Publish Date: 01 Jan 1994

Institutional Development and Governance 

The immediate task and major challenge facing the new administration when it assumed office in 1994 was to create a unified entity from three separate components – part of the former Cape Province to the west and the nominally independent homelands of Transkei and Ciskei in the east of the new province.

While the African National Congress (ANC) won an outright majority in the April 1994 elections, it was nevertheless bound by agreements reached at the World Trade Centre and enshrined in the Interim Constitution that, inter alia, provided for a government of national unity, based on the principle of proportional representation at both national and provincial level.

The ANC won 2 453 790 of the 2 908 906 votes cast in the provincial poll, followed by the National Party with 286 029, the Democratic Party with 59 644 and the PAC with 59 475. This gave the ANC 48 of the 56 seats in the new legislature, the NP six and the DP and PAC one each but it also obliged the ANC to accommodate one member of the NP in the provincial executive.

Outlining the initial challenge, the Eastern Cape’s first premier, Raymond Mhlaba, explained  later that the new provincial government had "to integrate three distinct administrations from three distinct ‘countries’” covering an area of 169 000 square kilometres with a population of 6.5 million people.

That not only involved the creation of a single public service that, as Premier Mhlaba pointed out was the largest in the country, employing some 170 000 people from the three previous administrations, but also creating a new ethos while managing the different conditions of service, constitutional arrangements and legislation.

The task was immense and, as Premier Mhlaba said in his first State of the Province Address, amalgamation had to take place against the background of "the record of incompetence and inefficiency of the three administrations that, he noted, was "visible to all of us across the province”.

The situation was exacerbated by a number of factors. These included:


  • The massive debt built up by former Transkei towards the end of its existence  which was the result of differences between the military council led by General Bantu Holomisa who had decided to unban the ANC, thus defying Pretoria;
  • Resistance by former Transkei government officials to relocate to the new capital at Bhisho; equalisation of benefits that, for example, resulted in a reduction of the housing benefits enjoyed by Transkei public servants;
  • Anxiety among public servants with regard to job security, and
  • Demands both from the former Transkei and the area west of the Fish River for a 10th province  accompanied by arguments in favour of Mthatha and Port Elizabeth respectively becoming  the provincial capital.


Integrating the three separate entities not only involved the creation of a single public service with a common ethos, as Premier Mhlaba pointed out, it was also the largest in the entire country employing some 170 000 people from the three administrations. Integration involved resolving challenges that resulted from different conditions of service, constitutional arrangements and legislation but also, through national government, the introduction of a common taxation regime to which there was considerable opposition.

The task was immense, and as Premier Mhlaba noted, had to be carried out against the background of "the record of incompetence and inefficiency of these three administrations” that was "visible to all of us across the province”. He made it clear that "the rationalisation of parallel existing administrations and the creation of single ministries for the entire province is the basis on which the delivery process  will be founded. For as long as we have divided administrations, we will always have divided loyalties”.

In practical terms, that involved the amalgamation of six separate education departments, five separate health departments, and addressing the hopelessly skewed racially-based allocation per capita for pupils and imbalance between east and west. The new administration had decided that Bhisho would be the provincial capital, justifying this decision on the grounds of its central geographical position so facilitating access to the administration. In addition, the necessary infrastructure already existed both to house the new administration and for the legislature which made use of the former Ciskei legislative complex  meaning significant costs could be avoided.

Some indication of the challenges is evident from the fact that the new administration faced the task of amalgamating six education departments; five health departments and a host of parastatals, some of which were simply not viable and eventually had to be closed or amalgamated.

The first step in the process of creating  new administrative machinery for the province was the appointment of strategic managers – later permanent secretaries – in each department mirroring the executive. Strategic management teams, made up of individuals from the ANC and the broader democratic movement who had an intimate knowledge of the challenges facing the specific sector, were appointed, their mandate being to:


  • Translate the RDP sector objectives into a coherent departmental programme;
  • Review the existing structure and propose an optimal departmental structure;
  • Advise the MEC on the day-to-day challenges confronting the department, and
  • Set targets for the department with respect to transformation as defined by the ruling party – non-racialism, broadening access and minimum standards of service delivery.


The capacity and strengths of the various strategic management teams varied considerably. Despite the challenges, Premier Mhlaba was able to report in his second State of the Province Address that the Eastern Cape now had "an administration that is being managed by skilled administrators. The Provincial Service Commission, a director-general and permanent secretaries who are heads of department have been appointed”.

