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Barbara Creecy - Transforming Township Economies

The Business Accounting Review sat down with the Gauteng MEC for Finance, Barbara Creecy to talk about the economy, the future of the province and the role accountants play in current economical shifts.

November 2015

Helene Cilliers | Business Accounting Review

A few words come to mind when interviewing Barbara Creecy, the MEC for finance in South Africa’s richest province: dedicated, honest, capable, and in charge. With this approach, accountants in Gauteng may soon find more clients for themselves in the form of budding township entrepreneurs.

That is, if the Gauteng Provincial Government (GPG) succeeds in its plans for its Township Economic Revitalisation (TER) programme. In our interview with Barabra Creecy, she seemed positive that the province would meet its goals in this regard.

Creecy, who was the former MEC for education in the province, managed to lead that department to achieve four consecutive unqualified audit reports.

As MEC for finance, she will be responsible for policy strategy direction and making sure that the policy and budget align with the strategic objectives of the province as well as with national government’s objectives as set out in the National Development Plan.

One of these is revitalising the township economy.

In his budget vote speech in June 2015, Gauteng premier David Makhura said the provincial government has already committed more than R160 million to the TER.

More than R300 million was allocated to support township enterprises and cooperatives in the 2015/16 financial year.

The City of Johannesburg has budgeted R3 billion over the next five years to support the township economy and township entrepreneurs. Tshwane’s budget is R22 million and Ekurhuleni’s more than R150 million.

These township business owners will have access to finance and training, and they will also benefit from the province’s undertaking to procure from them to a large extent.

“But they will have to comply with all regulatory requirements,” says Creecy.

In her budget speech in June, she referred to a quest to register township enterprises both in terms of the broader regulatory environment and on the GPG supplier database.

“We are also looking at localising procurement and supplier rotation for purchases below R500 000,” she said.

Makhura said in his budget vote speech that the provincial government currently spends at least 5% of its R10 billion procurement budget for goods and services on township enterprises, and has committed to set aside 30% of public procurement budget for township enterprises over the next five years.

This should be good news for accountants, as these entrepreneurs will in all likelihood need accounting services. Apart from the province’s procurement requirements, there has also for some time now been a drive by the South African Revenue Services and the Department of Trade and Industry  to formalise township entrepreneurs in order to expand the country’s tax base.

Makhura said to awaken small businesses to the economic benefits of business formalisation, the GPG will be embarking on a campaign aimed at increasing the business compliance levels in the small business sector. “Through the Qondis’ ishishini Lakho (Fix Your Business) campaign we will once again visit Gauteng townships to offer onsite registration to 10 000 SMMEs.”

In Gauteng, the support for the TER could in many instances be successful, as not only will the provincial government departments procure from township enterprises, but they will also give financial and non-financial support for the establishment of enterprises that they can procure from.

Examples of such enterprises would be the establishment of a globe manufacturing enterprise in Tembisa. The province’s Green Technologies unit in partnership with the maintenance unit, will embark on the replacement of inefficient lighting systems with more efficient LED lighting systems. The target for the 2015/16 financial year is 65 200. Currently all of the GPG’s globes are purchased from China.

“And what stops other governments from buying from us?” asks Creecy.

Earlier this year Lebogang Maile, MEC for economic development, environment, agriculture and rural development, said an amount of R3 billion has been allocated to spur the industrialisation of the province’s western and southern corridors through agro-processing, green industries and tourism.

Public hospitals will source 40% of their fresh produce supplies from black emerging farmers and this is expected to increase to 80% by 2016.

Creecy said the department of education could also procure from these farmers for school feeding programmes.

A total of 53 township-based and black-owned clothing and textile businesses are currently supplying linen to public hospitals in Gauteng.

According to Makhura, three existing township economic hubs in Mohlakeng, Winterveld and Tembisa will be strengthened in the coming months.

New township hubs will be established in Ennerdale, Hammanskraal, Mabopane and Reiger Park and the province will revitalise the Industrial Parks in Katlehong, Orlando, Residentia, Khutsong and Ennerdale.

About 160 township entrepreneurs will benefit from a R1.6 billion investment in a state-of-the-art facility at the Riversands / Diepsloot SMME Incubation Hub.

“Businesses based at the hubs will be provided with enterprise development support and incubation programmes”, Creecy said earlier in her budget speech.

According to Makhura, intensifying programmes to support township business in this financial year include the following: 345 township businesses operating in labour-absorbing sectors of the economy such as manufacturing, tourism, Information and Communication Technologies, retail and infrastructure businesses which will receive financial support from the Community Fund; 250 township businesses to benefit from the Township Business Renewal Programme which offers grants of up to R50 000 towards marketing, equipment and refurbishment of operational premises; and an invoice discounting system, which allows short-term borrowing to small businesses against outstanding sales invoices.

This gives small businesses access to cash flow and working capital amidst payment delays. Fifty township-based businesses are targeted for this initiative.

As for the banking tender process (which was still underway at the time of writing), all banks have been requested to provide a clear strategy on how they intend to support the development of township enterprises.

Creecy said the township economies are banked through, for example, stokvels and funeral cover, but entrepreneurs don’t have access to lending facilities.

Through the provincial banking tender process, the GPG wants to ensure financial support for township enterprises.

In an interview with the Mail & Guardian earlier this year, Maile said Gauteng is currently working on a township revitalisation project to transform, modernise and re-industrialise townships in the next five to fifteen years. “We will look at radical economic transformation, social transformation, spatial transformation and modernisation of local economy, and not just spaza shops, chisa nyamas or the informal businesses, but will bring informal business into the township. We need to integrate the township economy into the mainstream economy.”

According to Sanews.gov.za, Maile said during a media briefing before his budget vote speech, that a partnership with Massmart will result in a R650 million cash injection into various townships across Gauteng, which will give township entrepreneurs ownership opportunities in the shops.

To instil trust in the public and bidders, the GPG has piloted an open tender process with an estimated  R50 million upgrade of Cedar Road in Fourways “because there were concerns about how government procurement is taking place”, said Creecy.

The Gauteng Government also became the first provincial government to adjudicate its banking tender – to the value of R90 billion to manage the province’s central banking services – in public. The open process means that the public can witness the decision-making process around the awarding of tenders.

After the closing of the advertising process, tender boxes are opened publicly and all documents are imprinted to prevent unauthorised switching of documents later in the process.

Additional measures to enhance the transparency of the existing tendering process include appointing an independent team to audit all tenders with a contract value of more than R50 million, and publishing the outcome of each stage of the tender process on the treasury department’s website.

Creecy said, based on the outcome of these first two open tender processes, Gauteng Treasury will develop a plan to roll out the process across the GPG for all contracts over R50 million.

This means that by the end of 2016, 60% of provincial expenditure on goods and services will be adjudicated in public. She also said the open tender process taught the GPG that a lot more training is necessary on the supply chain management processes. She stated that a lot of what goes wrong in the tender process is unintentional.

Speaking about media reports that the GPG has spent R8 billion illegally in the previous financial year, Creecy said this this has been incorrectly reported by the media as there is a difference between irregular expenditure, unauthorised expenditure, and fruitless and wasteful expenditure.

In the first two instances this could mean that not all the tender processes have been followed correctly, or there could have been an overspend on the wage bill which is a common occurrence in government.

As for fruitless and wasteful expenditure, this could mean that money disappeared into pockets, but it could also mean that a service provider was paid late or that there was an increase in rent.

She said a lot of panic is also spread by people playing politics. “Normally there is about a 3% deviation from the budget.

“But the question is: is there investigation or is there condemnation?”