1 2016/17 EC BUDGET OUTCOME PRESENTATION TO SELECT COMMITTEE ON FINANCE 24 MAY 2017

2 PRESENTATION OUTLINE Global and National Economic ContextEC Provincial Economic Growth 2016/17 Own Revenue Collection Status and Challenges 2016/17 Expenditure Preliminary Outcome and Departmental analysis Infrastructure Spending on economic and social infrastructure Bank Balances Accruals Unauthorised, irregular, fruitless and wasteful expenditure Conclusions

3 ECONOMIC and FISCAL CONTEXTSA economy currently experiencing low levels of growth due to: Slow global demand; Low levels of domestic investor confidence; and Persistent structural constraints that affect the competitiveness of the domestic economy. Low growth expected to persist over the medium-term - the national economic growth forecasted to be 1.3 per cent in and marginally improving to 2 per cent in 2018. Country’s economic growth rate still remains below potential, failing to reach the necessary levels to make inroads addressing unemployment crisis, poverty and inequality. 

4 NATIONAL FISCAL OUTLOOKFurthermore, the fiscal framework has rapidly grown tighter with pressure to fund the following new priorities:-

5 NATIONAL FISCAL CONTEXTPersistent challenge of Twin deficits Current account deficit estimated at -3.9 per cent of the GDP in 2017. Budget deficit of R147.9 billion for 2016/17 and is per cent of the GDP projected to increase to R149.0 billion or -3.1 per cent of the GDP in 2017/18 Net loan debt of government expected to increase to R2.2 trillion (47 per cent of the GDP), and this excludes debt servicing estimated to be R162.4 billion by 2017/18 financial year end. Growing fiscal deficit largely a consequence of government expenditure exceeding revenue due to rising personnel costs currently at R1.7 trillion over the MTEF. Therefore going forward growth in CoE must be curtailed. Rising levels of government debt, sluggish economic growth, and policy uncertainty have lead to the downgrading of the SA government debt by S&P and Fitch to a level of sub-investment grade, for foreign currency dominated portion of the debt . Any further deterioration in the economic growth and escalation of policy uncertainty could trigger further downgrades which would make government borrowing even more expensive.

6 EC Economic growth and Employment4.

7 COMPOSITION OF PROVINCIAL GROSS VALUE ADDED (GVA, % OF TOTAL)Composition of economic output in the province reveals the key structural challenges facing the provincial economy: Government services is the most dominant sector in terms of output (incl. employment) – an indication of under- development of local industries; The agriculture sector remains largely depressed and under-developed; and The provincial manufacturing base has been declining and losing its competitiveness. Therefore, need to resuscitate and diversify the provincial industrial base exploiting new market opportunities (regional and global). Invest in economic infrastructure to improve regional competitiveness. Focus on optimising the performance and resourcing of the provincial industrial development zones (or SEZs) as catalysts for industrialisation, foreign direct investment and as gateways to export markets.

8 EC Economic Growth and EmploymentPost 2009/10 growth and employment trends in the province have been very low. Consistently province records some of the highest quarterly unemployment rates in the country - mostly affecting youth, rural and female population groups. High unemployment rates in the province are partly a reflection of the poor skills profile of the provincial labour force. Spatially the burden of unemployment and poverty still most prevalent in the former underdeveloped homelands regions (Non-metro areas). This therefore necessitates a sustained focus by government on addressing some of these spatial and structural challenges.

9 PROVINCIAL ECONOMIC DEVELOPMENT STRATEGY: BOOSTING INVESTMENTS AND CREATING JOBS (1 - 2)

10 PROVINCIAL ECONOMIC DEVELOPMENT STRATEGY: BOOSTING INVESTMENTS AND CREATING JOBS (2 - 2)Economic Sector (DEDEAT, DRDAR, DRPW, and DoT) allocated R billion in 2017/18 and cumulatively R billion over the MTEF period. This budget will among other things fund the Provincial Economic Development Strategy (PEDS) focusing on the six economic sectors where the province has comparative advantage namely: Agriculture Development Tourism Automotive industry Light Manufacturing Renewable Energy Oceans Economy Overarching vision of PEDS - create an enabling economic infrastructure across key sectors for rapid modernization of provincial economic centres whilst attracting new investors into remote rural areas where people live.

11 EFFORTS TO PROMOTE REGIONAL ECONOMIC GROWTH AND EMPLOYMENT (1 - 7)Agriculture Sector Development Towards implementing the provincial agriculture development strategy (EC Agricultural Economic Transformation Strategy) R257 million has been allocated in 2017/18. The EC Agricultural Economic Transformation Strategy aims to commercialise agriculture in rural communities focusing on grain production, citrus fruit, deciduous fruit, vegetables and animal production. Furthermore, an amount of R506.1 million in 2017/18 and R1.578 billion over the 2017 MTEF period is allocated to enhance food security in the province. RED-HUB programme has been implemented successfully in Mnqanduli, Ncora, and Lady Frere to stimulate agro-processing value chains in the province. A new RED HUB in Tshabo will be established with a budget of R14.5 million in 2017/18 and R64.4 million over the 2017 MTEF. Comprehensive Agricultural Support Programme (CASP) receives an allocation of R248 million in 2017/18 and R807.9 million over the MTEF for crop production, farm infrastructure projects and revitalization of the Agricultural Colleges In conjunction with national DRDLA which are funding the projects, provincial DRDAR will finalize plans to rollout Agri-Parks in Alfred Nzo (Cedarville), OR Tambo (Lambasi), Chris Hani (Ncora), Sarah Baartman (Addo), Amatole (Butterworth) and Joe Gqabi (Lady Grey) to link farmers to agri-markets and other value chains. Magwa and Majola Tea Estates: An additional R15 million has been allocated in 2017/18 to support the resuscitation of tea production including green tea and retail packed tea.

