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.