to the lockdown, but also due to discouragement. It was much more important to focus on the number of employed, rather than unemployed, people.

Substantial discussion had taken place regarding the inequality and socio-economic developments in the Western Cape – from both an inequality and a human development perspective. Regarding housing, medical services, substance abuse and crime, the Western Cape’s Gini coefficient was lower than the national Gini coefficient. The aggregate in the Western Cape had been rising, and overall it was higher than the rest of South Africa.

The impact of load-shedding was estimated to have cost the economy R2 billion a day. Unfortunately, it seemed there would be an electricity supply gap for the next three years, which meant that it would once again emerge in 2021/22 and then again in 2024/25. He believed that this went to show that energy was one of the most significant problems facing the country currently.

Mr Dian Cronje, Public Sector Economist, Western Cape Provincial Treasury, responded that over the last five to six years, pharmaceutical products accounted for only 0.4% of all South African exports, which meant that most performance and physical products which were imported were consumed locally. Imports amounted to R1.9 billion, while exports amounted to R489 million, which included pharmaceutical products as well.

First quarter performance outcomes

Ms Analiese Pick, Director: Provincial Government Finance, Expenditure Management, stated that the provincial spending had amounted to R15.4 billion, or 21.5% of the R71.6 billion annual budget. Under-spending had been due to the projected impact of the Covid-19 lockdown on programmes, and anticipation of reduced conditional grants. A projected over-expenditure of R2.9 billion was anticipated due to the Covid-19 response. This had been mitigated through the first 2020 adjusted budget, which had been tabled on 23 July.

Public entity expenditures as at 30 June

• Public entities recorded total spending of R157.3 million, reflecting a net under-spending of R36.2 million. This was mainly related to the Western Cape Nature Conservation Board and Casidra.
• The Western Cape Nature Conservation Board had a net projected under-spending of R25.02 million as a result of the COVID-19 pandemic and the lock down regulations on all programmes. The risk on revenue collection would impact the budget and would need to be addressed in the second phase of the 2020 budget review.
• Casidra’s projected under spending, amounting to R8.164 million, was mainly related to savings as a result of vacant positions, and the savings projected within goods and services attributed to the lower administration and operational costs due to Covid-19.

Context of the quarterly performance report

Ms Pick said there were three lenses through which the WC government’s performance was viewed:

• It provides a snapshot primarily on overall performance data in relation to progress against the first quarterly targets;
• It then further provides an overview of progress by looking at direct service delivery indicators;
• In addition, due to Covid-19, it provides a snapshot as a first level of analysis of all Covid-19 interventions implemented across the WCG

Two Important points to note were that this data on Covid-19 was collated via a survey and then incorporated into the usual quarterly performance reporting process, and the performance data was validated at the time submitting. This meant that preliminary performance data was no longer captured, processed and analysed. The performance data was presented by departments, by entities and as a collective

Overview of Covid-19 interventions

The majority of interventions could be summarised across the themes as follows:

• Economic recovery (39);
• Slowing the spread (40);
• Communication (20);
• Humanitarian relief and food security (18);
• Civil compliance (7);
• Testing and treatment (8); and
• Quarantine and isolation (10)

The key focus areas were procurement and distribution of masks; compliance and enforcement opportunities; business compliance; humanitarian efforts; communication; and quarantine and isolation.

The common denominators identified across these interventions spoke to the distribution of food parcels, procurement and management of personal protective equipment (PPE), training and awareness of Covid-19 prevention, compliance initiatives, workplace readiness, testing and treatment information shared, and economical support initiatives.

Only 18% of the 86 interventions could be linked to specific geographical impact areas across the Western Cape; and they were primarily within the City of Cape Town (CoCT) and the West Coast district.

Discussion

Ms N Nkondlo (ANC) asked how the Covid-19 pandemic had impacted on the reporting period, as it had not been mentioned in the presentation.

The Chairperson said she sought to understand the targets which had been set per quarter and reported on in the annual report as well. She asked how those particular targets were set, elaborating further that the Committee in general evaluated the implementation of targets, but had not been legislatively involved in the setting of targets. She therefore sought to understand the methodology behind the setting of the targets.

Response

Mr Savage responded that Members and the Committee should remember that they were essentially looking at a snapshot at the end of the quarter, when the full lockdown had not been over yet, and there had been a significant amount of disruptions. He believed that they would start to get a better picture with the second quarter results.

Ms Pick responded that in regard to the second quarter, as the HOD had indicated, they would be able to study the first quarter adjustments budget in terms of the funding which they received from the national government, especially for the Department of Health. What they received as provincial funding from national was only for the Department of Health to the value of approximately R550 million, which would be shown for the second quarter.

Consideration and adoption of MERO and PERO

The Chairperson said that the Committee would deal with the consideration of the MERO and PERO. Similarly to previous years, the MERO and PERO were essentially tabled at Parliament without any discussion or requirement to hold further legislative procedures.

Mr Mackenzie supported the adoption of the report.

Ms W Philander (DA) seconded the proposal to adopt the report.

The report was adopted. The Chairperson read out the report, and there were no objections to its wording.

The meeting was adjourned.