12 EFFORTS TO PROMOTE REGIONAL ECONOMIC GROWTH AND EMPLOYMENT (2 - 7)Economic and Social Infrastructure Development Social Infrastructure In 2015 a number of social infrastructure projects were initiated in KSD Local Municipality, Ntabankulu Local Municipality, Joe Gqabi District Municipality, Chris Hani District Municipality and Mbhashe Local Municipality. To date good progress has been achieved. Continuing with the programme an additional R333.1 million has been allocated in 2017/18 to benefit, amongst others, the R61 by-pass in KSD, Tombo road leading to Silaka Nature Reserve in Port St John and Mbashe LM road. R90.8 million has also been allocated to Provincial CoGTA as a short term intervention for the electrification programme in targeted rural communities. Economic Infrastructure Roads Infrastructure Department of Roads and Public Works (DRPW) plans the completion of the following road infrastructure in 2017/18: R260 million over the 2017 MTEF is allocated (R60 million in 2017/18) towards the upgrade of Phase 3 and 4 of road DR08005: Magusheni to Mzamba [R61], approximately 79km; Planning of the upgrade to the Centane to Qholora road (Phase 3) is allocated R8 million in 2017/18; Upgrading of Nkantolo road from R61 to Tambo Garden of Remembrance is allocated R70 million in 2017/18; R90 million in 2017/18 and R190 million over MTEF is allocated towards upgrading the Elitheni Coal Mine Road; and R10 million is allocated in 2017/18 towards the planning of the upgrading of the road from R61 at St’ Barnabas Hospital to Hluleka Nature Reserve (+/-47 km)

13 EFFORTS TO PROMOTE REGIONAL ECONOMIC GROWTH AND EMPLOYMENT (3 – 7)Small Town Revitalisation R584.4 million over the 2017 MTEF (R136.5 million in 2017/18, R262.5 million in 2018/19 and R185.4 million in 2019/20) towards the revitalisation of strategic small towns in the province. Such revitalisation entails the facilitation of support towards the provision of electricity, sanitation and water in identified small towns - Alice, Kirkwood, Libode, Ngqeleni, Mt Ayliff, Port St Johns, Mt Fletcher, Ntabankulu and Mbizana. SEZ and Industrial Parks Development R140 million to assist two provincial IDZs towards full compliance with the SEZ Act and building necessary infrastructure to advance industrialisation, of which: R40 million is allocated in 2017/18 to the Coega Development Corporation (CDC) to support the transition of CDC to a fully-fledged Special Economic Zone (SEZ) in accordance with the national SEZ Act of 2014; R million in 2017/18 to ELIDZ for operational costs and maintenance; and CDC is to provide a clear and detailed governance plan as well as a new business model.

14 EFFORTS TO PROMOTE REGIONAL ECONOMIC GROWTH AND EMPLOYMENT (4 – 7)Through DEDEAT R million has been allocated in 2017/18 for the planning of the following economic infrastructure projects: Dimbaza Industrial park fencing. Wild Coast Special Economic Zone/industrial estate. Revitalisation of Mdantsane Mall project. Somerset East Industrial Park. Uitenhage multi-sector business incubation centre. Upgrade of the road to Ranch Timbers Sawmill. Industrial Park Road upgrade. Fort Jackson Fencing Project. Rehabilitation of Butterworth Factory project. Broadband Development Importance and economic relevance of broadband is becoming increasingly clear. Access to broadband networks and to high-speed Internet with its next generation of information services is considered a necessary precondition for economic growth and competitiveness. An amount of R million is allocated in 2017/18 and R million over the 2017 MTEF, for the revamping of the Bhisho Campus Network, Provincial Virtual Private Network (VPN) and the Provincial Broadband initiative

15 EFFORTS TO PROMOTE REGIONAL ECONOMIC GROWTH AND EMPLOYMENT (5 – 7)Leveraging on National Government’s Operation Phakisa - Ocean Economy Initiatives Port development and Ship Repairs Capacity in Port Elizabeth Fish Farming and Aquaculture Development across the province Tourism Development Province is home to a diverse tourism offering, providing a unique competitive tourism bouquet Future development of the provincial tourism industry hinges critically upon improved transport infrastructure, improved hospitality infrastructure, improved management of tourism “packages” and improved marketing of the province’s unique assets, such as the Wild Coast and the Baviaanskloof World Heritage Site For 2017 MTEF, R21.6 million was made available for the construction and maintenance of access roads to the following provincial nature reserves- Great Fish, Dwesa, Mkhambati and Silaka. Key sector initiatives Heritage tourism. Cultural observatory. Tourism events. Tourism roads development. Port St Johns Waterfront and related tourism development.

16 EFFORTS TO PROMOTE REGIONAL ECONOMIC GROWTH AND EMPLOYMENT (6 - 7)SME and local industrial business development Local Economic Development Procurement Framework has been approved and will be adopted by all provincial departments. Out of the total R13 billion provincial budget for Goods and Services for 2017/18, Provincial Treasury will monitor and support departments to ensure that at least 50 per cent of this budget goes to Eastern Cape based suppliers. Targeted suppliers include those with potential and capacity to be competitive suppliers within following sectors Textiles and clothing; Construction and build environment material (cement, bricks, roof tiles, fencing, wooden poles and plant hire) Medical supplies and drugs School furniture Learner Teacher Support Material – LTSM Fleet services Food (School nutrition and hospital food) This process will be further enhanced by recent SCM reforms and revised Preferential Procurement Policy Framework Act implemented as of 1 April 2017, which makes it compulsory for all contracts above R30 million to sub-contract 30 per cent of work to small or black owned enterprises where feasible

17 EFFORTS TO PROMOTE REGIONAL ECONOMIC GROWTH AND EMPLOYMENT (7 - 7)Public Infrastructure Development Introduction and the rollout of the Strategic Framework for Improved Infrastructure Service Delivery and Rapid Response Team (collaborative effort between Office of the Premier, Provincial Treasury and Provincial Roads and Public Works). Improving Governance and the Role of Provincial Public Entities The province will benefit more from: Improved effectiveness and efficiencies in public entities; Rationalization of entities and streamline objectives for impact; Manage the high payment to both senior managers and non-executive boards (National Treasury have developed guidelines on the remuneration of Boards and senior managers in entities (awaiting signature by the Minister of Finance). National treasury undertaking a national review of the value of spend on DFI’s; Reduction of number of board members; and Finalize the transition of the IDZs to SEZs to lure investors through increased incentives.

