NORESERVATIONS

IN­FRA­STRUC­TURE SPEND­ING:

Finweek English Edition - - COLUMN - GRETA STEYN

The trend is for

Govern­ment con­sump­tion to rise at a faster rate than

cap­i­tal ex­pen­di­ture,

which is con­trary to the pol­icy of push­ing in­fra­struc­ture spend­ing as a lynch­pin for

growth

WHEN THE New Growth Path was re­leased, it con­tained the usual pol­icy pre­scrip­tion of steppedup pub­lic sec­tor spend­ing on in­fra­struc­ture. It’s been years now that this has been Govern­ment pol­icy. More’s the pity then that ac­tual spend­ing is shock­ingly weak. It seems the Soc­cer World Cup pro­vided an ar­ti­fi­cial boost to spend­ing and now that’s out of the way, cap­i­tal ex­pen­di­ture in some ar­eas of Govern­ment is ac­tu­ally de­clin­ing. You wouldn’t think that pos­si­ble, given all the pot­holes in Jo’burg that need fix­ing and the sorry state of hous­ing de­liv­ery. But ap­par­ently Govern­ment isn’t able to get its act to­gether.

Govern­ment’s cap­i­tal ex­pen­di­ture – which in­cludes spend­ing on in­fra­struc­ture – fell by 9,9% in first quar­ter 2010, 5% over the sec­ond quar­ter and by 3,3% in the third quar­ter. (All fig­ures are quar­ter-on-quar­ter, sea­son­ally ad­justed and an­nu­alised per­cent­age changes, un­less oth­er­wise stated.) This fol­lows a year-on-year de­cline of 4% in 2009. The SA Re­serve Bank’s Quar­terly Bul­letin re­ports the de­cline in capex “partly re­flected the fi­nal­i­sa­tion of projects un­der­taken in prepa­ra­tion for the foot­ball tour­na­ment”.

This spend­ing was by all three tiers of Govern­ment: na­tional, pro­vin­cial and lo­cal. Pub­lic cor­po­ra­tions in­creased spend­ing over the third quar­ter, but by a small 0,9%, down from 2,5% in sec­ond quar­ter 2010. The Bul­letin says the slower growth could mainly be at­trib­uted to a side­ways move­ment in cap­i­tal out­lays by Eskom and a slower pace of in­crease in the trans­port sec­tor af­ter the com­ple­tion of in­fra­struc­ture projects re­lated to the soc­cer tour­na­ment. How­ever, the up­grad­ing of free­way net­works pro­gressed as sched­uled.

Eskom is the biggest pub­lic sec­tor spender on capex. But bear in mind that spend­ing is, in a sense, “emer­gency spend­ing” be­cause with­out it SA would be plunged into dark­ness. There re­ally is no ev­i­dence of a spe­cial ef­fort at capex by the pub­lic sec­tor aimed at boost­ing growth and jobs.

Capex is im­por­tant, be­cause it gives the econ­omy the nec­es­sary in­fra­struc­ture to sup­port fu­ture growth. In some cases it’s ob­vi­ous – rail­way lines, ports, bridges and the like – cre­ate the trans­port in­fra­struc­ture to move goods around the coun­try and out of it as ex­ports. But even in cases such as build­ing or up­grad­ing a hos­pi­tal, capex is im­por­tant, as a healthy work­force is nec­es­sary for eco­nomic growth. When it comes to build­ing and main­tain­ing schools, it’s ob­vi­ous ed­u­ca­tion is a key el­e­ment of any eco­nomic growth plan.

Un­like in the past, the lack of Govern­ment spend­ing on capex wasn’t ac­com­pa­nied by a step-up in Govern­ment con­sump­tion ex­pen­di­ture, which ac­tu­ally fell by 0,6% in third quar­ter 2010. But that came off a high base: growth of 7% in the pre­ced­ing quar­ter. Sig­nif­i­cantly, real ex­pen­di­ture by gen­eral Govern­ment slowed be­cause it paid less out on salaries to em­ploy­ees due to strike ac­tion and also be­cause there was no ac­qui­si­tion of mil­i­tary goods in the quar­ter. Pre­vi­ous quar­ters had seen high Govern­ment con­sump­tion spend­ing due to the ac­qui­si­tion of mil­i­tary air­craft.

Clearly, Govern­ment con­sump­tion ex­pen­di­ture will pick up again once the high pub­lic ser­vice salaries start kick­ing in. The trend is for Govern­ment con­sump­tion to rise at a faster rate than capex, which is con­trary to the pol­icy of push­ing in­fra­struc­ture spend­ing as a lynch­pin for growth. The tier of Govern­ment that re­ally bat­tles with in­fra­struc­ture spend­ing is lo­cal govern­ment. We know of a R27bn back­log (at last count) in elec­tric­ity dis­tri­bu­tion in­fra­struc­ture, which lo­cal govern­ment ne­glected to main­tain due to na­tional Govern­ment’s past plans to take away elec­tric­ity dis­tri­bu­tion from mu­nic­i­pal­i­ties. If no mean­ing­ful in­roads are made into that back­log, elec­tric­ity black­outs will hap­pen even if Eskom has enough ca­pac­ity.

Then there was the Green Drop re­port of 1999 into SA’s sewage sys­tems, which was leaked by the Demo­cratic Al­liance last year af­ter Govern­ment dragged its heels. It found a R23bn im­me­di­ate back­log in up­grad­ing of sewage sys­tems.

gre­tas@fin­week.co.za

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