Say what?

Finweek English Edition - - INSIGHT - Marc Ash­ton marca@fin­

When it comes to fi­nan­cial jour­nal­ism, I have two pet hates.

The first is when a politi­cian chucks a big num­ber as a sound bite to the jour­nal­ists who just duly re­port it with­out any kind of in­ter­ro­ga­tion, and the sec­ond is the phrase “shoring up the bal­ance sheet”.

To il­lus­trate the first point, I will re­fer to a re­cent an­nounce­ment by Gaut­eng Pre­mier Nomvula Mokonyane who was speak­ing at a break­fast hosted by The New Age where she claimed that R128m in bur­saries were to be dis­trib­uted to about 1 200 stu­dents from dis­ad­van­taged back­grounds for their ter­tiary ed­u­ca­tion. That’s great, but that works out at less than R11 000 per stu­dent for a de­gree with a min­i­mum du­ra­tion of three years. What is go­ing to hap­pen to those kids when the bur­sary money runs out af­ter the first se­mes­ter?

Sim­i­larly, I take is­sue with Jo­han­nes­burg Mayor Parks Tau, who trum­peted the fact that R110bn will be in­vested in age­ing in­fra­struc­ture over the next 10 years.

Ac­cord­ing to Tau, Gaut­eng will spend R30bn over the next three years, which will trans­late to R10bn per year – al­ready R1bn less than R11bn per year we said we were go­ing to spend, but hey, what’s a bil­lion rand here or there?

If you would like con­text for R110bn, it is ba­si­cally the in­vest­ment that went into two power sta­tions – Kusile and Medupi.

De­spite be­ing aware that in­fra­struc­ture in Gaut­eng was fall­ing to pieces, we spent R4.6bn in the 2012/13 f is­cal, which didn’t make any real im­pact on our col­laps­ing sys­tems, but let’s put that to one side for the mo­ment.

In the 2013/14 fi­nan­cial year, R7.3bn will be spent and then there will be a pleas­ing in­crease to R13.5bn in the 2014/15 fis­cal. Log­i­cally, us­ing Tau’s cal­cu­la­tions, we will spend R9.2bn in the 2015/16 year. So that leaves us with about R80bn to spend over the next seven years, which is about R11.4bn an­nu­ally.

I am not an inf la­tion guru so please don’t shoot the mes­sen­ger, but by my cal­cu­la­tions R11bn of to­day’s money (i f we as­sume i nf l ation re­mains i n line with his­toric trends) will trans­late into about R19bn in a decade. So essen­tially what Parks Tau is say­ing is that in 10 years, the City of Jo­han­nes­burg will be spend­ing half of what it spent in the 2012/13 fis­cal on in­fra­struc­ture a decade from now.

My sec­ond gripe also has to do with fi­nan­cial lan­guage and the con­sti­tute use of terms like ‘re­in­forc­ing’ and ‘shoring up’ bal­ance sheets. Whether it is pri­vate com­pa­nies or state-owned en­ter­prises (SOEs), this is quickly trans­lat­ing into “bail us out be­cause we’re not able to run ef­fi­cient or­gan­i­sa­tions” and it is not fair to stake­hold­ers who have to keep foot­ing the bill.

When you learn ac­count­ing in high school, you are taught a sim­ple rule – it’s called a bal­ance sheet be­cause the two sides bal­ance out. We can’t keep ar­gu­ing that cash-hun­gry, op­er­a­tionally in­ef­fi­cient SOEs are go­ing to make a bal­ance sheet ‘ bal­ance’ by hit­ting up share­hold­ers. It has be­come too easy for those in man­age­ment to use this throw­away line on share­hold­ers.

We have a dire short­age of skilled and ex­pe­ri­enced ac­coun­tants in Gov­ern­ment and I think there’s also a trend seep­ing into the pri­vate sec­tor where this ap­proach of bal­ance sheet re­in­force­ment is cre­at­ing lazy fig­ures in man­age­ment who t reat share­hold­ers as their bankers.

Yes, we’ve en­joyed lots of easy cash f loat­ing around be­cause of poli­cies like ‘quan­ti­ta­tive eas­ing’, but man­age­ment of or­gan­i­sa­tions are paid to man­age bal­ance sheets, not share­hold­ers.

Parks Tau

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