18 206/17 OWN REVENUE COLLECTION STATUS AND CHALLENGES

19 REVENUE COLLECTION 2016/17 (1 - 2)Table 1 : Provincial own revenue by vote

20 REVENUE COLLECTION 2016/17 (2 - 2)As at 31 March 2017, the province collected R1.747 billion against the adjusted estimate of R1.614 billion which has resulted in a net preliminary over collection of R million. The net preliminary over collection on own receipts was mainly due to the following: Provincial Treasury over collected by R million due to interest received from positive balances in the Provincial Revenue Fund as well as from exchequer investments. Rural Development and Agrarian Reform over collected by R million due to funds that were surrendered by the Eastern Cape Rural Development Agency ECRDA as well as a result of the sale of biological assets on auction. Under collections of own receipts was mainly due to the following: Health under collected by R million due to claims from the Road Accident Fund resulting from their unfavourable financial position and medical aid schemes monies that were not collected as anticipated. Transport under collected by R million due to not all the provincially registered vehicles have paid their motor vehicle licenses timeously and the non-payment of fines by offenders as well as the reduction of fines by the magistrates.

21 CAPACITY TO MAXIMISE REVENUE (1 - 3)

22 CAPACITY TO MAXIMISE REVENUE (2 - 3)Transport Intensify motor vehicles licence fee collections and fines. Support the construction of modernised weighbridges (Traffic control centres) that will include pounding stations (vehicles and animals). Impending promulgation of the Administrative Adjudication of Road Traffic Offences Act will allow for arrests for outstanding fines and this will force motorists to pay their fines on the spot. Health Cecilia Makiwane Hospital (CMH) and Frere Hospital identified as best practice models to replicate the electronic billing and collection system to improve own revenue. Roll out of the electronic system will allow for Patient registration; Admissions; Transfers and Discharges; Master Patient Index; Billing; Management Reporting; Web Services; Training and Enhanced capability of screening of patients for means test through TransUnion verification system. Ambulance services on road and helicopter services that are used in the event of accidents in remote areas as well as focusing on the Port Elizabeth Hospital as the only paediatric oncologist in the province. Additional revenue was identified at the Lilitha College with transfers received from DOH while the college have accumulated revenue in an investment fund and may also contribute annual revenue.

23 REVENUE MAXIMISATION AT DEPARTMENTS (3 - 3)Economic Development, Environmental Affairs and Tourism (DEDEAT) Revenue improvement requires tariff review from the amended Gambling Bill, which was assented to and awaits promulgation. Awarding of Zone 4 casino licence in Mthatha which takes 12 months from date of awarding to generate revenue. Expansion of limited pay-out machines from to machines as supported by research conducted by ECGBB. Funding request to outline costs to regulate the expanded industry of independent site operators. DEDEAT can collect more from its current revenue sources, such as tariffs that are regulated by the provincial Environmental Act which requires amendment. Roads and Public Works Costing of the approved revenue strategy is being revised and focus is on maximisation of property management. Revenue enhancement involve maximising the return on investment and additional revenue requires further investment. Cellular masts and towers was implemented in 2015/16 and it is still contributing to provincial own revenue with more contracts anticipated to be concluded.

24 2016/17 EXPENDITURE PRELIMINARY OUTCOME

25 SUMMARY OF PROVINCIAL EXPENDITURE BY VOTE (1 – 2)Table 2: Eastern Cape Payments by Department, March 2017

26 SUMMARY OF PROVINCIAL EXPENDITURE BY VOTE (2 – 2)Province preliminary spent R billion or 99.2 per cent of its adjusted budget of R billion with under spending amounting to R million when comparing total spending against adjusted budget. All departments have under spent of which the following are the main contributors: Health by R million; Economic Development, Environmental Affairs and Tourism (DEDEAT) by R million; Education by R million; Co-operative Governance and Traditional Affairs (COGTA) by R million Provincial Treasury (PT) by R million; and Social Development by R million.

27 SUMMARY OF PROVINCIAL EXPENDITURE BY ECONOMIC CLASSIFICATION (1 – 2)Table 3: Eastern Cape Payments by Economic Classification, March 2017

28 SUMMARY OF PROVINCIAL EXPENDITURE BY ECONOMIC CLASSIFICATION (2 – 2)The bulk of preliminary under spending of R million was on: Compensation of Employees by R million and is mainly on Education at R million, Roads and Public Works (DRPW) at R million, Health at R million and COGTA at R40.855 million; and Payment for Capital Assets by R million and is mainly on Health at R million, DEDEAT at R69.155 million and DRDAR at R million. The following items exceeded their allocations: Goods and Services by R million and is mainly on Education at R  million, DRPW at R29.274 million, Sports, Recreation, Arts and Culture (DSRAC) at R million and Transport at R11.583 million; and Transfers and Subsidies by R million and is mainly on Health at R million.