The reality of the situation in the province, however, was revealed in the report of the task team appointed at the end of 1996 by then Deputy-President Thabo Mbeki and Public Service and Administration Minister Zola Skweyiya "To investigate administrative/managerial issues affecting the Eastern Cape Provincial Administration”.

In its report the task team stated inter alia that: 

  • There was "no effective administrative and political coordination or leadership” in the administration which had "essentially resulted in a paralysis of the administrative system, low morale amongst staff and indecisiveness”;
  • Strategic plans "are not coordinated and linked to the budgetary process” and there is "an absence of accurate management information to support strategic planning”;
  • An analysis of organisational structures revealed that "the majority of posts provided for in departments deal with administrative support functions while the line functions were poorly provided for” ;
  • There was "no clear provincial or departmental policy on human resources development which is practical and linked to service delivery objectives”;
  • There "appears to be widespread fraud, corruption and a lack of discipline. This extends to all areas of the public service” – at the time police were investigating 650 cases of fraud and corruption involving public funds to the tune of R30.75 million.

 The task team also reported on the situation with regard to supernumeraries, pointing out that there were 4 763 in Agriculture and Land Affairs and 624 in Local Government alone. The task team also sounded a warning with regard to overspending stating, for example, that it was clear that by the end of the financial year Public Works "will have grossly overspent” and that Health was "likely to overspend by approximately R600 million and Welfare by a further R900 million”.

The result of the task team’s report, as the Eastern Cape’s second Premier Makhenkesi Stofile noted later, was that as early as 1997 the provincial government "began to restructure and streamline almost all government departments and agencies. With the administrative reforms we have reduced unnecessary duplications, brought together agencies that belong together and focused the outputs of each department and agency. The next step is to improve the actual operational functioning of these departments and agencies. The key problem has to do with capacity and we were not afraid to say that”.

Deputy-President Mbeki appointed a second task team in 1996, a R1.2 billion initiative that saw the establishment of a multi-sectoral team to drive targeted programmes in identified corridors in   Transkei.


In what can only be described as an inauspicious start, the Eastern Cape inherited the budgets of the old administrations in its first year of existence. These had been cut to the bone and consisted essentially of contractual commitments and recurrent expenditure.

Presenting the first provincial budget on May 8, 1995, Provincial Expenditure MEC Professor Shepherd Mayatula acknowledged that there was a need to stress "the enormous financial predicament of the province”.

It is instructive to note, inasmuch as it indicates where the foundations of one of today’s challenges is to be found, that  of the R12.4 billion provincial budget, 46% was for compensation of employees, higher than the nationally prescribed limit of 35%.

By 1997-8  then Premier Makhenkesi Stofile acknowledged that the province was in a "financial crisis” and had overspent its budget by R1.5 billion.

That signaled the start of two things: 

  • The rollercoaster ride of under and over-expenditure that would only be finally brought under control in the fourth term, and
  • The first intervention by National Government with the most recent, in Education, that  ended in 2014. 

 The task team appointed by then Deputy-President Thabo Mbeki to investigate administrative and managerial issues also pointed to challenges associated with financial management saying that the new government had inherited three financial management systems and the result of the decision not to proceed with the implementation of BAS had "resulted in no proper accounting system being in place”. It also pointed to the fact that three payroll systems were operational with departments reporting "a lack of control in the payrolls of the former Ciskei and Transkei and the likelihood of a large number of ghost workers”.

When  Premier Stofile commented on the financial crisis in the province in the 1997-8 financial year,  he attributed the situation to: 

  • An inaccurate data base and a lack of information systems that resulted in poor budgeting;
  • A lack of managerial capacity that resulted in mismanagement, and
  • A lack of controls that contributed to an increase in fraud, corruption and theft.

 Explaining  how the administration slumped into debt in 1998, former Finance MEC Enoch Godongwana says  debt had reached levels where money was not available to pay social grants and government defaulted on its legal obligations to pay social grants for the first time since the advent of democracy.

He states that the source of the financial crisis was that government departments were allowed to accumulate debt without the necessary oversight and monitoring by Provincial Treasury – Education at one point was running 34 accounts with 34 cheque books. The source of the debt was therefore the failure of financial management on the part of the provincial administration.

The second challenge lay in decentralisation, the aim of which was to bring services closer to the people and allow decisions to be made at local and district levels but which resulted in a number of key departments, specifically Education, running up substantial debts.

