Speaker,

Recent developments in the National and Provincial economies give ample reason for hope, but the challenges that we face are as stark as ever. Our response to these challenges was developed in the iKapa Elihlumayo strategy and the vision of 'A Home for All'. This vision is what we all want for this Province, but that not all yet believe possible. As writer Arundhati Roy says: "Another world is not only possible, she's on her way….on a quiet day, if I listen very carefully, I can hear her breathing. "

The Western Cape government's response to these challenges can be summarised by the idea of a 'developmental state'. This simply says what kind of government we want to be, which partnerships we wish to cultivate and what we propose to do in response to the socio-economic challenges that the Province faces.

Firstly we are transforming the Provincial Government to become a positive force in the Province. This involves the establishment of the government as an efficient, responsive and integrated organization.

Secondly we want to consolidate and develop our relationship with our social and governmental partners. The relationship with our social partners is finding expression in the upcoming annual PGDS update and the processes being facilitated by the Provincial Development Council.

Thirdly we want to find and maintain the appropriate mix between social and economic expenditure in the Province. We do not only want to offer our people grants, primary health care and free education, but also the prospect of work and genuine sharing in what Minister Manuel called the 'sweet fruits of liberty'.

We therefore do not only see our role as being a passive provider of social services to the poor. Provincial government is playing a much broader and proactive developmental role in South Africa. We do not only want to alleviate poverty, but give hope of employment and prosperity. This is the idea behind iKapa Elihlumayo.

This developmental role for provinces is in the process of being born. There are no maps to follow. Our companions on this path have to be hope, determination and flexibility. Or in the words Antonio Machado, quoted by Spain's newly elected Prime Minister, Rodríguez Zapatero:

"Traveller, the path is your tracks
And nothing more.
Traveller, there is no path
The path is made by walking.
By walking you make a path
And turning, you look back
At a way you will never tread again
Traveller, there is no road
Only wakes in the sea."

To define the path we need to understand where we want to go. The first step is to understand the socio-economic conditions under which our people live.

This developmental role is not the ideological whim of the government. It is the only feasible response to a challenging situation. The Provincial economy continues to be characterized by rapid restructuring which sees a reduction in the role of especially agriculture and manufacturing accompanied by steady growth in especially the service industries. Our employment patterns have not been able to follow this restructuring. As is the case nationally, the result has been persistently high levels of unemployment and poverty.

Historically the Western Cape's economic fortunes have been closely tied to those of the national economy. Following a decade of economic restructuring and prudent macro-economic policies, the outlook for the South African economy is the best it has been in years. The Western Cape economy therefore shares in the national economic revival. Western Cape GDPR is projected to grow at 3,2% in 2004/05 and to accelerate to 4,1% in 2005/06 and 3,9% in 2006/07.

Services continue to contribute more than two-thirds of the Western Cape's GDPR – higher than the sector's national average. Finance, insurance and business services, in particular, stand out with a share of 27,4%. This sector also recorded the highest growth in output in the Province, followed closely by Wholesale and retail trade.

The Province has also recorded higher than national growth in catering and accommodation, transport & storage, business services and other producers. This reflects the Provinces strengths in tourism, call centres, and our having a major port.

Employment

The Western Cape's labour market performance continues to hold brighter prospects than nationally. Since 2000, nearly 200 000 jobs have been created in the Western Cape at a rate of 4,0% per year. Unfortunately, unemployment in the Province has also expanded more rapidly. This trend saw the official unemployment rate rising from 17,1% in 2000 to 20,6% in 2003.

Despite the positive signs on the growth front, employment has been declining in many industries. The rapid restructuring of the labour market also shows in the fact that general government services, community and social services have overtaken manufacturing as the major employer.

The performance of manufacturing has been very disappointing at an average annual growth of just 0,5%; lower than the national performance of 1,8%. The biggest job losses were in clothing, textiles and leather – closely followed by the food, beverages and tobacco sector.

In the last three years, the metals and machinery sector has however shown signs of growth. Positive growth in employment in the transport equipment sector reflects capabilities in auto components and in yachts and shipbuilding.

It is especially surprising that there has not been net employment creation in finance and business services, transport and communication, nor in wholesale and retail trade, hotels and restaurants given the output growth of these sectors. Of perhaps greater concern is that there is little indication of increased employment resulting from tourism and other services such as telecommunications.

At the sectoral level, growth and employment need to rest on a diverse sectoral base. The pattern of higher growth in financial, business services and tourism, with agriculture remaining very important, does not therefore negate the need to further develop a manufacturing base.

A crucial dimension in the Western Cape is its coastal location and the opportunities that arise from it. This is not only a factor in exports, but also in deepening international links around investment, technology and production networks. The challenge is to translate the opportunities into exports, output growth and employment in relatively labour-intensive areas of manufacturing.

Our limited domestic markets force us to look towards greater reliance on exports and foreign direct investments. In order to access these markets however we need to ensure that our industries are competitive and technologically sufficiently advanced.

