PERO and MERO 2016 Speech

Honourable Speaker and Deputy Speaker Honourable Premier and Cabinet Colleagues Honourable Leader of the Opposition

Leaders of other political parties

 Honourable members of the Western Cape Legislature

 Colleagues

Citizens of the Western Cape

Madam Speaker, the 2016 PERO and 2016 MERO provides the context for the development of the Medium Term Budget Policy Statement  and therefore lays the foundation for the development of the provincial budget for the next Medium Term Expenditure Framework (MTEF) and the fourth generation Integrated Development Plans for municipalities to be adopted in May 2017.

These publications are key in informing and determining the budget policy priorities of this Province as informed by the Provincial Strategic Goals.

Global Economy

Madam Speaker, global economic growth was under significant pressure in 2015 on the back of poorer performance of emerging and developing economies, led by China.

Advanced economies maintained moderate growth in 2015, but may be showing signs of slightly higher growth in 2016, albeit on very uncertain foundations. Downward pressure on growth in emerging and developing economies intensified, with falling commodity prices a prominent factor in this trend.

The slowdown in China was compounded by recessions in most emerging market economies. Even Sub-Saharan Africa no longer outperformed its emerging and developing economy peers with growth of only 3.3 per cent in 2015.

Madam Speaker, the International Monetary Fund (IMF) expects global economic growth to remain flat at 3.1 per cent in 2016, before accelerating marginally to 3.4 per cent in 2017.

The outlook for Sub-Saharan Africa is for a further moderation to 1.6 per cent in 2016, before a recovery to 3.3 per cent in 2017.

This outlook, Madam Speaker, is riddled with downside risks including the potential negative impact of Brexit and a faster than expected moderation in Chinese economic growth.

South Africa

Madam Speaker, economic activity in South Africa slowed to 1.3 per cent in 2015. Most of the decline in economic activity during 2015 can be attributed to a fall in primary sector (mining and agriculture) production.

Drought conditions impacted on the agriculture sector while the decline in the mining sector may already reflect the impact of commodity demand slowdown experienced in China.

The secondary sector recorded marginal growth while growth in the tertiary sector slowed during the fourth quarter of 2015.

Madam Speaker, the outlook for the South African economy remains pessimistic. A contraction of 0.2 per cent is projected for 2016 before marginally expanding by 1.1 per cent for 2017.

Western Cape

Madam Speaker, I now turn to the Western Cape where economic growth slowed to 2.1 per cent in 2014 and will remain constrained over the short term.

The Western Cape, Madam Speaker, cannot detach itself from the risks facing the global and national economy. Some of these risks will have a greater impact on the Western Cape than the rest of South Africa.

The PERO does however, highlight that the trade surplus in the agri-processing sector is expected to be maintained and possibly even expand going forward, which bodes well for job growth.

There are tentative signs that the local garment sector has turned the corner with total employment numbers increasing by 10 per cent since 2012 to 37 684 in 2015.

The Western Cape can potentially benefit from offshore exploration and shale gas extraction.

The South African tourism industry is recovering in 2016 after the number of travellers to the country declined by 6.8 per cent in 2015 after a mere 0.2 per cent rise in 2014.

Labour market dynamics in the Western Cape

Madam Speaker, the provincial labour force is estimated to be close to 3.0 million with an unemployment rate estimated at 20.8 per cent in the first quarter of 2016.

Estimates of employment in the Western Cape suggest a somewhat more rapid rate of growth than in South Africa over the past five years.

Employment growth trends, however, continue to be biased towards individuals with higher levels of education. The majority of the Province’s unemployed have not completed secondary education. A similar trend is observed in the formal sector amongst skilled vs less skilled counterparts.

Socio-economic developments in the Western Cape

Between  2011  and  2016,  the  Western  Cape  saw  net  in-migration  of  just  under 170 000 people. The proportion of households in the Province considered to be poor has decreased.

The Western Cape education context is characterised by increasing learner enrolment, improvements in the National Senior Certificate pass rates - including mathematics and physical science - and positive 2015 Language and Mathematics systemic test results.

Life expectancy has been increasing in the Western Cape and there have been improvements in infant, child and maternal mortality rates.

Despite improvements in socio-economic conditions, social ills, such as crime and substance abuse, remain a challenge.

Research policy implications

Madam Speaker, creating opportunities for growth and jobs remains the number one priority of the Western Cape Government.

The Western Cape is closely linked to the Euro Area and the UK than the rest of the country and a more pronounced slowdown in these regions will have a more detrimental impact on the Western Cape.

Aligned to the Western Cape International Relations Strategy, the WCG should continue to explore cross-border opportunities for market access, investment and trade.