29 DEPARTMENTAL EXPENDITURE ANALYSIS

30 EDUCATION (1 – 3) Overall department preliminary spent R billion or 99.8 per cent against an adjusted budget of R billion with an under expenditure of R million. Compensation of Employees under expenditure of R million is largely due to high educator attrition rate at schools coupled with the non-filling of posts on the Annual Recruitment Plan (ARP). As at 31 March 2017, the department had school based educators (SBE) appointed against the declared Post Provisioning Norm (PPN) of 54 747. Of the total appointed, 1 141 were Temporary educators and were Additional educators of which 88 per cent or 1 963 additional educators were from post level 1; PT analysis of PERSAL data as at 31 March 2017 reveals that 2 642 educators left the system from April 2016 to March 2017, of which 733 relates to Post level 1 Educators, for Heads of Departments (HoD’s), 269 for Deputy Principals and 439 for Principals; During 2016/17, from 1 April 2016 to 31 March 2017, the department had a total of 2 788 terminations in respect of school based educators, of which was for Post level 1 educators, 337 for HoDs, for Deputy Principals and 384 for Principals. This, against 1 670 appointments, of which 1 661 is for post level 1 educators and 19 in respect of promotional posts, resulting in an overall net termination on 1 118 school-based educators for the period in question.

31 EDUCATION (2 – 3) Goods and Services over expenditure of R million is mainly due to the following: Costs incurred with respect of the Document Management Centre (DMC) and the panel of Administrators hired as part of the Education Transformation Plan (ETP); Learner Teacher Support Material (LTSM) overspent due to Batch 2, which was committed and paid as a correction order to augment shortages after a verification audit at schools revealed huge textbook shortage. The budget was not adequate enough to cover the total value of the replenished stock; and Travel and subsistence as a result of activities held relating to the transformation agenda to turnaround the department. PT noted that the budget pressures under Goods and services emanated from insufficient budgets resulting from poor planning particularly as the Transformation plan and DCM was not adequately funded.

32 EDUCATION (3 – 3) Transfers and Subsidies under expenditure of R million due to unpaid leave gratuities resulting from the majority of claims not yet processed by department, owing to late submission by claimants. For the financial year period ending March 2017, the department paid R244 million to 1 097 beneficiaries, and the department is currently auditing its PERSAL files to establish the number of applicants and the total amount payable. Payments for Capital Assets over expenditure of R141.9 million due to the purchase of computer equipment and laptops for teachers and administration staff at various schools, districts and Head office. The department indicated that additional equipment was required for the implementation of the new service delivery model.

33 HEALTH (1 – 2) Overall department preliminary spent R billion or 99.2 per cent of its adjusted budget of R billion with an under expenditure of R million. Compensation of Employees under expenditure of R million is mainly due to the 56 new registrars that were supposed to have assumed duties as from 1 January 2017 but only 29 registrars were successfully appointed on the system. Also contributing to the under expenditure is the targeted amount of Community Health Workers, of which only was captured on the system at the end of the financial year. The remaining was in the process of being captured by the department. Goods and Services under expenditure of R million is due to the withholding of payments in order to offset the pressures on Transfers and subsidies, which resulted from the payment of Medico Legal claims. These funds will be shifted / viremented to curtail the over expenditure on Transfers and subsidies.

34 HEALTH (2 – 2) Transfers and Subsidies over expenditure of R million is as a result payment made in respect of medico legal claims that were not budgeted for. This pressure will be absorbed through the under expenditure from Goods and services. Payments for Capital Assets under expenditure of R million is mainly due to the following: Delayed Eskom’s power connections that has hampered some projects to achieve practical completion including projects at Centuli, Isikhoba, Qebe and Vaalbank clinics; Tabase clinic project underspent due to poor performance of contractors whose contracts were eventually terminated; Late start of the fencing and gatehouse projects at various clinics around the province; Delayed appointment of a replacement contractor for the St Elizabeth's and Lilitha College - Paediatric Ward & Laundry Project, for which the initial contract was cancelled due the contractor's poor performance; and Late commencement of works on sites due to delays in procurement processes for the rehabilitation & upgrade of medical depot and nurses accommodation at Mthatha General Hospital

35 SOCIAL DEVELOPMENT Overall department preliminary spent R2.360 billion or 98.2 per cent of its adjusted budget of R2.403 billion with an under expenditure of R million. Compensation of Employees under expenditure of R million is mainly due to department only filling 59 of the 68 posts approved by the Provincial Coordinating Monitoring Team (PCMT) and the non-payment of employees who qualified for Occupation Specific Dispensation (OSD) due to an error on their appointment status on PERSAL as they were captured as Non-OSD. The department is currently busy verifying figures. In addition, payments for SMS Performance Bonus and Pay Progression were not made due to delays in processes (some section heads were not available for presentations due to time clashes with other departmental activities while some PMDS forms were returned due to gaps identified).

36 OFFICE OF THE PREMIER Overall Office of the Premier preliminary spent R million or 96.7 per cent of its adjusted budget of R million with an under expenditure of R million. Compensation of Employees under expenditure of R million is mainly due to 22 of the envisaged 67 posts not being filled as per the Annual Recruitment Plan (ARP). The 22 posts not filled were transferred to the 2017/18 ARP, as 10 of these posts were under selection process and 12 posts were still to be advertised. Also 4 posts were withdrawn from the 2016/17 ARP as these posts were not in line with the repositioning and the new structure of the department. Transfers and Subsidies over expenditure of R4.297 million is mainly due to an amount of R6.5 million that was transferred to Walter Sisulu University (WSU) at R2.500 million, University of Fort Hare (UFH) at R2 million, Rhodes University at R1 million and Nelson Mandela Metropolitan University at R1 million for research to be conducted. The aim of the research by the Education Institutions is to support the Eastern Cape Government’s Development agenda. The agenda is to enable the Provincial Government to draw on the strengths of the institutions in terms of Agriculture, Economic Development programmes, Impact Studies and Social Transformation outcomes. A virement was being processed to cover the over expenditure.

