1. Using Budget Analysis to Scrutinise the Public Enterprises Vote A Presentation by IDASA 7 March 2007

2. Purpose of the Presentation ► To clarify some basic budget analysis techniques ► To show how these techniques can facilitate analysis of the DPE budget by making budget figures more revealing

3. Basic Uses of Budget Analysis Quantitative information regarding: 1) Priority 2) Progress 3) Equity 4) Adequacy This presentation emphasis the first two

4. Manner in which Figures are Organised in the ENE ► Allocations by Programme ► Allocations by Economic Classification  Current Payments (Salaries and Goods/Services)  Transfers and Subsidies  Payments for Capital Assets (Each Programme Allocation is further broken down by economic classification)

5. ENE Allocations Continued ► Thus a large/interesting programme allocation can be analysed further by looking at: 1) The economic classification of functions in the programme 2) The descriptive information provided for each programme

6. Technique 1: Share of Total (Priority) ► Purpose 1: Relative Priority of Functions / Programmes at a Point in Time ► Purpose 2: Trends in relative priority over time ► Purpose 3: Priority (and trends) of Departmental allocations as share of total public spending and as share of GDP ► Calculation: (Share / Total) * 100

7. The budget figures… (R Thousand)2003/20042004/20052005/20062006/20072007/20082008/20092009/2010 Administration37114401774631151705592605957761187 Energy, Broadband Infrastructure and Mining Enterprises323601381721146722561103741254313289 Legal, Governance and Risk7946172081479916642226761920120219 Manufacturing Enterprises5848606430258791220631369468521334113625 Transport Enterprises698105413154470101261330415296 Joint Project Facility00011409146782273726294 TOTAL83 966678 6862 671 4832 869 9231 063 966140 703149 910

8. DPE Budget as a % of Total Voted Funds and % of GDP (R Thousand)2003/20042004/20052005/20062006/20072007/20082008/20092009/2010 DPE Total83966678686267148328699231063966140703149910 GDP1288952000143067300015801190001755340000193893400021417470002379299000 Total Expenditure328709000368541000416760000470614000533873000594198000650301000 DPE Budget as % of GDP0.0070.0470.1690.1630.0550.0070.006 DPE Budget as % of Total Expenditure0.0260.1840.6410.6100.1990.0240.023

9. Share of Total (%) and Trends in Share of Total (R Thousand)2003/20042004/20052005/20062006/20072007/20082008/20092009/2010 Administration44.25.91.71.85.642.340.8 Energy, Broadband Infrastructure And Mining Enterprises38.52.00.825.21.08.9 Legal, Governance and Risk9.52.50.6 2.113.613.5 Manufacturing Enterprises7.089.496.971.989.09.59.1 Transport Enterprises0.80.20.00.21.09.510.2 Joint Project Facility0.0 0.41.416.217.5 TOTAL100.0

10. Visually…

11. Totals and Share of Total (Economic Classification) 2003/20042004/20052005/20062006/20072007/20082008/20092009/2010 Current Payments746136721976537101336129421139678149155 Transfers and Subsidies857160903225939972766752933620650680 Payments for Capital Assets7822435949183592537575 2003/20042004/20052005/20062006/20072007/20082008/20092009/2010 Current Payments88.99.92.93.512.299.399.5 Transfers and Subsidies10.289.797.196.487.70.5 Payments for Capital Assets0.90.40.00.1 0.30.1

12. Share of Total and Trends Excluding Manufacturing Enterprises (R Thousand)2003/20042004/20052005/20062006/20072007/20082008/20092009/2010 Administration47.555.655.46.450.646.844.9 Energy, Broadband Infrastructure And Mining Enterprises41.419.125.389.68.99.8 Legal, Governance and Risk10.223.817.72.119.415.114.8 Transport Enterprises0.91.51.60.68.610.411.2 Joint Project Facility0.0 1.412.517.919.3 TOTAL100.0

13. Technique 2:Real Percentage Growth Rates (‘Progress’) ► Important to calculate trends in allocations to particular programmes/functions over time: ‘progress’ if you think the trend is the right one ► Problem that budget allocations present nominal allocations ► Simple example:1999R 2 000 000 2000 R 2 500 000 2000 R 2 500 000 2001 R 2 600 000 2001 R 2 600 000 It is tempting to argue that the 2000 calculation was 25% more than the 1999 allocation, but is this true? Nominally yes, but in real terms maybe, maybe not. It is not necessarily the case that 25% purchasing power was allocated to the function ► Real means adjusted to reflect actual purchasing power: this is determined by the interaction of allocation changes and inflation changes