Equity and Poverty

Population flows to the Province is a key factor influencing the Western Cape's changing demographic and labour force profile. The Western Cape also seems to be attracting a relatively less educated population from the Eastern Cape, while the more educated tend to move to Gauteng or to Eastern Cape cities.

The racial employment patterns in the Province are also persisting, with Africans still making up a disproportionate share of the unemployed. As the skills bias of employment growth is central to the issue of income inequality within the Province, both across and within race groups, it is important to note that skills are unevenly distributed. Low and variable skills levels do not only lead to poverty, but also act as a barrier to economic growth.

Amongst those employed in the formal sector, Whites account for close to 54% of the highly skilled, compared to their 22% share of total formal sector employment. In contrast, while Africans constitute slightly more than 17% of the employed in the Province, more than 28% of low skilled persons employed are African. Perhaps most alarming is that the Western Cape accounts for a relatively high share of the national number of unemployed 16 to 25 year olds.

Despite these trends, the Western Cape's poverty reduction performance is slightly better than nationally, but the aggregate view masks worrying trends in the deepening of poverty in certain areas. With 28% of the population earning less than R322 per month, poverty is still a pervasive problem for the Province. Furthermore, given rapid population growth, this also means increased numbers of poor people. Indeed, the result of high population growth and modest wealth creation is that provincial per capita income levels are remaining stagnant in real terms.

In response to these challenges we designed the 8 iKapa Elihlumayo lead strategies.

As I have already mentioned, one of the key pursuits of iKapa Elihlumayo is to find the correct mix between social and economic expenditure. Perhaps even more importantly expenditure within these categories need to be targeted at the right places. The goal is not to trade off social services against economic services to favour the private sector, but rather to find the correct mix of services to best serve the needs of our people. We are moving beyond the mechanistic World Bank thinking of the 1970s toward a flexible approach to "people oriented" service delivery.

In practice this means that we will maintain sustainable levels of Health, Education and Social Service delivery as framed in our Social Capital formation strategy. These services will also be targeted at the geographic and functional areas that bring the greatest social return. At the same time we will stimulate the economy and the ability of our people to participate in it through our HRD strategy, Strategic Infrastructure Plan and the Micro-Economic Development Strategy.

This mix of approaches can only be attained if we focus our service delivery on the geographic areas of highest human need and highest economic potential. This does not mean, however, that we will automatically ignore rural areas. The Provincial Spatial Development Framework that will be our map for the spatial development of the Province over the next ten years, will be finalised in the first half of 2005. The PSDF takes its lead from the National Spatial Development Perspective developed in the Presidency.

Along with the PSDF, the four lead strategies that we discuss next make up the vanguard of our struggle against poverty. The other 3 strategies address the need to improve the way in which the public service functions.

I have already outlined the impact of the skills mismatch between the labour market and employment opportunities. Apart from high unemployment levels, this is also the main cause of high levels of poverty and racial inequality in the Province. The HRD Strategy being driven by Department of Education responds to this challenge. The strategy is aimed at all people living in the Western Cape, but places special emphasis on the youth. We cannot afford to miss this opportunity and to preside over another 'lost generation'.

The HRD Strategy is primarily about ensuring a good basic schooling system where teachers teach, learners learn and qualifications become more reliable indicators of ability. Apart from the interventions in Grades 10 to 12, the HRD Strategy will also address the high dropout rate in the education system. Schools with low literacy and numeracy scores will be specifically supported.

The HRD strategy also acknowledges that in the past too much emphasis has been placed on "academic" qualifications, which do not adequately equip learners to enter the labour market. It therefore aims to offer more flexible and responsive Further Education and Training (FET) programmes. The result of this academic bias is that the Western Cape is currently experiencing a huge shortage of artisans, electricians and other technically trained workers. More therefore needs to be done to encourage learners to enter FET colleges. A programme is currently being developed in which all learners will have access to the appropriate career counselling.

Furthermore, new courses and qualifications are in the process of being developed. While these courses are being developed with the purpose of being responsive to the labour market, both routes will enable learners to continue their education at higher education institutions, provided they meet the minimum entry requirements. We will also put in place a system to monitor the quality of service delivery at these colleges.

The HRD strategy document also identifies the need for all government departments to support and contribute to the implementation of the strategy. Importantly the Department will continue to work with the Department of Economic Development and Tourism in planning course offerings at FET colleges. This will ensure maximal linkage between the HRD Strategy and the Micro-Economic Development Strategy.

Parallel to the emphasis on FET colleges would be the monitoring and improvement of the quantity and quality of matriculation pass rates and endorsements. Indeed the Education Departments has set targets for increasing the number of learners passing the Senior Certificate by over 1000 per annum from 34 000 in 2003 to 50 000 in 2014. It is important to note that we have set targets for the number of learners, not just the percentage, who pass the examinations.