Regional offices were allowed to make appointments to schools and recruit other officials without the need of approval from the head of department. The result was that the department could no longer account for its personnel numbers. One result of this was the emergence of ghost teachers. A second result of the decentralisation process that affected both Education and Health was that it led to a skewed human resource allocation  favouring administrative staff against frontline staff, a challenge with which the provincial administration continues to battle  to this day as is evident from the comments of Provincial Planning and Treasury MEC Phumulo Masualle in his 2012-13 and 2013-14 budget speeches.

As far as Health is concerned, the skewed human resource allocation led  to the dire consequences of a shortage of both nurses and doctors as well as medical equipment and infrastructure with the image of the province being badly tarnished by a number of television programmes that focused on the situation in provincial hospitals.

The extent of the financial crisis as announced by MEC Godongwana was an overdraft of R1 billion and outstanding debts of R2 billion. In an effort to address the situation, National Government invoked Section 100 (1) of the Constitution in February 1998, although this did not mean it was assuming control of the provincial finances.

The interventions resulting from the invoking of Section 100(1) were: 

  • The centralising of the "cheque book” with departments mostly responsible for the debt being stripped of their financial management functions;
  • Monitoring of the financial situation in the province on a monthly basis, focusing specifically on Education, Health and Public Works, and
  • Expenditure on key items such as personnel needing  Provincial Treasury approval. 

Later an Interim Management Team (IMT), convened by Director-General Mvuyo Tom was appointed by the National Department of Public Service and Administration that inter alia focused on the cleaning up of the personnel structures and the elimination of ghost employees.

A second area of focus was social grants, where 100 000 duplicates were cancelled over a period of two years.

In September 1998 a "Strategy and Implementation Plan for the Combatting of Government Corruption in the Eastern Cape Province” was also unveiled. It revealed that different investigations in the Department of Welfare had shown the existence of well-established syndicates operating in almost all the parts of the province using different methods to commit fraud involving social grants.

One critical element of the IMT was the investment by National Treasury in the training of officials from the provincial administration in understanding financial management systems and related monitoring tools. The goal was to build a cadre of employees, capable of managing the financial systems of provincial government, thus ensuring that the intervention created the basis for a long-term, sustainable solution to the financial crisis in the Eastern Cape.


Placed in an historical context in 1994, the Eastern Cape Government inherited an economy that can be characterised as both structurally deficient and operationally bimodal.

On the one hand  the focus from colonial times was on  developing  the Western Cape rather than Port Elizabeth, while on the other there had been long term under-investment in  Transkei, the area of the province where both soil and rainfall are more conducive to higher agricultural output. Historically,  Transkei was regarded as the source of cheap labour for the mines and investment in the development of agriculture was seen as a potential disincentive to securing labour. 

The response of the homeland governments of  Transkei and Ciskei to the under-development of the agricultural sector was to create a plethora of institutions geared to support agricultural growth. These institutions, inherited by the ANC-led administration in 1994 included the Transkei Agricultural Corporation (Tracor); Transkei Industrial Development Corporation (Transido); Transkei Development Corporation; the Ulimo Corporation of Ciskei (Ulimcor); the Bank of Transkei and Ciskei People’s Bank.

Because these institutions were not adequately capitalised to play in the credit market they were only able to intervene in areas such as the provision of tractors to rural areas but not to cover the full value chain in terms of support to rural farmers. The new administration failed to provide an adequate strategy for these parastatals as a result of weaknesses within the Department of Agriculture and the pressing need to focus on Education, Health, Housing and the creation of a coherent and fully functional administration. Ultimately, it was decided to disestablish the institutions which resulted in protracted legal battles between employees and the provincial government and a failure to seize the opportunity to implement a strategy that would reposition the agricultural sector as a core driver of growth and jobs. 

The new administration  also faced  the challenge of industrial areas established on the back of decentralisation benefits made by the National Party Government which, when withdrawn, resulted in a mass exodus of the companies that had located there.

During this phase of reconstruction, the economy was negatively affected by restructuring pressures and processes that had started in the 1980s, including:

  • Contraction in agricultural employment and in several manufacturing sub-sectors – disinvestment by automotive companies in Port Elizabeth was also a contributory factor;
  • Low levels of economic growth, averaging less than 2% during the 1990s, and
  • Continued disinvestment by state-owned enterprises such as Transnet and Eskom in the province.

