Gordhan to shed light on delivery

Independent Newspapers.

Expansion of the Durban container terminal was among the projects listed in President Jacob Zumas State of the Nation address.

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When Finance Minister Pravin Gordhan presents his Budget on Wednesday, economists will look for more details on the government’s high-profile infrastructure programme.

President Jacob Zuma’s announcement of a “massive infrastructure drive”, in his State of the Nation address last year, was met with scepticism at the time – given the government’s track record of non-delivery.

However, signs of progress have emerged in recent weeks and comments in the 2013/14 Budget could shed more light on the situation.

Nedbank senior economist Nicky Weimar, who compiles the bank’s twice-yearly register of capital projects, said general government announced 27 capital expenditure projects last year, valued at R22.9 billion. This was the highest number of projects since 2007, a year when the economy grew 5.5 percent, and the highest value since 2009.

But Kevin Lings, the chief economist at Stanlib, pointed out that the government was still “behind budget for the fiscal year to date”. In other words, the latest expenditure data showed funds allocated to projects had not all been spent. And he expressed the hope that this situation would change in the coming fiscal year.

Weimar noted that Reserve Bank figures showed strong growth in capital expenditure by general government, “with the bulk devoted to social infrastructure such as housing, water distribution and so on”.

According to the central bank’s latest quarterly bulletin, annual growth in “real gross fixed capital formation” by the government in quarters one, two and three of last year was 14.2 percent, 24.6 percent and 23.4 percent, respectively.

In contrast, the private sector invested little in the real economy. Hit by the recession of 2008-2009, businesses cut back on capital spending. After a tentative recovery in 2010 and 2011 they pulled back again, given the industrial unrest last year, posting capital spending growth of only 2.2 percent, 2.7 percent and 2.8 percent, respectively, in the same three quarters.

The government also cut back after the recession, according to Weimar. “The reality is that capital expenditure, especially investment in social infrastructure, collapsed after 2009. Even after the recent spurt, which started in the second half of 2011, actual capital expenditure by general government only returned to pre-crisis levels as recently as the third quarter of last year.”

The government’s failure to invest for a period had consequences, direct and indirect.

Weimar said: “The cost of poor delivery of economic infrastructure is well documented: the lack of power, transport, logistical and telecommunication capacity has effectively undermined the private sector’s ability to expand capacity through capital expenditure. This contained economic growth to around 2.5 percent to 3 percent, thereby restricting job creation.

“The lack of investment in social infrastructure has been equally damaging, adding to social tensions, spilling over into intense discontent in the workplace, growing demands from labour on business and undermining the country’s long-term growth potential.”

The lack of action by the government also restricted the size of the skills pool and the quality of labour and productivity, Weimar said, arguing that efficient access to health care and public transport, among other things, was essential. “It is therefore very encouraging that capital expenditure by general government is moving in the right direction, but recent efforts will have to be accelerated and sustained to make a material difference over the medium to longer term.”

In his latest State of the Nation address, Zuma provided a long list of projects in progress. And he noted that the Infrastructure Development Bill was published for public comment this month.

Lings noted that the proposed legislation would give the National Treasury more authority to award contracts.

But if the government was to increase spending on infrastructure it would have to staunch the drain on its financial resources.

Lings said: “Our expectation is that the growth in the government’s salary bill will have to be systematically contained and capital expenditure increased. But this is not going to be an easy transition of the government’s expenditure priorities.

“It is perhaps also worth highlighting that this expenditure dilemma is made so much easier the more jobs are created in the private sector.”