Quality matriculation will allow more learners to make the transition to tertiary education. The Department of Education is currently in the process of interacting with Higher Education Institutions to ensure that they work along similar lines to the Province.

In addition to work on the schooling and tertiary education system, the Education department will coordinate with the private sector and SETAs to ensure, amongst others, support to FET colleges. In addition we will specifically need to target the large number of learners that exit the education system, but do not find employment or placement in tertiary institutions. The Western Cape Education Foundation was established to facilitate this interface between the public and private sector.

In essence the HRD strategy will ensure better education to more learners as well as appropriate education that will make it possible for young people to find employment and hope for fulfilling lives.

The Western Cape's vision of a 'Home for All' cannot be realised in a society that is plagued by high unemployment, particularly amongst the youth, high crime rates, high poverty rates, high arrest rate of children related to the high drop-out rate in schools, drug abuse and increasing incidences of HIV and Aids. We also live in a highly polarised society and the need for bridging gaps between races, religions, gender and classes is imperative. The Social Capital Formation Strategy has been designed to deal with these challenges.

This strategy will place special emphasis on addressing the gang culture in the Province; supporting of street children; enhancing parenting skills; the reduction of substance abuse; and the strengthening of community–based structures.

In support, the Department of Community Safety intends to draw all its initiatives together in a comprehensive strategy for crime prevention in the Province. This strategy will target 8 designated high crime areas and will be supported by a range of interventions by other departments in these high crime areas. In this way we will enforce the law while we address the socio-economic factors that lie behind crime. Of specific concern are the complaints received from Labour about the continued lack of safety on our public transport networks, schools and hospitals. This places a tremendous responsibility on the Ministers of Community Safety, Education and Health.

Another important driver in the Social Capital Formation Strategy is the Department of Health. The key approach of the Department is to pay greater attention to some of the causal factors behind the health status of the population in the Western Cape. To this end the Department will pursue closer cooperation with municipalities to address environmental health issues; and with the Department of Community Safety to address gansterism, the persistently high level of motor vehicle accidents and other safety issues. In addition the Department will pursue closer community involvement in order to be more responsive in service delivery. Together with ongoing discussions with our teaching hospitals, we are embarking on a concerted effort to improve the health status and general well-being of our population. These interventions happen within the broader framework of the Health Care 2010 strategy.

To support this shift in emphasis we will ensure that our system of clinics provide universal accessibility and coverage on the basis of need. In addition we will make provision for rural Primary Health Care clinics as from April 2005.

Given the shifts in the international economy and labour markets, the need for the provincial economy to reposition itself and become more competitive is growing ever more acute. Our per capita income is stagnant and poverty is becoming more widely spread.

In response the Department of Economic Development and Tourism has put in place a three-phase process to develop a Micro-Economic Development Strategy by December 2004. The first-phase is focused on producing current and forward-looking status reports on:

• Six selected economic sectors (agriculture & aquaculture; fishing & mariculture; clothing & textiles; metals & engineering; tourism; ICT); and
• Two selected cross-sectoral issues (HRD and SMMEs).

The second-phase aims at identifying "policy levers" whereby the Province can better the prospects of the sectors and address selected cross-sectoral issues. The third phase is aimed at synthesising sector and issue specific policy levers into a coherent strategy.

In addition to the high-level work being done in the formulation of the MEDS, new interventions are being introduced to assist municipalities with the design of local economic development interventions. The Real Enterprise Development (RED Door) intervention will also be a flagship of the MEDS and provide integrated 'one-stop' support to SMMEs.

The agriculture sector will be one of the key sectors in the MEDS, especially through the support that it provides to land reform, emerging farmers and the training provided to farm workers. In this way the transformation of the agricultural sector will feed into the main stream of the economic development path of the Province.

In addition we need to reposition commercial agriculture to ensure sustained competitive advantage in the rapidly changing international environment. And all this within the context of the increasingly limited water resources of the Province.

Infrastructure provision is another area that can drive the Province's economic revival. The bulk of the Provincial economy depends for its livelihood on people and goods moving into and out of the Province. Where this cannot be done optimally, the prospects for greater levels of growth are limited. Such interventions should be balanced with the imperative of improving access and increased economic participation of underdeveloped areas and people of the province. The Strategic Infrastructure Plan is designed to respond to this challenge.

Given the multitude of infrastructure service providers in the Province, the Strategic Infrastructure Plan has identified a number of key alignment areas and stakeholders. Specific areas of alignment would include:

• The World Cup 2010 where we will partner with the Airports Company South Africa, the national Department of Transport as well as the City of Cape Town;
• The Khayelitsha Rail Extension where we will partner with the City of Cape Town and the national Department of Transport;
• The N2 Housing Upgrade in partnership with the provincial Department of Housing and the City of Cape Town; and
• The upgrading of the Parliamentary Precinct in partnership with the national Department of Public Works.

