Innovation required to overcome SA’s revenue shortfall
2017/18 South African National Budget Expectations
In October 2016, Finance Minister Pravin Gordhan highlighted that an additional R43 billion would need to be raised over the next two years. There are three options available to meet this target, reduce expenses, increase taxation or look for more innovative and creative ways to generate additional cash flows.
We have already seen progress in provincial cost reduction with the Gauteng Provincial Government dramatically reducing fruitless and wasteful expenditure by 93% bringing in significant cash savings of R386 million. Gauteng has also piloted open tender procurement to reduce irregularities in procurement. This subsequently brings down the cost of goods and services. In 2016 alone, 72 projects across the province with a collective value of R10 billion went through the process.
Although significant savings can be made through initiatives like open tender procurement, government can also benefit from looking at countries who have been particularly successful at diversifying their economies and creating new income streams.
The United Arab Emirates (UAE) has become a leader in innovation in a very short period, transforming their desert landscape and economy. The UAE government embarked on a long-term strategy to reduce its dependence on fluctuating and volatile oil prices. The result is that their dependency on oil industries has declined from close to 80% in the 80’s to around 30% of GDP in 2014.
In 2016 they launched their UAE Strategy for the future where all government departments will appoint "directors of future planning". This will institutionalise future planning and innovation, making it a mandatory element of all operations and informing government policy making accordingly.
South Africa has already made significant investments into Small, Medium and Micro-sized Enterprises ( SMME) growth, township economies and entrepreneurship as critical elements to stimulate economic growth. In Gauteng alone the vision is for township enterprises to benefit from 30% of annnual provincial procurement spend. Numerous incentives and initiatives have already been put in place to drive the growth of these small businesses.
To further support these businesses, shared services and centres of excellence can give them the benefit of economies of scale through common resources.
An example would be the use of shared call centres, central accounting hubs, shared delivery and distribution centres, central buying and bulk discounting services. This is an area were the private sector can simultaneously contribute towards empowerment through internships and upskilling of residents at accounting centres. Another significant stumbling block for township economies includes access to finance. A further shared service offering business banking and investment centre could greatly assist budding entrepreneurs with access to the capital that can help their businesses soar.
New methods to streamline service delivery and stretch the rand should also be explored. The national government is currently driving Operation Phakisa, the national transformation programme that serves to implement the National Development Plan (NDP). This is a working example of how service delivery can be improved and fast-tracked through the Oceans’ economy, health, mining and education labs having been conducted
Another important factor that needs to be addressed by government is the public-sector wage bill. It continues to account for a considerable share of the budget each year. Every year it increases to compensate for inflation. However, the wage bill is not likely to change as public sector professionals need to be fairly remunerated and government needs to attract the best and most talented individuals to serve in the public sector. Finance Minister Gordhan recognises that the bill is nearing 40% of the budget. He has stressed the need to moderate employment levels in government as it stifles the ability to spend on essential items and crucial public services.
The final challenge that needs to be addressed is the automation and integration of the fragmented financial, supply chain and human resource management systems. Integration will increase transparency and enable better monitoring and control of spend. Minister Gordhan announced the roll out of an Integrated Financial Management System (IFMS) over the next three years. According to the Medium Term Budget Policy Statement, the system will enable government to make its operations more efficient and modernise public resource management.
Crucially, procurement reforms undertaken by the Office of the Chief Procurement Officer (OCPO) will be integrated into the new system. Transversal contracting by OCPO allows organs of state to procure from a central list of approved suppliers who have already been screened for cost and quality. Procurement can then take place at pre-negotiated, standardised prices, thereby reducing the administrative burden and the possibility of any irregularities through the tender process.
Combining all the aspects above will reveal the opportunities where multiple additional streams can be located to ultimately fund the budget shortfall of R43 billion over the next two years. More importantly, it will help us focus our investments on areas like tourism and innovation to maximise the long-term return to the benefit of the country.
How can Deloitte help:
At Deloitte, we will work with the Public sector to pursue five broad avenues of change:
• Cut costs, reshape expectations for public services and rebuild public faith
• Generate jobs now, and lay the groundwork for deep improvements in our countries’ s competitiveness
• Transform policy areas that weigh heavily on state budgets: health care and education
• Plunge deep into departmental operations to become more innovative, more technologically proficient and more attuned to emerging needs
• Effectively execute on bold government reform programs