Parastatal budgeting (a vaguely prescient column from 2011)

Parastatals’ ‘budgets for dummies’ the way to go

 Business Day

18 Mar 2011

Anthony Butler

SA HAS become the site of two fascinating experiments in the methodology of budgetary accountability. Contrasting approaches to the transparency of government budgets — the Treasury model and the parastatal model — can now be compared for the first time.

The National Treasury was recently awarded top prize in the International Budget Partnership’s Open Budget Index, for overseeing the world’s most “transparent, participatory, and accountable” budget process. The partnership praised the Treasury for providing clear information to MPs, civil society groups and the media, so enabling citizens to participate in decision-making and hold the executive to account.

The alternative approach has been pioneered in the parastatal sector, where public borrowing now virtually equals that of the government itself. The parastatal model has four key features. First, it avoids overdependence on numerical data. When parastatals must use numbers, they use the simpler ones they believe ordinary citizens are best able to grasp. Confusing government subsidies, bail-outs and Treasury loan guarantees are omitted. Eschewing the complex data tables favoured by the Treasury, parastatal managers round financial information up to the nearest R5bn or R10bn.

For this reason, stateowned logistics group Transnet claimed in 2008 that its Johannesburg-toDurban fuel pipeline would cost R10bn. This rose to R15bn in April last year, before accelerating upwards this year to R25bn.

In a move towards still greater transparency, the Department of Transport uses R100bn — the reported cost of its proposed revamp of passenger rail services — as its basic unit of account. On Tuesday, Transnet announced its own R100bn project, this time for a major new port development. In the interests of citizen accountability, a detailed budgetary breakdown was provided: there would be “two phases” amounting to “R50bn in each phase”. Such easily understood R50bn or R100bn increments are also favoured by Eskom when communicating cost increases for its Medupi and Kusile power stations.

Second, parastatals have democratised their financial management processes by drawing large numbers of democratically elected citizens into their web of financial transactions. While private companies typically retain a single CE and finance director for several years, Transnet and Eskom have increased citizen participation by allocating such jobs to large numbers of middle managers on a rotating or “acting” basis. A further innovation in democratic transparency has been the publication in advance of the names of new parastatal CEs in The New Age newspaper, so citizens can learn their identities before Cabinet ministers and the members of parastatal boards have been notified of their own decisions.

Third, in the interests of transparency, it has been decided that all major infrastructure projects — highspeed rail links, airports, pipelines, sports stadiums and ports — will henceforth be located in Durban. This will allow citizens and MPs to inspect all of the projects in a single day.

The only exceptions to this rule are the nuclear power stations President Jacob Zuma has apparently agreed to purchase from France. In the light of recent events in Japan, such plants must be located, for technical reasons, in the Eastern Cape or in the northern suburbs of Cape Town.

The Open Budget Index is best viewed as a discredited instrument of western imperialism. Its methodological shortcomings have been exposed by its incorrect classification of China — a partner that Public Enterprises Minister Malusi Gigaba has identified as a good governance model — as “among the least transparent countries in the world”.

Despite its superficial attractions, the Treasury model — with its mass of detailed argumentation, small font sizes and dense statistical tables — is too labyrinthine for citizens, and Cabinet ministers, to follow. It is surely highly undemocratic that the finance minister has made available to the general public information that is too complex for even the president and his head of government communications to understand.

Butler teaches politics at Wits University.

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