The response of the provincial government to increasing concerns about the failure to implement the RDP resulted in organised labour calling for provincial negotiations between key stakeholders to form a strategy for implementation which, in turn, led to the creation of the Eastern Cape Socio-Economic Consultative Council (Ecsecc).

As a result of different interpretations around the role of Ecsecc, it was decided that it was to focus primarily on the Provincial Growth and Development Strategy (PGDS).The key pillars of the strategy were: job creation, investment in people, meeting basic needs, optimal use of natural resources, rural development, redistribution of income, prevention of crime and an efficient and effective public service.

The first five years of the new administration also saw the drive to  designate the Coega Industrial Development Zone, although it was in March 2001 before then Trade and Industry Minister Alec Erwin published his intention to designate the area as an IDZ in the Government Gazette. The drive to establish an IDZ was accompanied by demands led by the Border-Kei Chamber of Commerce for the creation of a similar facility in East London that would initially support existing industrialists and specifically Mercedes. While there was progress towards the establishment of the two provincial IDZs, attempts to create SDIs between East London and Port Elizabeth and along the Wild Coast did not prove to be successful.

A separate development saw the creation of the Eastern Cape Development Corporation that rationalised  the former homeland finance institutions and brought them  under one roof. At the same time the Centre for Marketing and Investment in the Eastern Cape (Cimec) was founded with these two institutions later being combined. The role of Comec was to attract direct foreign  investment into the province and ensure that it was marketed in a coherent manner, bringing an end to the somewhat chaotic rivalry for investment from municipalities and between the IDZs. 

ECDC has, however, still not shaken off the legacy of the homeland institutions it inherited and, despite a number of attempts it still has a significant portfolio of both residential and commercial properties it inherited from the Transkei Development Corporation in particular. It is important to note that while the establishment of ECDC brought a measure of sanity, in terms for example, of writing off debts that were indisputably irrecoverable, it still has not finally addressed the problem of disposing of all the non-core properties it inherited, specifically residential, despite the fact that this process was initiated more than a decade ago.


The overarching policy framework during this period that guided development was the Reconstruction and Development Programme (RDP), which was launched in the Eastern Cape in August 1994.

At the end of the first term of government, Premier Stofile was able to state that the administration "has significantly raised the scope of service delivery to our communities”.

He listed among the achievements: 

  • A total of 267 new school buildings and more than 1 020 toilets had been constructed, especially in rural areas;
  • 2 000 new "emergency” classrooms and 28 "disaster area” schools had been constructed;
  • 32 new rural clinics and 250 electrified rural clinics had been constructed;
  • Three new extensions to hospitals had been built and 84 renovations to hospitals in Transkei completed;
  • A total of 79 635 discount benefit houses had been transferred to local communities;
  • 29 800 new houses for low-income groups had been built and
  • A total of 13 263 subsidy-based housing units and more than 500 houses built under the pilot project schemes had been constructed.

 In addition, he said, the administration had also "assisted the enormous task of restructuring and strengthening local government, at both local government and district administration level,” adding that in some instances some of the areas "did not have a semblance of local government before”.

With regard to the administration itself, the premier said the task had been "to change the machinery of government at the same time as the public service was still required to continue delivering services to communities in every sphere of government business”. This, he suggested, was akin to "trying to change the wheel on a car that is in perpetual motion”.

Premier Stofile pointed to the successful merging of the "three ethnic administrations” and integration of them into a single entity, adding that what had emerged was "a united a patriotic Eastern Cape Public Service”. He also pointed to the training programme introduced from 1995 "to address the most critical human resource deficiencies” in areas such as finance and budgeting, human resources management, communication and information technology, leadership and organisation management.

At the end of the first term a considerable amount had been achieved in terms of creating a single administration and starting to inculcate the ethos of a public service whose mandate was to serve the people of the province. Further, the Section 100(1) intervention had brought a measure of financial stability to the Eastern Cape, although it would still be some time before matters were brought totally under control.

In February 1996, then Deputy-President Thabo Mbeki launched a R1.2 billion initiative following the establishment of a multi-sectoral task team (Presidential Project Team) aimed at driving targeted programmes in established corridors in the north-eastern part of the province. The PPT consisted of 37 contract and seconded officials and enjoyed a measure of success in the areas of municipal restructuring, agriculture and economic development as well as health and welfare but did not result in fundamental social and economic transformation of  Transkei.






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