The Strategic Infrastructure Plan will also pursue greater alignment between Provincial Government departments to ensure that we provide seamless services and facilities to our communities. Potential areas of alignment would include:

• An audit of all state-owned land in the Province;
• The process for the integrated development of Ysterplaat, Youngsfield, Wingfield and Culemborg;
• The sale of well-located school land to provide capital funds for the school-building programme or utilisation for other purposes such as housing settlement; and
• The upgrading of the informal settlements along the N2, to include educational facilities, health facilities and sports and leisure facilities.

Strategic reorientation and the redesign of our service delivery models is one aspect of the path that we are cutting. The second aspect is the improvement of the public service itself.

We cannot keep on doing things in the same way and expect different results. And transformation does not just refer to employment equity it also refers to the imperative of making our government a strategic, dynamic and learning organisation.

The provincial government of the Western Cape should become an employer of choice because we service the community with enthusiasm and drive, not because it is a 'job-for-life'.

We have been working hard behind the scenes to bring about this transformation. At the forefront of this transformation is the restructuring of the Department of the Premier. The Premier has spoken at length about how this will be done.

In the words of the Premier, the key objective is a system of holistic governance " that engages in an integrated manner with the full spectrum of peoples' needs at every point in their life cycle. The state must be structured to function in a manner that appears and feels seamless to the public. Moreover, it must not only be seamless, it must also be accessible and transparent."

To this end the Department of the Premier is devising strategies to improve communication both inside and outside the state. To deliver services holistically we need to understand the service delivery needs of the people. Gone are the days of providing a service simply because that is what we have always done. Service delivery should be based on a data-intensive and objective assessment of what is needed on the ground.

In the end the heart of holistic governance beats through the skills and values of our public servants. They must know what is expected of them, have the skills to deliver and deliver in a responsive and caring manner. The Premier's internal HRD and Social Capital Formation strategies are in the process of being finalised and will drive this aspect of holistic governance.

Provincial Treasury

The second player in the transformation of the state is the Provincial Treasury itself. We have been concentrating on two main areas. Firstly we have been modernising our financial and other transversal systems. Our main accomplishments to date include:

• The transition to the Basic Accounting System (BAS) from the out-dated Financial Management System (FMS);
• The introduction of the Standard Chart of Accounts that meets all international classification systems; and
• Improved coordination between the Auditor General and the rectification of negative audit outcomes.

A further development driven by the Treasury over the last year is the introduction of standardised methodologies for risk assessment and management. It is only when we reflect on and understand the risks that our businesses processes entail that we will be able to serve people in a mindful manner.

The result of these improved service delivery practices is that we have managed to stabilise our personnel expenditure at around 45% of the budget. Our next challenge is to curb and reduce administrative expenditure. This will enable us to release a maximum of resources to the frontline of service delivery.

This is what people-oriented government and Batho Pele is about: a government that does not spend its attention and resources on itself, but constantly strives to provide the maximum of appropriate services. This is the government we are becoming.

Coordination with National and Local Government

Our primary delivery partners in the pursuit of integrated government are local and national government as well as parastatals. The Premier recently described the role of provinces as: "the interlocutor between the macro and micro by focusing on the meso factors in our national development effort." This means that in the national development architecture the Province operates as a strategic partner between national and local government.

With regards to national government our role is to apply national strategies to the specific challenges of the Province, different as it is from most other provinces. We are the local eyes and ears and hands of the national transformation.

With regards to local government the Province's role is to coordinate development strategies into a coherent provincial strategy. Especially economic and infrastructure networks are much larger than the boundaries of local authorities. The Western Cape economy has a spatial dynamic that is not contained in the boundaries of any of its local authorities. For this reason the coordination between IDPs and the Provincial Growth and Development Strategy is of key importance. We are enthusiastic participants in the President's initiative to support this development planning link.

The relationship between municipal and local service delivery will be further supported by the enacted of the Intergovernmental Fiscal Relations Bill and the rollout of the Municipal Finance Management Act.

Important as our relationship is with other spheres of government, our pact with social partners in the Province is arguably of greater importance.

A large part of the success of iKapa Elihlumayo depends on the relationship that we build and maintain with our social partners. While a large organisation, the Provincial government does not have control over all the resources of the Province. If we want to address the socio-economic challenges of the Western Cape, we will therefore need to do so in partnership with community organisations, trade unions and the private sector.

Apart from the ongoing work that followed the Provincial Growth and Development Summit, Cabinet recently met with both Labour and Business. The recent passing of the Provincial Development Council Act provides for ongoing consultation in this regard.

A proactive role for government in the economy is one of the key aspects of the developmental state that we want to be. And we don't want to do so in a disruptive or confrontational manner. Our goal is to add value to the lives and activities of everyone who lives in the Province. Indeed if we are going to deal with any on the monumental challenges that we face, we will have to do so together.

This model of government by partnership is also the one being followed nationally through a range of cooperative institutions such as the various BEE charters and the agreements that they are based on.

