Naked Rand Commitments Gobble up R350 Million off Fiscus

Maladroit financial management by the department of international relations and cooperation has cost national treasury R350 million, finance minister Nhlanhla Nene announced in his medium term budget policy statement on the 22^nd of October 2014. Surely the volatility of emerging market currencies is common knowledge and leaving a naked exposure to foreign currency denominated commitments against the Rand is ludicrous. Vote 05 is an outlier of poor currencies management that destroys value at a time when fiscus space is limited draws attention for displacing critical service delivery allocations towards vulnerable members of our society.

The global call, South Africa included, is for austerity and efficiency in the utilization of national resources. Doing more with less is a rare quality in public management and requires a 360 degree performance management approach. The finance minister has repeatedly announced in various fora of the impetus for prudent and efficient management of resources. Against such a clarion educated call one would expect surplus, or balanced budgets or in the worst case scenario leaner budget overruns with qualified and responsible justifications.

Classifying the international relations and cooperation budget overrun as unforeseeable and unavoidable expenditure is in itself deceitful. If anything was done, it seeks to justify that this is the best position they could achieve in managing the exposure to the depreciating Rand. If they took a natural hedge by doing nothing, it is a desperate cover up for gross incompetency in public resources management. In summary it is a shear attempt to run away from taking responsibility. Needless to say in both scenarios allowing R350 million to burning through your hands is an oversight of unbalanced magnitude.

In building a culture of efficiency and surpassing performance expectations, government ministries need to inculcate a philosophy of strategic cost management rather than reactionary application of cost cutting measures as evidenced by the proposed cuts by the finance minister. With forethought strategic cost management, the R350 million budget overrun resulting from the depreciation of the Rand could have been reduced or possibly eliminated.

The budget overrun is constituted of commitments in accommodation leases, foreign allowances, foreign municipality costs, educational allowances, special travel allowances and membership fees to international organizations. By and large these commitments are known in advance and fixed. They however fluctuate since they are pegged in foreign currency but can be managed. A depreciation in the Rand leads to an increase in the foreign currencies denominated commitments in Rand terms.

This undesirable position can be substantially reduced or eliminated by taking a foreign currency hedge which the national treasury or line ministry can manage. Alternatively the commitment can be tendered to a private bank or insurance company in order to shift the risk management to professionals.

In that way we can manage our international relations and cooperation foreign commitments with certainty and efficiency.  

VFS a Profiteering Project, Ripping Migrants

Creating monopolies, charging exorbitant fees and making money out of desperate people is never shrewd scrupulous business practice. I sometimes run against the tide or do I resuscitate it? We have all we want here and do not travel a lot but that should never be a reason to pinch from our visitors. It is unuBuntu like. Traditions gone to the dogs! Well, I am not saying investors should not make money but how they make it should be just and reasonable. Our policies and social services fees should have a human and social face. With all due respect, we know without doubt that frugal engineering in ecommerce, particularly egovernment, does not increase costs. If anything, it reduces the cost to zero.

In South Africa, VFS occupy a space that had debilitating apache reminiscence for foreign nationals living in the country. The visa service delivery by the department of home affairs (DHA) was and is to a great extent pathetic. DHA officers were casual and lethargic in serving the public, information asymmetry and disinformation was rampant all bent on confusing the applicants in order to create lucrative breeding ground for corruption. DHA offices were characterized with unending long queues and prowling scamsters.

The introduction of an Internet based self-service visa application platform by VFS mid this year to circumvent queuing was a welcome development. The platform give applicants, at most, full control of the initial application process. It is convenient and quite a civilized service delivery channel for a country so expansive. It aids planning, time management and reduces unnecessary loss of productive time while waiting in queues.

Apart from the above positives and other downstream benefits for increased use of Internet cafés and banking fees, the VFS business model in South Africa is a total rip-off of poor migrants. For once the system did not remove the paper based application system. After applying online one needs to print the completed application form, attach all required paper based documents, make an appointment for an interview with immigration officers where upon biometric details are collected, and paper application form and attached documents are submitted. The system is still entirely paper based with no internal fallback capabilities if attached supporting documents are misplaced or lost.

Once the application document is submitted to DHA, VFS loses control of the time to application outcome. In fact, it is relegated to a non-interactive document movement tracker a function that was available on the DHA website albeit with poor back office service. Moreso some performance targets are not specific, for example, permanent residence permit applications take anything from an uncapped minimum of eight (8) months. If the first interview was thorough enough to screen ineligible applications the adjudication process would be timely. The fact that this is a money spinning project means thoroughness at the point of application (purchase) will reduce revenue. This is the reason we see a recycling of rejected applications.

There is no doubt that VFS added a pinch of value to the visa application process. However, the value they brought to the table is disproportionate to the whooping melodramatic 89% increase in the average cost of visa service fees. The rand is not a paper currency, it is a solid convertible hard  currency. This is authorized inflation and day light profiteering which unnecessarily increases the cost of doing business in South Africa and making travel an unreachable luxury. Whatever the investment the company made does not justify the exorbitant additional fees they charge. To put the rip-off into perspective, imagine the 250 000 Zimbabweans renewing permits each paying R870 (R420 for DHA, R380 for VFS and R70 for biometric services). Whilst this maybe an outlier, the fact is that VFS will effortlessly receive R95million just this October and November a big feat enough to resuscitate the ailing post office and save jobs from the looming retrenchments had enough foresight been applied in the tendering process. A public private partnership (PPP) would have been the most ideal vehicle to ensure eventual transfer of technology, creation and saving of jobs. As it is, VFS has created a monopoly that has eliminated all visa facilitation companies and killed employment. It is uncommon for governments to resuscitate post offices by assigning them expanded government services like home affairs and travel functions.

It is incontestable that VFS offers a turnkey solution replicated with minor changes for all the countries it serves. It is undeniable that the countries use shared cloud based databases. The cost savings that result from such a frugal innovation does not warrant the fees that VFS charges. Pursuant to that, it would be national interest to know VFS’s cost structure to at least justify its charges and how it is investing its windfall to prove any benefit to the country.

If egovernment is going to create reckless monopolies with negative externalities of this magnitude, then we must go back to the drawing board. The real sustainable value of this service delivery channel is in reducing both the cost, processing and decision time. Surely to charge 89% more fees on a basic service which also shifted the cost of data capturing and printing to applicants while processing and decision time remained constant is an insult to civilized pricing models. On top of that VFS may profit from free biometric and personal details captured by the system.

Either DHA or VFS or both should take a significant cut of their charges to reflect electronic commerce, self-service savings and long turnaround time. Alternatively, they have to invite other players to party. In its current form, the service is in direct conflict to the sustainability revolution underway.

The point is not about who is served, it is about fair pricing, not a loot.