37 PROVINCIAL LEGISLATUREOverall Provincial Legislature preliminary spent R million or 97.4 per cent of its adjusted budget of R million with an under expenditure of R million. Compensation of Employees under expenditure of R million is mainly due to the direct charge, as there was still no determination on the salary adjustment for members. Transfers and Subsidies over expenditure of R1.197 million is due to leave gratuity pay-out of R1.554 million in respect of 11 employees that have retired and resigned. This will be offset by CoE under expenditure through virement application.

38 ROADS AND PUBLIC WORKS Overall department preliminary spent R4.564 billion or 99.3 per cent of its adjusted budget of R4.595 billion with an under expenditure of R million. Compensation of Employees under expenditure of R62.419 million is mainly attributable to the non-filling of 15 posts that were part 224 posts of the ARP presented to PCMT. This delay is due to the department initially making appointments outside the PCMT but had to withhold them until an explanation of not abiding to the PCMT process was clarified. Goods and Services over expenditure of R million is due to several cost pressures realized during the year mainly on the following areas: Properties, the Bhisho Revitalization project work was brought forward from the 2017/18 financial year in order to fast track the progress; and Transport infrastructure, due to additional work required because of community unrest in the Madwaleni road, and for the Coffee Bay Zithulele project where work was initially planned to be insourced but later changed to outsourced due to community demands, which came with additional costs.

39 CO-OPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRSOverall department preliminary spent R million or 93.8per cent of its adjusted budget of R1.008 million with an under expenditure of R million. Compensation of Employees under expenditure of R40.855 million is mainly due to delays in filling of 91 of the envisaged 129 vacant posts and delays in the appointment of 10 of the envisaged 89 Community Development Workers (CDWs). The department is currently conducting interviews to fill the Director and Deputy Director positions as per the ARP. Goods and Services under expenditure of R million is mainly due to late invoices relating to amongst others Audit fees, Computer services and Operating payments as well as claims concerning Travel and Subsistence. It is also due to delays in the appointment of the contractor to conduct competency assessment for the SMS members, resulting from delayed recruitment processes.

40 RURAL DEVELOPMENT AND AGRARIAN REFORMOverall department preliminary spent R2.204 billion or 99.5 per cent of its adjusted budget of R2.215 billion with an under expenditure of R million. Goods and Services under expenditure of R million is mainly due to the following: Late submission of invoices for casual labourers responsible for fencing projects, drought supplies as well as retention fees for projects Keiskamahoek irrigation, Buffalo City Metropolitan Municipality tomato gap certification as well as Amathole fencing that could not be paid due to contractors not meeting the obligations; and Late implementation of the training programme in the previous quarters resulting from the reviewal / alignment of the training programme to the Agricultural Economic Transformation Strategy (such as farmer and farm-worker training on crop and animal production including learnership programme). Transfers and subsidies over expenditure of R7.124 million is due to the payment of leave gratuity accruals of R5.914 million for 40 employees, which were not sufficiently budgeted for. Payments for Capital Assets over expenditure of R million is due to the accelerated implementation of projects such as the Ripplemead pack shed which were previously delayed by supplier/contractor capacity and the delivery in March 2017 of mechanical equipment for the Wittkleibos Dairy.

41 ECONOMIC DEVELOPMENT, ENVIRONMENTAL AFFAIRS AND TOURISMOverall department preliminary spent R1.037 billion or 91.3per cent of its adjusted budget of R1.135 billion with an under expenditure of R million. Goods and Services under expenditure of R million is due to Wild Coast environmental management plan not gazetted as it was awaiting a signed letter of concurrence from the responsible Minister. In addition, travelling did not take place as planned for the environmental management sessions (Environmental empowerment services and Biodiversity & Coastal Zone Management) as they were conducted through video conferencing. Furthermore, there was a delay in the payment of management fees to Coega Development Corporation as a result of the delay in implementing Social Infrastructure projects. Transfers and subsidies under expenditure of R million is due to 109 applications received for Local and Regional Economic Development (LRED) funding, only 9 applicants met the requisite criteria to be awarded funding. Payments for Capital Assets under expenditure of R million is due to the Integrated Social Infrastructure Development Programme (ISIDP) implemented by Coega. Originally the plan was to eradicate the bucket toilet system with an amount of R100 million, which was diverted towards the building of top structures (RDP Houses). The department has encountered challenges with the loading and verification of beneficiaries on the National Housing Subsidy Database, which is being implemented by the Department of Human Settlements and has not yet been finalised

42 TRANSPORT Overall department preliminary spent R1.739 billion or 99.7 per cent of its adjusted budget of R1.743 billion with an under expenditure of R4.423 million. Compensation of Employees under expenditure of R million is due to delays in the filing of 23 of the 63 planned posts for 2016/17. This is due to the lengthy recruitment processes that was not incorporated in the standard recruitment procedures, the unavailability of panel members and the chairperson due to prior work commitments as well as complaints from organised labour that further resulted in delays. Goods and Services over expenditure of R million is due to Scholar Transport operators submitting invoices for two weeks of March 2017 and the department paying those invoices which were projected to be paid in April In addition, the department paid stipends for Community Based Programmes beneficiaries, which were not adequately budgeted for.

43 HUMAN SETTLEMENTS Overall department preliminary spent R2.362 billion of its adjusted budget of R2.363 billion with an under expenditure of R942 thousand at year end. Even though the department is showing a minimal under expenditure, what is concerning is the preliminary accruals for 2016/17 of R million that cannot be covered. This emanates from the department approving and contracting commitments on the Housing Subsidy System (HSS) amounting to R10.9 billion whilst the approved B.5 (project list) was R1.955 billion over the 2016 MTEF.