The role of the private sector in this partnership would be to provide optimal investment, employment opportunities and training. We would be particularly keen to discuss the barriers to increased employment in growing sectors such as Tourism and Financial Services and Business Process outsourcing. Very low levels of learnerships and HRD investment in the Western Cape would also need to be discussed.

Other specific business opportunities and issues that would need to be discussed would include:

• Infrastructure blockages to higher levels of investment and employment,
• Private sector partnership in the redevelopment of provincial property;
• PPPs in especially the provision of social services and infrastructure;
• Preferential procurement and the persistent problems of fronting; and
• The need for and the introduction of the Fuel levy and other sources of provincial revenue.

In addition we want to ensure that the regulatory environment in the Western Cape is as free as possible of red tape. As an American journalist once pointed out "The Lord's Prayer is 66 words, the Gettysburg Address is 286 words, there are 1,322 words in the Declaration of Independence, but U.S. government regulations on the sale of cabbage total 26,911 words." Many SMME operators will tell you that this is also true of the South African regulatory environment.

But we do not want to engage in this exchange purely to make the lives of the private sector easier. We would like to engage within the context of the Province's vision of a 'Home for All'. We believe that this partnership is essential to the employment, economic growth and the reduction of poverty in the Western Cape.

Civil society would have a key role to play in the repair of the social fabric by addressing gangsterism and crime, social divisions and a range of problems related to the breakdown of family structures.

Labour would have a key role to play in the transformation of the public sector, especially in the departments of Health and Education. Unions would also have a role in the retraining and repositioning of our labour force to adjust to the rapid changes in the provincial, national and international economies.

This is the 'People's Contract' that our election campaign spoke of. And a contract is mutually binding. It does not only impel government to perform certain actions, like some of our agreements seem to do, but all three our social partners: Labour, Community Organisation and Business.

Until now I have only spoken about how and on what we want to spend. That is the easy part of being a Minister of Finance. The hard part is telling you about the limits to what we can spend and do. And the current fiscal envelope is indeed limited.

The Provincial Equitable Share transfer from national government shows negative real annual growth, averaging – 1,4% over the next three years. In nominal terms it rises from a base of R10,5 billion in 2004/05 to R12,0 billion in 2005/06 and R13,7 billion in 2007/08.

Preliminary calculations shows that in Rand terms, conditional grant allocations, inclusive of provision for the new Social Security grant, rise from a base of R2,6 billion in 2004/05 to R7,4 billion in 2005/06 and R8,6 billion in 2007/08 primarily due to the change in financing arrangements for the delivery of Social Security grants.

At about 6,1% of total provincial revenue over the 2005 MTEF, provincial own revenue remains a smaller supplementary revenue source for the Western Cape fiscus.

Given moderate growth of the revenue envelope and faced with expanding expenditure pressures, particularly with regard to social service provision, the Western Cape faces a financing shortfall or 'deficit' of R213 million in 2005/06, R200 million in 2006/07 and R242 million in 2007/08.

Fortuitously, the Province is able to draw on a fourth source – financing or accumulated reserves – to fund the projected provincial fiscal deficit. The Western Cape's financing situation is therefore not sustainable over the medium to long term. Fiscal deficits cannot continue to be financed from accumulated financing reserves.

Over the medium to long term, the Province must therefore deepen and expand its revenue base. This will raise the discretionary part of the Province's revenue envelope, providing greater allocation flexibility. It will also enhance the Western Cape's capacity to service any borrowing for large infrastructure projects to expand our economic base in the long term.

It was with this dual purpose in mind that in 2002 the Western Cape initiated research into the feasibility of a provincial fuel levy tax. Over the past year, we have engaged in extensive consultation and public participation processes on the proposed provincial fuel levy tax in compliance with the Provincial Tax Regulation Process Act. The target date for implementation is Budget 2006 at 10c per litre.

Provincial Cabinet recently approved the proposed fuel levy tax. The proposal will now be submitted to the National Minister of Finance for consideration and response, following further consultation with the National Treasury, SARS, the Technical Committee on Finance and the Budget Council.

The national debate on provincial borrowing has also been re-opened, given the importance of such in financing large-scale economic infrastructure projects. The Western Cape is noting these proceedings with considerable interest. While not yet ready to nominate specific projects for borrowing purposes, the Province is engaging actively in the debate so that appropriate mechanisms, regulations and procedures are put in place.

Raising debate on the developmental role of provinces, as the Premier did recently, is indeed critical. Recognised roles and functions are the key determinants of the level and the type of resource allocation and financing for each sphere of government. In fact, based on the current funding arrangements alone, Western Cape and Gauteng may be limited in their ability to play the desired developmental roles.

Put differently, the emerging developmental role of government depends on finding a balance between development and poverty relief and the dependency that it may bring. This balance needs to find expression at two levels; in the allocation of resources to provinces as well as in the way in which the latter allocate their resources at provincial level. So not only should the way in which national government funds provinces be reconsidered, but also the way in which provinces themselves make resource allocation decisions.

