The trend is for
Government consumption to rise at a faster rate than
which is contrary to the policy of pushing infrastructure spending as a lynchpin for
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.