44 PROVINCIAL TREASURY (1 – 2)Overall department preliminary spent R million or 94.5 per cent of its adjusted budget of R million with an under expenditure of R million. Goods and services under expenditure of R7.277 million is mainly due to following: Consultants: Business and Advisory Services due to invoices received for priority projects being lower than initially anticipated such as Business Process Mapping (BPM), Specialized Economic Zone (SEZ), forensic investigation and Quality Assurance Review (QAR). Furthermore, it was also attributed to the late submission of invoices by the contracted supplier i.e. 24 hour service project for the provision of trauma and counselling support to PT employees; and Travel and Subsistence due to some planned official trips such as asset verification visits as well as PFMA, LOGIS and PERSAL training that were not undertaken as planned due to unforeseen competing priorities.

45 PROVINCIAL TREASURY (2 – 2)Transfers and Subsidies under expenditure of R million is mainly in Municipal Financial Governance programme and is due to following: Joe Gqabi drought relief programme – slow performance by three contractors however, the municipality has been engaged on this for further action. Moreover, drought relief programme was behind schedule due to heavy rainfall, which affected the implementation of some of the planned projects. During 2016/17, the rainfall for May was 166 mm, July was 212 mm, January was 244.8 mm and February was 187 mm, which is higher than the average rainfall of 92.3 mm per month; and King Sabatha Dalindyebo Electrification – slow progress due to bad weather conditions affected the progress of the electrification project. During 2016/17, the rainfall for April was 55 mm, November was 80 mm, December was 70.2 mm, January was 60 mm and February was 110.7 mm, which is higher than the average rainfall of 47.5 mm per month. Furthermore, there were land claim issues around 66kV overhead lines in Sidwadwa /Mbuqe/ Unitra sub-projects, which further led to slow expenditure movement.

46 SPORT, RECREATION, ARTS AND CULTUREOverall department preliminary spent R million or 99.7 per cent of its adjusted budget of R million with an under expenditure of R2.365 million. Compensation of employees under expenditure of R million is due to the 75 vacant posts that were still in the process of being filled at the end of the financial year. The process of filling these posts has been carried over to 2017/18. However the department was able to fill some of the vacant posts that included: General Manager for Cultural Affairs, Senior Manager for Libraries, Corporate Services Manager for Alfred Nzo District and some library assistants and Mass Participation programme for sport officials. Goods and Services over expenditure of R million is due to the installation of Information and Communication Technology (ICT) equipment for newly built public libraries and for the newly established district (Buffalo City) as well as for offices for two districts (Amathole and Nelson Mandela Metro) which had relocated to new premises. These were inadequately budgeted for. Payments for Capital Assets under expenditure of R7.286 million is due to adverse wet weather conditions in February and March 2017, which have slowed the progress on site for Butterworth swimming pool, and delays in the internal processes of refurbishment projects implemented by DRPW

47 SAFETY AND LIAISON Overall department preliminary spent R million or 99.7 per cent of its adjusted budget of R million with a minimal under expenditure of R277 thousand at year end.

48 CONDITIONAL GRANTS PERFORMANCE (1 – 4)Table 4: Eastern Cape Conditional Grants, March 2017

49 CONDITIONAL GRANTS PERFORMANCE (2 – 4)Overall Province preliminary spent R billion or 97.3 per cent of its adjusted budget of R billion for conditional grants with an under expenditure of R million at financial year end. Conditional grants contributing to under expenditure are the following: Comprehensive HIV and AIDS grant spent 93.8 per cent and under expenditure of R is due to the Medsas ARV account for March that did not interface. Also, the department did not transfer several tranches to various Community Based Organisations (CBO’s) as a result of non-compliance with Supply Chain Management requirements such as Standard Bidding Document (SBD) forms, AFS’s, Tax clearance certificate as well as delay in awarding of tender, which was subsequently awarded on 23 March 2017 and delays in capturing Central supplier database bank details; National School Nutrition Programme (NSNP) Grant spent 92.1 per cent and under expenditure of R million mainly due to savings realized through the learner number clean-up process undertaken by the department. It should be noted that the budget for NSNP was based on learners. However, only learners were funded after consideration of learner numbers from the data cleansing project, suggesting a variance of Of the said variance, learners have been identified to have invalid and duplicate learner Identity Documents (IDs);

50 CONDITIONAL GRANTS PERFORMANCE (3 – 4)Health Facility Revitalisation grant spent 92.3 per cent and under expenditure of R million is mainly due to the followings: Delayed Eskom’s power connections that has hampered some projects to achieve practical completion including projects at Centuli, Isikhoba, Qebe and Vaalbank clinics; Tabase clinic project underspent due to poor performance of contractors whose contracts were eventually terminated; Late start of the fencing and gatehouse projects at various clinics around the province; Delayed appointment of a replacement contractor for the St Elizabeth's and Lilitha College - Paediatric Ward & Laundry Project, for which the initial contract was cancelled due the contractor's poor performance; and Late commencement of works on sites due to delays in procurement processes for the rehabilitation and upgrade of the medical depot and nurses accommodation at Mthatha General Hospital. National Tertiary Services Grant spent 94.6 per cent and under expenditure of R million is due to misallocations of CoE that was paid under equitable share in lieu of the finalization of de-complexing. This will be corrected through post year-end journals. The department has R44 million worth of commitments of which a roll over amounting to approximately R21 million was requested;