As indicated earlier, we want to find the appropriate mix of expenditure on economic and social services in the Province. This means that a large part of government expenditure should be aimed at increasing the ability of people in the Province to support themselves. Naturally such expenditure should continue to be balanced with short-term poverty relief and social service delivery.

These are indeed the principles that informed the design of the five front-line iKapa Elihlumayo lead strategies. The Social Capital Formation Strategy and the Extended Public Works Programme target short-term poverty relief and the provision of a social safety net in general. On the other hand the Micro-economic Development Strategy, Strategic Infrastructure Plan and HRD Strategy make up the strategies that will enable the Province and its people to become self-sustaining. The PSDF will manage the spatial aspects of these strategies in order to ensure that they support each other seamlessly.

The balance of the strategies, that is, Improved Financial Governance, Provincial-Local government interface and the strategies residing in the Department of the Premier, will ensure the good governance structures that oils the machinery of government.

While especially the strategies that will guide provincial developmental actions are being refined (that is the MEDS, Strategic Infrastructure Plan and HRD strategy) it is imperative that the Province protect these allocations while keeping the rest of the budget as stable as possible. Once these strategies have been finalised and provincial revenue streams secured, the Province will be able to make more aggressive strides towards the goals of iKapa Elihlumayo.

So until these strategies have been finalised, the proposed funding approach is to keep the provincial budget stable, while enabling the department of Education and Health to give effect to the HRD and Social Capital Formation Strategies. And we will hold them accountable for delivery in this regard. These allocations will also alleviate some of the pressure that Health and Education have been exposed to in recent years.

HRD Strategy

An additional R1,3 billion will be allocated to HRD over the medium term with allocations of R186 million in 2005/06, R322 million in 2006/07 and R745 million in 2007/08. This includes provision for inflation, rising learner numbers, additional allocations for salary adjustments and pay progression for educators to support the roll out of the HRD strategy.

Provision is also made for the introduction of a learner tracking system to improve the collection of data on the movement of learners inside and out of the education system. Such information will enable us to identify where learners fall behind in or exit the education system, providing further support to our quest for quality education.

Social Capital formation (including the EPWP)

An additional R3,2 billion is envisaged for Social Capital Formation, of which nearly R1,3 billion goes to Health, with allocations of R932 million in 2005/06, R823 million in 2006/07 and R1,459 billion in 2007/08. These amounts include including additional allocations for Social Security, salary and inflation adjustments; and a health service load adjustment. Funding is also provided to take over non-metro Primary Health Care clinics currently still provided by municipalities. These allocations will give substantial impetus to the Social Capital Formation Strategy.

These allocations also include the large contribution from the Global Fund for HIV/AIDS amounting to R59,5 million in 2005/06 and R17,5 million in 2006/07. The department of Community Safety will also be funded to add onto the risk management function it took over from the Department of the Premier.

Strategic Infrastructure Plan

Additional expenditure of R358 million is provided to the SIP with allocations of R7,7 million in 2005/06, R10,8 million in 2006/07 and R340 million in 2007/08. The expansion of the Provincial revenue base as well as the finalisation of the Strategic Infrastructure Plan will allow further allocations for infrastructure development.

Micro-Economic Development Strategy

Allocations decline by R8,8 million in 2005/06, and R9,1 million in 2006/07 and rise again by R15,3 million in 2007/08. The decreases are largely the result of a repayment of an advance in the current financial year. The departments of Agriculture and Economic Development and Tourism already benefited from large increase for land reform and sector development in 2003/04 and 2004/05.

Once the Micro-economic Development Strategy has been finalised we will make further allocations to this strategy, within the permutations of our resources. The plans for the establishment of a rapid response unit in Wesgro for the safeguarding of jobs that are under threat, as promised in last year's PGDS agreement, are also far advanced.

Good Governance

An additional R149 million will be allocated over the MTEF to build an efficient and integrated state, with allocations of R20,8 million in 2005/06, R44 million in 2006/07 and R83 million in 2007/08. These allocations will allow us to fund the introduction of Community Development Workers and the establishment of the Youth Commission.

Additional funding for Community Development Workers will be funded from savings derived from the amalgamation of the Departments of Housing and Local Government from 1 April 2005.

Interest returns will allow the Treasury to fund the implementation of the Municipal Finance Management Act and rising transversal and financial system costs. Provision will also be made for the roll out across the Provincial Government of the Language policy as well as the implementation of a range of new environmental legislation amongst others by the Department of Environmental Affairs and Development Planning.

In conclusion the next steps in the rollout of the iKapa Elihlumayo strategy is to finalise our lead and support strategies before the 2005 Budget is approved, so that we can spend further on the areas that I have highlighted.