Madam Speaker, Africa overtook Europe as the leading destination for the Province’s exports in 2014.

The recent signing of the Economic Partnership Agreement (EPA) with the European Union (EU) as well as recognising Geographical Indicator Status (GIS) of certain products presents further trade and investment opportunities in Europe.

The relatively under-valued rand presents some opportunities for trade and there should be a continued focus on developing sectors and industries where the Province have the comparative advantage – agriculture and food, beverages and tobacco sectors - which contributes to the agri-processing sector.

Whilst real growth potential in the export market is currently dominated by agricultural produce and the food value chain there is still a need to diversify the export base of the Western Cape by growing exports of tradable services and manufacturing.

Drought and the water crisis as well as other issues relating to climate change are risks to this sector.

Improving the balance between supply and demand across the various labour markets requires a streamlined approach and direct link between growing the supply of skills through a range of interventions related to improving education outcomes and aligning the skills requirements to the needs of the private sector.

The Western Cape Government’s inclusive growth strategy aims to ensure that those who have exited the education system early and are currently marginalised in the labour market are able to access effective pathways to develop skills.

The weak economic growth coupled with high levels of unemployment will likely result in the increase in demand for public services, placing greater pressure on already constrained resources.

Madam Speaker, in summary: Game Changers capture key areas for focused interventions to the issues highlighted in both the PERO and MERO.

The Western Cape Government’s Game Changers which include Energy Security, Apprenticeships, e-Learning, Alcohol Harms Reduction and the Western Cape Government Broadband Initiative as well as Project Khulisa captures our response to some of the issues highlighted in the PERO & MERO.

We are pleased by Wesgro’s announcement that the Western Cape has secured greenfield investment of 143 per cent over the past year.

This is a significant investment and the efforts of Premier Helen Zille and Minister Alan Winde are paying off.

In the agribusiness sector three investment projects worth R315 million had helped to create over 200 jobs. Minister Winde has been driving this sector.

In the tourism sector Wesgro facilitated the growth of more than 40 000 additional seats to Cape Town since July last year to help the Western Cape reach the 10 million annual visitor number for the first time.

Madam Speaker, the investment community has also taken note of what Deputy Governor of the South African Reserve Bank, Francois Groepe, recently referred to as “the very exciting innovation happening in the technology space in Cape Town”.

This sentiment was echoed by the Chairperson of the Board JSE, Ms Nonkululeko Nyembezi-Heita at the official opening of the JSE’s Cape Town office when she noted that the Western Cape is setting itself apart from the rest of the country in the fields of the creative economy and technology and this has been identified as something the JSE would like to tap into.

Premier Helen Zille has committed the Western Cape to becoming the innovation capital.

Madam  Speaker,  the  2016  Municipal  Economic  Review  and  Overview  (MERO) highlights that economic recovery is on track in all the regions in the Province.

The West Coast and Cape Winelands districts have caught up with the traditional fast growing regional economies such as the Eden and Overberg districts.

The West Coast and Overberg districts, for example, grew by an average of 3.9 per cent between 2004 and 2015 while the Cape Town Metropolitan Area grew by an average of 3.1 per cent over the same period.

The agriculture sector recorded positive growth rates over this period in Cape Town, West Coast District and Central Karoo District; but contracted in the Cape Winelands District and Eden District and even more profoundly in Overberg District. This remains a cause for concern as agriculture is a key sector and a major employer in the Province.

Looking ahead over the next five years, the finance, insurance, real estate and business services are expected to grow by 3.0 per cent on average across the Province, whilst the construction, wholesale and retail trade, catering and accommodation and transport, storage and communication sectors are projected to grow by approximately 2.0 per cent over the same period.

Population has grown faster than economic growth in most municipalities in the Province, implying a reduction in the GDP per capita during the post-recessionary period.

Social indicators that have moved in a positive direction include increasing access to basic services across all municipalities, decreasing indigent households (Bergrivier, Breede Valley, Theewaterskloof, George, Hessequa, and Prince Albert), decreasing poverty intensity and poverty headcount (Overberg and Eden districts), lower TB patients (Central Karoo District) and increasing Matric pass rates, among others.

Social indicators that remain a concern in municipalities across the Province include informal dwellers, households without income, crime, substance abuse, and people with no schooling, teenage pregnancies and high unemployment levels.

Implications for Municipal Policy, Planning and Budgeting

Continued support for the growing informal sector as it has implications for job creation, skills development and economic development.

Expansion of the green economy to supplement energy and water demands. Investment and maintenance in strategic infrastructure to support economic growth and social development. Identifying opportunities for growth along the existing and promising value chains.

Support services for SEZs such as schools, social amenities, hospitals need to be explored to enhance midstream activities. Greater emphasis must be placed on the promotion of local economic development and in particular the promotion of tourism.