51 CONDITIONAL GRANTS PERFORMANCE (4 – 4)Provincial Roads Maintenance Grant (PRMG) spent 98.9 per cent and under expenditure of R million is due to the late awarding of disaster projects (DR08121, DR08116, DR08120, DR08245, DR08119, DR08100), re-advertised projects (DR08017 and DR08079) attributed to the non-responsiveness of bidders to the conditions of the tender. In addition, delays in the completion of an awarded project (DR08125) due to community protests that resulted in stoppage of work also contributed to the outcome. The department requested these funds to be rolled-over as contractors are on site; and Health Professional Training and Development Grant spent 93.9 per cent and under expenditure of R million is due to delays in the commencement of Registrars at facilities, as well as Registrars from Port Elizabeth who are being paid under equitable share instead of Grant. Journals have been prepared to correct the misallocation. Conditional grants that exceeded the adjusted budget are: Education Infrastructure grant over expenditure of R million is due the work done to address the disaster that occurred between December 2016 and January 2017, which necessitated the department to successfully place contractors to all the disaster areas such as Mount Frere, Kwa Payne, Mnqanduli, Mdantsane and Fort Beaufort. All 65 projects are underway with some being completed; and. Education EPWP Incentive Grant (EPWP) over expenditure of R3.756 million is due is due to wrongly classified personnel under the grant, which the department will correct.

52 INFRASTRUCTURE SPENDING ON ECONOMIC AND SOCIAL INFRASTRUCTURE

53 INFRASTRUCTURE PERFORMANCE (1 – 4)Table 5: Infrastructure spending as at the 31 March 2017

54 INFRASTRUCTURE PERFORMANCE (2 – 4)Table 6: Table 6: Infrastructure Grant spending as at the 31 March 2017

55 INFRASTRUCTURE PERFORMANCE (3 – 4)Preliminary expenditure reflected as at 31 March 2017 indicated the Provincial Infrastructure Spending (both Conditional Grant and Equitable Share) at R8.043 billion or 97.8 per cent of the adjusted budget of R8.222 billion resulting in an under expenditure of R million. In terms of social Infrastructure (Education, Health, Social Development, DSRAC, COGTA , DRPW (Public Works) and Human Settlements), the province spent R5.247 billion or 96.3 per cent of the adjusted budget of R5.446 billion. In terms of economic infrastructure (DRPW (Roads), DRDAR, Transport and Provincial Treasury), the province spent R2.796 billion or per cent of the adjusted budget of R2.775 billion. In respect of Infrastructure Grant performance, the preliminary outcome as at 31 March 2017, expenditure for infrastructure grant is at R5.626 billion or 99.8 per cent of the total adjusted grant budget of R5.635 billion resulting in an under expenditure of R8.477 million. 55

56 INFRASTRUCTURE PERFORMANCE (4 – 4)Key Challenges and Remedial Measures Infrastructure Delivery Management System (IDMS) Integrated Planning: In the interim, Provincial Treasury has refined the Infrastructure Delivery Model and discussed the same with key stakeholders. Focus of this refined Infrastructure Delivery Model which proposes a Matrix Institutional Structure wherein the IDMS Functional responsibilities for the Control Framework is governed by two key committees, namely, the Provincial Infrastructure Planning Committee (OTP, PT, COGTA & DRPW) for Stages 0 to 4, and the Provincial Infrastructure Implementation Committee (PT & DRPW) for Stages 5 to 9. In turn, these two committees report to the Provincial Infrastructure Co-ordinating Committee (OTP, PT & COGTA), which in turn reports to the provincial EXCO. Standards for Infrastructure Procurement and Delivery Management: IDMS Project Delivery responsibility for Time, Cost & Quality is driven by the various Provincial Strategic Project Clusters. The combination of Functional Responsibility (e.g. Professional responsiblity for sign off techncial drawings, plans, budgets etc) + Project Delivery Responsibility (e.g. Time, cost and quality management of project delivery) = Value for Money Infrastructure Service Delivery. 56

57 BANK BALANCES

58 The Province does not have an Overdraft FacilityBANK BALANCES 2016/17 (1 - 2) Provincial Revenue Fund (PRF) closed the 2016/17 third quarter (31 December 2016) with a positive balance of R9.413 billion. This PRF balance is broken down (in terms of bank accounts) as follows: IGCC (Reserve Bank) R billion; Investments R billion; Exchequer R million; and PMG accounts R million End of fourth quarter, PRF closing balance (31 March 2017) was at R8.399 billion. This is broken down (in terms of bank accounts) as follows: IGCC (Reserve Bank) R billion; Exchequer R million; and PMG accounts R million These figures are on the next slide. The Province does not have an Overdraft Facility

59 BANK BALANCES 2016/17 (2 - 2) R2 billion is earmarked for the fiscal cliff and socio-economic infrastructure in the province. R2.562 billion in 2016/17 and R5.285 billion has been allocated over 2017/18 to 2019/20 MTEF for access roads in rural areas, electrification and water intervention initiatives in province. However, R276 million under preliminary expenditure for conditional grants will be surrendered to the National Revenue Fund and/or applied for roll over.