In addition we must pursue the expansion of our revenue and resource base through campaigning for the revision of the Equitable Share formula and seeking national recognition of the meso-level development role of provinces. The implementation of the fuel levy and the redevelopment of provincial property will provide further opportunities in this regard.

Speaker, let me now turn to the 2004 Adjustments Estimates.

Speaker, through the tabling of the Western Cape Adjustments Appropriation Bill, 2004, the executive seeks Parliamentary approval for its revised spending plans for the current financial year.

In brief, the Adjustments Estimate will increase Budget 2004 on the margin, that is by 2,1% or with R378,623 million. Of this amount, 81,2% will be funded from provincial resources, i.e. rollovers of unspent funds from the previous financial year and own revenue collection higher than the estimated target in the previous and current financial years. This year's Adjustments Estimate is 11,8% higher than last year's, mainly due to the rollover of unspent housing funds.

Speaker, it would be appropriate to reflect on some of the STARK REALITIES, which we took account of when we formulated the Adjustments Estimate.

2005/06 Equitable Share dilemma:

Firstly, the restructured Provincial Equitable Share formula as explained in Minister Manuel's address to the National Assembly on the tabling of the Medium Term Policy Statement on 26 October 2004 is intended to be more pro-poor. Consequently, it will result in a relative decrease in the Provincial Equitable Share allocation to so-called "richer" provinces, of which the Western Cape is considered to be one. I have dealt with the impact of this earlier as part of the Western Cape Medium Term Budget Policy Statement.

Secondly, immense pressure is currently being placed on the Health budget due to increases in unit costs mostly beyond the control of the department, which relate to medical inflation at 10,2% being almost double the normal inflation rate as well as increased unit cost of labour, which includes improvement of conditions of service. Speaker, the allocations that provinces receive from national is based on CPIX (inflation excluding interest), which does not take full account of the real cost pressures that provinces experience. Furthermore, the situation is exacerbated by increased service loads due to migration of people into the Western Cape. Speaker, this can be illustrated by the following examples:

• The population of the Western Cape increased by 14% from 1996 to 2001 according to Census 2001. It appears as if this trend is still continuing;
• According to the Department of Health's statistics, there is a migratory health seeking behaviour, which adds a 17% increase to the health service load;
• In the Western Cape the impact of diseases, especially HIV and Aids, which already accounts for 25% of all primary care and hospital visits, together with TB, which has the highest prevalence in the country; and
• The continuous increase in medical emergency and trauma cases, with the acuity (degree of illness) also increasing.

Education dilemma in 2004/05 and beyond:

Thirdly, the spending pressure with regard to Education in the current year relates to improvement in conditions of service on two counts: The first being a 6,2% increase which is 0,2% higher than budgeted, the second being the provision for the implementation of educator pay progression to address the lack thereof for the period 1996 to 2002. Education is by nature human resource intensive. Close to 85% of the total budget for Education relates to compensation of employees. An improvement in conditions of service thus has a substantial impact on their budget.

With regard to future years, improved efficiencies in the education system also draw and retain more learners. This, Speaker, is an indication that our intervention in Education regarding the Human Resource Development strategy, within the spirit of iKapa Elihlumayo, is delivering the desired results. Ironically this places pressure on the Education budget.

2004/05 under spending:

Fourthly, Speaker, while Education and Health are experiencing substantial pressures to remain within budget, it must be acknowledged that some departments projected under spending. Of these, Social Services and Poverty Alleviation is the most prominent, resulting from the cancellation of temporary disability grant beneficiaries after due administrative processes were followed. Re-registering of those who may qualify for disability grants is taking longer than anticipated. Availability of medical officials at various health facilities to perform the required assessments, also plays a role in that process.

Speaker, furthermore, we live in a dynamic environment, locally, regionally and globally. This means that the Annual Budget we tabled in March is not necessarily Government's final response to the needs of communities we serve. The continuous changing environment also affects resource allocation to programmes within votes. Some are under tremendous pressure, while others do not experience the same level of pressure. The test, however, remains how effectively Government responds to this changing environment from a resource allocation perspective.

Government's Response:

Speaker, responsible action from Government is required, and we have responded as follows:

Firstly , the underlying point of departure is to address the current spending pressu res, but simultaneously release as much funds as possible to address future budget pressures. To this end, the allocation of additional funds to departments is minimal. Of an ad ditional R384 million allocated to the Province in the National Adjustments Estimate, only R48,4 million has been allocated in this estimate in order to release the balance for budget pressures in future years.

Secondly , to address the phenomena of under spending in some departments and overspending in others, Treasury exercised its "fishing rights" by initiating "money trawling". The purpose thereof was to reprioritise within provincial budgets to mitigate downscaling/retrenchments/service reductions in Education and Health. Nearly R200 million was shifted to departments that had the capacity to spent the funds appropriately. The main beneficiaries of this collective and cooperative process are Health, Education as well as Transport and Public Works, while the main contributor, as previously stated, is Social Services and Poverty Alleviation.

