Bloomberg News

South Africa Takes Control at Provinces to Tighten Spending

December 07, 2011

(Updates with Treasury comment starting in third paragraph.)

Dec. 6 (Bloomberg) -- South Africa’s government said it’s taking control of some departments in Gauteng, Limpopo and Free State provinces to tighten spending and combat mismanagement.

The Cabinet took the decision at a special meeting yesterday after an investigation into overspending and problems with the supply of services, the government said in an e-mailed statement from Pretoria.

“It’s the responsibility of government to run our finances in a way that will also benefit our ratings,” Treasury spokeswoman Bulelwa Boqwana said today by phone from Pretoria. Moody’s Investors Service lowered South Africa’s credit-ratings outlook on Nov. 9 to negative from stable.

Finance Minister Pravin Gordhan is struggling to keep spending in Africa’s biggest economy in check to curb a budget deficit that’s forecast to reach 5.5 percent of gross domestic product in the year through March 2012. South Africa’s nine provinces boosted spending on wages by 17 percent to 108 billion rand ($13.4 billion) in the first half of the current fiscal year, according to data from the National Treasury. That accounts for 61 percent of total provincial spending over that period.

Gordhan told South African Broadcasting Corp. today that the government wants to ensure public finances are “managed properly,” the South African Press Association reported. There must be “proper governance processes,” and delivery of services, such as health and education, shouldn’t be undermined by “financial mismanagement,” Johannesburg-based SAPA quoted Gordhan as saying.

‘Unsatisfactory’ Situation

“While some provinces have taken appropriate actions, the situation remains unsatisfactory,” the Cabinet said.

Limpopo, South Africa’s northern province that borders Botswana, Zimbabwe and Mozambique, is facing a cash crisis and requested an overdraft facility of 757 million rand to be boosted by an additional 1 billion rand to pay salaries on Nov. 23, the Cabinet said. The government will take control of the provincial Treasury, education, transport, health and public works departments, it said.

In Gauteng, South Africa’s richest province that includes Johannesburg, the National Treasury will aim to address financial management problems at the health department. The government will take control of the provincial Treasury, police and transport departments in the central Free State province, the Cabinet said.

Experts Deployed

The Treasury will deploy experts to the provincial departments to improve their “financial management and supply chain management,” Boqwana said. Details of the plan are still being worked out, she said.

In Limpopo, the Youth League of the ruling African National Congress said the decision was designed to sideline some of the party’s provincial officials because they threaten the chances of national leaders to stay in power at an elective conference in Bloemfontein, also known as Mangaung, in December next year.

“We view it as a knee-jerk reaction of those who fear that a change of ANC Leadership in Mangaung in 2012 may mean the end of their political lives as they know it in the ANC,” the Youth League said today in an e-mailed statement.

Boqwana said the Cabinet’s decision was not about politics.

“If the provinces fail it affects the national fiscus and the taxpayers,” she said. “Continued financial failures cannot be allowed.”

--Editors: Karl Maier, Gordon Bell

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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