14. Nominal % Change Calculation ► (New Value – Old Value) / Old Value * 100 ► Thus: (2 500 000 – 2 000 000) / 2 000 000 * 100 = (500 000 / 2 000 000) * 100 =25%

15. Inflation 199920002001 Allocation 2 000 000 2 500 000 2 600 000 Nominal % Change /25%4%

16. But ► To get the real change, that is whether the purchasing power of the allocation has increased or decreased, we need to first deflate the allocations and then do the same calculation ► We use a deflator to express the values in terms of the value of the Rand in a particular year (also called constant Rands)

17. Real Percentage Changes ► 199920002001 200000025000002600000 Nominal Change (%)254 Inflation Rate19%11% Index value (e.g. CPII)100119132.09 Real Value (1999 Rand)200000021008401968355 Real Percentage Change5.0-6.3

18. Summarising the Process ► Get deflators / price indices ► Select base year ► Convert nominal allocations to real allocations ► Calculate percentage change

19. Formula ► Nominal Allocation * (Base Year Index/Current Year Index) ► Ie the nominal allocation is multiplied by the ratio of base year price to price in the year of the allocation ► Thus R 2 500 000 was multiplied by 100 / 119 to get the real allocation of R 2 100 840: in real terms, as expected, the allocation is less than the nominal R 2 500 000

20. Deflating using DPE figures: Nominal % Change Nominal Percentage Change2003/20042004/20052005/20062006/20072007/20082008/20092009/2010 (R Thousand) Administration8.315.311.614.60.52.7 Energy, Broadband Infrastructure And Mining Enterprises-57.353.03317.0-98.620.95.9 Legal, Governance and Risk116.6-14.012.536.3-15.35.3 Manufacturing Enterprises10269.9326.7-20.3-54.1-98.62.1 Transport Enterprises51.024.8239.9126.531.415.0 Joint Project Facility28.754.915.6 TOTAL708.3293.67.4-62.9-86.86.5

21. Real % Change ► Given the following price indices, 1) calculate the real percentage change in the total allocation to administration from 08/09 to 09/10 ► 2) What is the estimated inflation rate over this period? ► 03/04-84 ► 04/05-87 ► 05/06-91 ► 06/07-95 ► 07/08-100 ► 08/09-105 ► 09/10-109

22. Real Percentage Changes Real Percentage Change2003/20042004/20052005/20062006/20072007/20082008/20092009/2010 Administration4.510.26.98.9-4.3-1.1 Energy, Bband, Mining-58.846.33173.1-98.615.22.1 Legal, Governance and Risk109.1-17.87.729.4-19.41.4 Manufacturing Enterprises9912.3308.0-23.6-56.4-98.7-1.6 Transport Enterprises45.819.3225.6115.225.110.8 Joint Project Facility22.247.511.4 TOTAL680.4276.32.9-64.8-87.42.6

23. Application ► The same techniques can be used with individual programme budgets to determine priorities and trends and generate questions to the Department

24. Comments / Questions based on the ENE information ► Clearly the transfers to various SOE’s have made the budget figures a roller coaster ride: it is worth conducting the analysis with these transfers removed to focus on longer- term funding for the Department’s key functions

25. Comments / Questions Continued ► Nominal allocations for ‘Consultants, contractors and special services’ go from R 21 331 000 to R 34 670 000 from 06/07 to 07/08: a nominal percentage increase of 62.5%. Compensation of employees goes up by a significant but comparatively small nominal percent of 19.2%. The increased allocations for this function is not limited to a specific programme, but reflects increased allocations in all the programmes to this function. The increase is, in other words, significantly in excess of the departmental budget increase as a whole. Two questions: 1) Is it not possible to retain greater expertise in the Department, that is rely more on employees and less on consultants and similar services? 2) How does the Department ensure that it is getting value for money in contracting these and related services?

26. Comments / Questions ► Allocations to capital assets for the department itself decline rapidly over the MTEF, from R 1 809 000 in 2006/2007, to R 925 000 in 2007/2008, and down to R 75 000 in 2009/2010. Is this adequate for future departmental capital needs? ► Can the DPE explain the basis on which the travel and subsistence allocations are calculated? Recent trends appear somewhat random as well as including huge percentage changes

27. Travel and Subsistence Allocations to Programmes Programme ( R ‘000)2006/20072007/2008Nominal % Change Administration2950.05710.093.6 Energy, Broadband and Mining Enterprises156.0855.0448.1 Legal, Governance and Risk1382.0715.0-48.3 Manufacturing Enterprises2941.05724.094.6 Transport Enterprises46.0508.01004.3 Joint Project Facility466.0550.018.0

28. ► Thank you