60 SURPLUS FINANCING OVER MTEF

61 ACCRUALS AND PAYABLES

62 ACCRUALS AND PAYABLES FOR 2016/17 (1 - 5)Section 38(1)(f) of PFMA, read with Treasury Regulation 8.2.3, states that settlement of all payments due to creditors are within 30 days from receipt of an invoice. Accruals and Payables put a strain on the budget and cash flows of the current financial year and may be indicative of financial instability, as this puts a strain in the current year’s budget. Late or non-payment of invoices needs to be viewed as poor performance by provincial departments which may require drastic action against those that transgress against the law

63 ACCRUALS AND PAYABLES FOR 2016/17 (2 - 5)Note: The table above shows the accruals and payables as at end of third quarter of 2016/17 as per Interim Financial Statements submitted by provincial departments: 63

64 ACCRUALS AND PAYABLES FOR 2016/17 (3 - 5)Total of accruals and payables at the end of December 2016 is R1.591 billion and this money owed by provincial departments to the suppliers/ creditors, and of this total: R1.020 billion or 64 per cent is for Health mainly for Goods and Services R933 million, R42 million for Transfers and Subsidies and R45 million Payments for Capital Assets. R437.9 million or 28 per cent is for Human Settlements mainly for Transfers and Subsidies at R435.4 million. Cumulative realization of accruals remains a matter of concern. This is what builds up to end of March 2017 and the non-payment of these accruals negatively affects legislative compliance. 64

65 ACCRUALS AND PAYABLES FOR 2016/17 (4 - 5)65

66 ACCRUALS AND PAYABLES FOR 2016/17 (5 - 5)End of March 2017 estimated accruals and payables amount to R722.5 million (not final figures, still subject to change). Bulk of these estimated accruals and payables are from Education (80 per cent or R580 million) and Health (16 per cent or R114.7 million). Health is estimating their final accruals to be around R1.5 billion for 2016/17. Out of these estimated accruals, 81 per cent is within 0-30 day’s old i.e. they are current while the remainder of 19 per cent is more than 30 days. These end of March 2017 LOGIS accruals are not final but estimations, as some departments do not use the LOGIS system. The submission of the final Accruals and Payables information for audit purposes is on or before 30 May 2017(within two months after the end of the financial year) as required by PFMA, section 40.1.c.(ii). 66

67 DEBTORS 67

68 BALANCES AS AT 31 MARCH 2017 (1 - 2)68

69 BALANCES AS AT 31 MARCH 2017 (2 - 2)Closing balance as at 31 March 2017 amounted to R million. Employees debt constitute a total of 88 per cent of the total balance, of which the current employees debt is at 16 per cent whilst the ex-employees debt stands at per cent. Departments struggled to locate and recover the debts from ex-employees while the recovery is slower on HROPT debts. During 2016/17, Provincial Departments managed to recover only R30 million. Provincial Treasury continues to facilitate through forums and working sessions on ways to improve the collections 69

70 IRREGULAR, FRUITLESS & WASTEFULL AND UNAUTHORISED EXPENDITURE

71 2016/17 IRREGULAR, FRUITLESS AND UNAUTHOURISED EXPENDITURE (1 – 3)

72 2016/17 IRREGULAR, FRUITLESS AND UNAUTHOURISED EXPENDITURE (2 – 3)

73 2016/17 IRREGULAR, FRUITLESS AND UNAUTHOURISED EXPENDITURE (3 – 3)As at 31 March 2017, irregular expenditure balance for the Province stood at R3.1 billion with key provincial contributors being Education and DRPW. This reduction in irregular expenditure is in spite of the fact Education has restated its prior year figure by R529 million. R725 million has been submitted to National Treasury for condonation as they are the relevant condoning authority. Departments continue to have historical irregular expenditure not condoned timeously because of delays in finalising investigations and taking appropriate action against responsible officials.

74 CONCLUSION (1 - 3) De-industrialisation and loss of regional competitiveness - Provincial government is concerned with the low levels of industrialisation and beneficiation in the province. There is an urgent need to persuade the main national SOE to invest and develop economic infrastructure in the province (especially logistics network infrastructure). High Levels of Structural Unemployment - Skills development that responds to the needs of market remains a challenge in the province. Current intergovernmental fiscal framework limits province’s ability to fund major economic development projects. New SEZ Act and Regulations seeming lack of a clear incentive structure is likely to exert excessive fiscal burden to provinces i.e. the co-funding arrangement. Slow pace on Policy Reforms and Legislative changes on Communal Land Administration continue to hold back private investment in emerging agriculture in the province. Province will enhance own revenue collection, taking into account areas of improvement such as hospitals (patient fees), license fees, weighbridges (Traffic control centres) and state properties (rentals). New streams of revenue generating will be explored through the revenue specialist appointed in 2016/17; and Revenue collection will be intensified through the working streams established with the 4 major revenue generating departments (i.e. DEDEAT, Transport, DRPW and Health).

75 CONCLUSION (2 – 3) Provincial preliminary spending as at end March 2017 is at R billion or per cent with an under expenditure of R million. This is a significant improvement compared to 97.6 per cent spent and down from the under expenditure of R1.605 billion in 2015/16. Main contributor to under spending is Compensation of Employees at R million as the province is containing the wage bill, which was the focus of PCMT. Throughout the year departments experienced challenges with timeous filling of critical vacant posts. While challenge of attracting technical and professional skills in some departments is genuine, departments are still failing to integrate PCMT processes in their standard recruitment processes. Province’s bank balance is positive of which the surplus will be utilised for access roads in rural areas, electrification and water intervention initiatives in province Yearly realisation of accrual expenditure remains a concern particular in Health and Human Settlements. Control measures must be instituted to ensure the timeous payment of invoices to ensure strict adherence to the law (Treasury Regulation read in conjunction with S38 (1)(f) of the PFMA).

76 CONCLUSION (3 – 3) Provincial Treasury will continue to focus on the containment of the provincial wage cost, implementation of cost containment measures, the rationalisation of Public Entities, infrastructure investment, revenue generation initiatives and maintaining the Provincial Revenue Fund (PRF) liquidity. Particular focus will paid on the following: Monitoring the adherence of provincial departments to budget ceilings set in the 2017/18 Estimates of Provincial Revenue and Expenditure (EPRE) on non-core items; Issue a circular on cost containment measures where all departments must report on how much will be saved; Through Transversal SCM, an assessment of tenders and quotation values to determine the possible savings and price discounts based on market conditions will be pursued; and Monitor and determine the prices for infrastructure projects including the cost of construction.

77 THANK YOU!!!