Health:

Thirdly , to address Health's dilemma, we propose the appropriation of an additional R190 million. This serves as first/further deposit to fulfil their role in terms of iKapa Elihlumayo and more specifically the building of social capital. Speaker, in the spirit of iKapa Elihlumayo we have to maintain our Health system, or we will not be able to deliver on the vision of a Home for All.

The additional funds have been allocated for the following purposes:

• R74 million to absorb the increase in patient service loads;
• R9 million for the improvement in conditions of service of employee;
• R5 million for primary health care service claims (backlogs) to municipalities;
• R20 million in total to deal with linen shortages, increase vaccine stock levels, provide fire detection systems, improve Emergency Medical Services, maintain steam lines at Tygerberg Hospital, replace beds and trolleys, enhance revenue generation capacity, and to shorten waiting lists for patients requiring:
  • Assistive devices (wheelchairs, crutches, hearing aids)
  • Ear, nose and throat dedicated surgery for head and neck cancer
  • Cataract surgery
  • Bone marrow transplants
  • Bulk buying of arthroplasty and heart valve prostheses and other high cost consumables.
• R29,404 million for the strengthening and expanding of the Western Cape HIV and Aids prevention, treatment and care programme. This allocation represents a donation from the Global Fund, the use of which I initially authorised in terms of section 25(1) of the Public Finance Management Act;
• R31 million to speed up delivery of Health infrastructure projects within the Hospital Revitalisation Programme to improve service delivery in the rural areas – Vredenburg, Worcester and George; and
• R20 million for other infrastructure projects also with the intention to improve service delivery. Both the latter two allocations will be reflected on the budget of Transport and Public Works.

Education:

Fourthly , to address Education's pressures, we propose the appropriation of an additional R142 million.

The additional funds have been allocated for the following purposes:

• R14 million for the improvements in conditions of service – to provide for the 0,2% higher than budgeted;
• R36 million for notch increases in respect of educators since 1996. Speaker, note that the issue on how exactly this pay progression system should be implemented is still under discussion at national level; and
• R69 million to accelerate infrastructure delivery in relation to additional mobile and conventional classrooms, as well as for maintenance. This allocation will be reflected on the budget of Transport and Public Works.

To promote fiscal discipline in the spirit of the Public Finance Management Act, R22 million from available funds has been retained to finance Education's over expenditure of the previous financial year.

Other departments:

Lastly , I will deal with allocations to some of the other departments.

• R161 million for Housing from rollover of unspent funds in the previous financial year. Taking the current spending trends into consideration, housing and in particular settlement delivery remains a major challenge;
• Apart from the infrastructure provisions already addressed under Education and Health, Transport and Public Work will receive an additional:
• R59 million for road maintenance, mostly for resealing.
• R3 million to finalise the upgrading of the Lentegeur and Mandalay stations to provide access for people with disabilities and security in support of the re-location of the Conradie Hospital to the Lentegeur Hospital.
• R3 million to upgrade eNatis (the electronic National Traffic Information System) computer technology at motor licensing registering authorities to improve service delivery, efficiency and create additional service points.
• R4 million for the replacement of Government motor vehicles;
• R9 million for drought relief to the farmers in the Western Cape, a national conditional grant. Minister Dowry already announced that everything possible should be done to support affected farmers; and
• R10 million to Economic Development and Tourism to sustain jobs in the clothing industry. Speaker, wearing my Economic Development hat, I commit my department to, as a matter of urgency, formulate a sound Rapid Response policy and an enabling regulatory framework to assist industrial sectors that are in distress.

The time for empty slogans and promises has passed. Within one year we have designed and started implementing iKapa Elihlumayo. Strong and coherent leadership will allow us to aggressively pursue its full implementation in the Provincial budget.

Speaker, in conclusion I wish to use this opportunity to thank

• The National Government for the additional funding provided in the 2004 Adjusted Estimates;
• My colleagues and heads of departments and their staff for their cooperation in reprioritising their budgets to relieve the pressures on the health budget and to enable further infrastructure spending that would, apart from improved service delivery, have economic benefits for communities;
• All fund donors in particular the Global Fund for their contributions towards extending service delivery;
• The Department of Health for securing the latter donation. Such efforts should serve as inspiration to others to source more donor funding that could be available globally. To step up such endeavours, a donor funding policy for the Province needs to be formulated, a central donor fund office established, and possibly an agency procured to source and manage such funding;
• The Treasury team and departmental Chief Financial Officers for putting together the Adjustments Estimate and Medium Term Budget Policy Statement; and
• Premier Rasool and my colleagues in Cabinet for their leadership and support through this tough, yet critical period in our Province's history.

To obtain copies of this document, please contact:

Western Cape Provincial Treasury
Budget Office
Private Bag X9165
15 Wale Street
CAPE TOWN
8000

Tel: 021 483 5618
Fax: 021 483 3639
e-mail: pppienaa@pgwc.gov.za