KEVIN TUTANI: Integrating value-for-money techniques into SA’s public finances

Thirteen years since SA hosted the Fifa World Cup, debate continues over whether the tournament was beneficial or a waste of taxpayers’ money. Hosting the games cost the country $3bn, as stadiums, airports, railways and other infrastructure had to be either revamped or constructed from scratch.

Danny Jordaan, who led the local organising committee, insisted that the tournament could solve the problem of Afro-pessimism, and that the infrastructural investments would be beneficial for the country’s economy. Benni McCarthy, a former Bafana player and coach in the SA premier league, suggested that SA’s Premier Soccer League gleaned benefits that ultimately set it up to be competitive on the continent.

In addition, by 2019 SA Tourism reported that tourism numbers had increased steadily after 2010, to an annual high of 10.2-million visitors, contributing close to 10% of GDP. However, the $3bn price tag came at a time when the country had a deficit in social services and human development, including housing, hospitals, water and electricity. Crime was also an issue, with record murder and rape numbers, and some maintained that the money would have been better used elsewhere, particularly in crime prevention.

Outside sports tournaments, debate regularly arises regarding the value and relevance of government expenditure. In such cases a section of the public will be against public projects for a variety of reasons, while government officials will naturally be in favour. To avoid such polarisation and reduce confrontation it is essential for the National Treasury to have a measure that can be used to determine the validity or relevance of public expenditure beforehand, to satisfy as broad a section of society as possible.

The aim of such an approach would be to ensure that the president is assured of the competence of his appointees, the project offers best value to the people, and negative sentiment is limited. This is where the use of value-for-money techniques in the management of public finances comes into play.

Value for money is the satisfaction or benefit obtained from an amount of money spent. To achieve best value for money a number of strategies or tactics may be pursued in public expenditure. A lowest-cost and highest-benefit ratio is the obvious desired outcome. However, in a practical situation, this may be difficult to achieve. Therefore, value for money is typically pursued through identifying the best balance between the cost of the project and benefits obtained.

Cost minimisation, output maximisation and effectiveness (achievement of intended results) are typical targets in such cases. Additionally, in value-for-money approaches there is extensive stakeholder engagement before, during and after the project is completed. This method is perhaps what separates value for money from traditional government expenditure systems. 

Measuring value from the perspective of the government and citizens can be a contested issue. When there is a disconnect between the two, perceptions and interpretations of value will reveal a gaping difference. Governments typically oversell the advantages or benefits of a project to the public. On the other hand, citizen rebuttals create obscurity regarding the appropriateness of the expenditure.

In addition, in this age of social media and fake news it is all too easy for a great project to earn the misguided wrath of the public. Therefore, standards that attempt to create a reference for value and how it is measured can go a long way to direct government expenditure so that it is assigned or applied in a way that produces a shared perspective of value.

Value-for-money mechanisms

When the Treasury approves a project or assigns funds to a significant government programme a number of value-for-money principles can be used to ensure its effectiveness and wider public acceptance. These include:

• Budgets. This is a typical feature the Treasury uses. The emphasis under value for money is on the need to limit budget variance as much as possible. In addition, when financial resources are limited zero-based budgeting, which peruses each budget item from a disaggregated perspective, may prove more effective.
• Stakeholder involvement. Before a project takes off and after completion, feedback from the public is essential. As stated before, value-for-money mechanisms aim to create a shared understanding of the value derived from the government’s investment. If it is an irrigation project that is earmarked for a particular rural village, value for money advises that before the project is established the local community has to be surveyed to elicit their opinions. It may be that during the survey the preferences of the community will be towards the establishment of a livestock project instead. The allocation meant for the irrigation scheme can then be rerouted to the purchase of suitable supplies and technical assistance. When the project is completed the views of the public should also be noted. 
• Communication regarding the project must be timely, whether, before, during or after. Delays can lead to cynicism and create a vacuum that can be exploited by the grapevine or malignant citizens. This may have harmful effects as the grapevine cannot be easily held accountable for information released on behalf of the Treasury. Excellent management of communication will therefore ensure that the comprehension gap between the Treasury and stakeholders is minimised and results are in tandem with the expected outcome.
• Evaluation by independent practitioners. These may include journalists, industry associations or regulatory bodies. In this regard, a framework is set that offers the accessibility of all details on government projects, so as to motivate auditing processes from independent quarters. Such approaches will probably result in improved performance and competence on the part of the Treasury and the contractors to whom government projects are assigned.   

Extending value for money to all government departments

Apart from focusing on value for money in the Treasury’s expenditure, extending the approach to include the processes of all government departments could also yield positive rewards. Value-for-money principles can help guide decision-making and maximise the effect of pertinent programmes, in all government departments. The key principles that should drive the implementation of value for money may include cost consciousness, evidence-based decision-making, results orientation and accountability and transparency.

For SA to have an efficient government, value-for-money principles need to be incorporated by all departments, whether by design or by default. With such mechanisms in place, backward vices such as corruption, negligence and even wastefulness and incompetence are reduced to a bare minimum.

• Tutani is a political economy analyst.