PICC calls for multiyear municipal capital budgeting to arrest chronic under spending

4th July 2013

By: Terence Creamer

Creamer Media Editor

  

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The Presidential Infrastructure Coordinating Commission (PICC) has called for the implementation of a multiyear capital expenditure budgeting model at the municipal level in a bid to reduce chronic under spending and improve spending efficiency.

Research undertaken by the PICC secretariat, which is housed in the Economic Development Department, shows that the pattern of capital spending by municipalities is uneven across a municipality’s financial year. Spending tends to be clustered into the second six months, with little spending occurring during the first half when tenders are prepared and issued.

Economic Development Minister Ebrahim Patel reports that spending is typically flat in the first two quarters, picking up in the third quarter, before spiking in the fourth. In addition, under spending against capital budgets is widespread.

National Treasury figures for the period July 1, 2011, to June 30, 2012, showed that the aggregate adjusted capital budget for all municipalities was R46-billion. However, only R33.2-billion, or 72.5%, was spent by 30 June 2012, reflecting a planning and implementation problem.

The PICC analysis attributes the trend to the yearly budgetary cycle, with tenders issued only after budgets are approved in the first quarter – in the absence of impediments, the gestation period for a typical municipal tender has been calculated to be 138 days, or over four months.

“So for the first couple of quarters, a municipality does very little and then it has to cram its main programmes into the latter part of the year,” Patel explains.

Therefore, the PICC council, which is chaired by President Jacob Zuma and comprises Cabinet Ministers, Premiers, metropolitan Mayors and the South Africa Local Government Association, is calling for preparations to be made for the introduction of a multiyear model.

A study will be initiated into the practicalities of introducing such an arrangement, which the PICC believes could materially improve infrastructure delivery at the municipal level.

The idea is to improve funding certainty and visibility for contractors and enable municipalities to reduce the lumpy nature of their capital investments and ramp up spending. In parallel, initiatives will be undertaken to improve the capacity of local government officials to implement capital programmes.

The PICC believes that improvements at the third tier of government will ensure accelerated delivery on the National Infrastructure Programme, which incorporates a range of social and economic infrastructure projects that need to be implemented by municipalities.

In total there are 18 so-called Strategic Infrastructure Projects (SIPs), which include large projects such as Eskom’s Medupi, Kusile and Ingula power stations and the upgrade of ports, railways and road networks by State-owned companies such as Transnet and the South African National Roads Agency Limited. But there are also a plethora of smaller municipal programmes aimed at improving municipal services, such as water and sanitation, transport and electrification, as well as rolling-out new social infrastructure in the form of new schools, colleges, clinics and hospitals.

Patel reports that the value of South Africa’s portfolio of active infrastructure projects stands at R750-billion and that there are currently 178 000 people employed across more than 1 000 construction sites, falling under 153 clusters of SIPs projects that are at various stages of advancement.

Also receiving attention is the use of alternative building technologies, particularly for social infrastructure programmes, which could help accelerate delivery and result in new spin-off industries. The idea is to embrace new materials and solutions that can be manufactured offsite and rapidly assembled in the designated area.

“If we are going to have as an ambitious programme as we have indicated, we can’t rely solely on conventional build technologies,” Patel explains.

The current PICC-monitored 20-year project pipeline envisages the construction and development of R4.3-trillion worth of social and economic infrastructure to 2030. Work is currently under way on a 30-year project funnel, which should be unveiled in the coming few months.

Edited by Creamer Media Reporter

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