Conclusion

Madam Speaker, the 2016 PERO and MERO adds robust economic intelligence and context to government’s evidence-based approach to integrated planning and budgeting.

It serves to inform the process of refining and implementing provincial policies, strategies and interventions, in support of the achievement of this Provinces’ inclusive growth and development policy imperatives.

The insights gained from understanding the macroeconomic and sector-specific performance and outlook, including labour market dynamics and socio-economic developments, intend to facilitate improved decision-making and resource allocation.

The economic challenges reflected in the PERO is dealt with in our PSG 1: Growing the economy and creating jobs. My Cabinet colleague, Minister Alan Winde, supported by Ministers Grant and Bredell, is leading this strategy.

Madam Speaker, the social issues relating to skills, education and youth as reflected in the PERO is the focus of our PSG 2: Improving educational outcomes for youth development.

This PSG is led by the Minister of Education, Minister Debbie Schäfer and supported by Ministers Fritz, Plato and Marais.

Madam Speaker, the PERO also deals with health indicators, demographic trends and safety issues. Madam Speaker, the South African Police Services presented the Western Cape’s crime statistics during our Cabinet Meeting on Wednesday.

PSG 3: is led by the Honourable Minister of Health, Dr Nomafrench Mbombo. She is supported by Ministers Dan Plato, Albert Fritz, Donald Grant and Marais.

Together, they are dealing with the issues highlighted in both the PERO and MERO.

Under the leadership of Premier Helen Zille significant progress has been made in implementing transversal management in dealing with the complex issues outlined in the PERO and MERO.

Madam Speaker, the PERO and MERO also analyses human settlement patterns, spatial and development planning, and basic service delivery issues.

PSG 4: led by Minister Bredell is responsible for creating a resilient, quality, sustainable and inclusive living environment.

Minister Bongi Madikizela and Minister Donald Grant together with the City of Cape Town are actively involved in creating a Better Living Model which will transform human settlements and create a quality, sustainable and inclusive living environment.

Minister Bredell is dealing with structural and planning issues to facilitate coordination, integration and alignment of provincial and municipal land use planning policy.

The rationale for this is to address specific economic, social, natural and unique features in a specific region.

Madam Speaker, in bringing all the challenges under the one umbrella of good governance, the Premier, the Minister of Local Government and the Minister of Finance are responsible for improving provincial and local governance and driving integrated management.

Madam Speaker, the issues raised in both the PERO and the MERO will find its way into the 2017 Budget MTEC process which starts next week.

During the MTEC sessions Ministers together with their departments will present themselves at the Budget Assessment Committee and the PERO and MERO are the instruments that will guide our discussions and budget policy decisions.

In the same way, Madam Speaker, we trust that mayors will use the MERO to inform their budget intelligence and decision-making in the local government space.

Madam Speaker, taxpayers and citizens’ money require that we take decisions that are based on evidence and in the best interest of all citizens.

In the weak economic and fiscal environment the WCG seeks constant innovation to increase productivity and competiveness of the regional economy.

The implementation of the Western Cape’s Provincial Strategic Plan 2014 - 2019 and related Game Changers promote inclusive growth.

Madam Speaker, on 26 October 2016, National Minister of Finance, the Honourable Pravin Gordhan, will outline national government’s fiscal and financial policy for the next three years when he tables his Medium Term Budget Policy Statement (MTBPS) in the National Assembly.

A month later on 24 November 2016, I will come back to this House to present this Government’s fiscal policy responses for the next three years when I table the Western Cape Government’s Medium Term Budget Policy Statement.

Madam Speaker, yesterday, Premier  Zille and I  attended  an  Extended  National Cabinet meeting in Pretoria.

The Western Cape Cabinet mandated us to table specific proposals for fiscal consolidation.

Our proposals included the following:

•     National  Treasury  to  further  assess  the  National  Departments  who  have  not effectively demonstrated full commitment toward applying measures of fiscal consolidation;
• National   Treasury   to   explore   further   avenues   toward   fiscal   consolidation specifically targeting key State Owned Enterprises such as Eskom, SAA, SANRAL and the South African Post Office; and
• National  Treasury to enforce CoE upper limits  across  National and  Provincial Departments and for these upper limits to be assented as part of the Division of Revenue Act and the respective Provincial Appropriation Acts.

We tabled these proposals to further strengthen South Africa’s public finance and fiscal consolidation.

Madam Speaker, I wish to express my sincere appreciation to the Provincial Treasury’s Budget Office staff as well as the researchers, and all those who will carry the insight gained from the PERO and MERO through into the government’s policy, planning and implementation programme.