National

Pay up! Government owes R160m to suppliers

Nickolaus Bauer

Fourteen government ministries and connected entities have violated the Public Finance Management Act by failing to pay a total of R160m to suppliers.

Minister of Finance Pravin Gordhan (Jaco Marais, Gallo)

Section 38 (1) of the Act states all accounting officers within government departments or institutions must settle all contractual obligations and pay all money owing within 30 days from receipt of an invoice

But, in reply to a parliamentary question lodged by the Democratic Alliance (DA), the government confirmed that on average the funds left outstanding to state suppliers were overdue for nearly 80 days.

"Overdue payments place enormous pressure on the cash flow management systems of these businesses and can result in them defaulting in the payment of their own creditors," DA spokesperson for finance Tim Harris told the Mail & Guardian.

Among the departments lagging behind on payments, the department of social development was the biggest culprit, with 43 suppliers in search of over R64-million for services rendered or goods provided..

The department of water and environmental affairs and its entities were worst in terms of the length in which payments were withheld, after noting they had 20 service providers who had to wait an average of 152 days to receive overdue payments.

The department with the largest amount of outstanding debtors, though, is the department of justice and constitutional development and its entities, which have 766 service providers owed almost R40-million.

"The withholding of payments to suppliers translates into a threat for job creation and real prospects of further job losses at a time when South Africa can ill afford it," Harris said.

Increased debt levels
The news comes in a time of depressed real and predictive growth and increased debt levels for South Africa as economic problems locally and globally weigh down on the country's economy.

In his medium-term budget policy statement, Finance Minister Pravin Gordhan revised government's prediction for real gross domestic product (GDP) to 2.5% for 2012/13, from the 2012 budget projection of 2.7%.

Gordhan indicated government debt will increase from R165.5-billion in the current financial year to R173.7-billion in 2013/14, before regressing to R151.5-billion in 2015/16.

"Government's role should be to create an environment which is conducive to doing business and supports job creation and economic growth," Harris said.

"It cannot be acceptable for government to actively destroy jobs through late payment of suppliers."

Investment Solutions chief economist Chris Hart also decried government's tardiness in paying its immediate debt to suppliers, saying it could defeat attempts at sustainable job growth.

"The government is so deeply entrenched in the economy that it is virtually impossible not to do business with government," he said.

"If you aren't getting money out of such a huge player in the economy, how can you expect to survive?"

The effect on outstanding payments from the state can be felt not only by small and medium business, but also by larger entities.

Sanyati, an engineering firm previously listed on the Johannesburg Stock Exchange, was forced to file for liquidation after it failed to receive payments totalling R60-million from the Free State provincial government.

In spite of an attempt at a business rescue – where bridging finance is facilitated until a business's debtors pay for outstanding debt – the black empowered firm folded, resulting in an estimated 2 000 job losses.

Dedicated compliance system
Since Sanyati's demise, government unveiled plans to implement a dedicated system to check compliance by national and provincial departments with the PFMA.

However, there has been no details on the plans's specifics to date.

Neren Rau, chief executive of the South African Chamber of Commerce and Industry, revealed that a survey undertaken with businesses dealing with government was a clear indication of an underlying problem with payments from government.

"Our survey clearly indicated that those doing the majority of their business with government or all of it, experienced high levels of dissatisfaction when it came to the making of payments,' Rau told the M&G.

Rau added that problems with government reneging on outstainding debt exacerbates other economic issues.

"One could easily conclude that this type of behaviour leads to immediate distrust and weighs in on things like job creation and investor confidence," he said.

"The best advice for businesses nowadays is to diversify to a point where government is not involved in at least only one part of your direct cash flows," Hart added.

Business Unity South Africa echoed Hart's sentiment, describing it as "extremely difficult" for any business to operate in an environment when debtors don't service outstanding debt.

"We would always encourage those in the public and private sector to implement their commitments to 30-day payments to all their suppliers – be they small or medium," Raymond Parsons, deputy chief executve of Busa told the M&G.

The department of finance – the ministry chiefly responsible for ensuring other government departments spend their budgets effectively – would not respond to questions posed by the M&G at the time of publishing.

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