Little left in the kitty to tackle infrastructure backlog

SA IS supposed to be embarking on what is commonly called a countercyclical fiscal policy, which roughly means the government is to start spending in a downturn while many other countries are zipping up their wallets as austerity becomes the norm. And this path, as we can see, is only exaggerating Europe’s economic decline.

The government’s multibillionrand infrastructure plan is really a tool to clear SA’s arteries in order to exponentially boost growth, but by circumstance rather than choice, it has been decided it can only be done on the user pays principle.

That’s the reason why the cost of living and that of doing business keep rising, why energy tariffs are where they are, and the regulator has to accommodate Eskom’s build programme. The sole shareholder quite simply doesn’t have the resources to build the additional power stations on its own.

The continuing e-toll dispute is just another example of the government asking Gauteng residents to contribute towards freeway improvements. Given the slowing domestic economy and raging concern over the misuse of public funds, the introduction of tolls on SA’s— and probably the continent’s — busiest highway has been fiercely opposed.

Be that as it may, the government, or rather the ruling party, has long decided on the user pays principle when it comes to the delivery of its infrastructure plans. Growing welfare and high public sector wage costs limit the state’s ability to play a much bigger part in the delivery of roads and the like.

Over the past four years, in an essentially recessionary situation in the job market, the state has been the main employer, with the private sector embarking on cost reductions to boost profitability.

This partly explains why local corporate profits are rising, pushing the JSE’s all share index up 87% from the recession base in November 2008 over the same period, while growth slows.

Just as we are sitting today with a dearth of opportunities in the private sector and empowerment initiatives taking a back seat to survival in some cases, Finance Minister Pravin Gordhan is sitting with a budget of which more than 50% is dedicated to welfare and wages.

SA, much like its fellow emerging market country, India, continues to see its welfare spend balloon because of historical corrections.

So there’s little left with which the state can directly address the growing infrastructure backlog.

When your transport minister, in charge of the contentious e-tolls, doesn’t quite seem to get the factors that hinder the government from rolling out a road network on its own, and then chooses to distance himself from everything relating to it, the government really has an inhouse problem.

That’s why the president’s decision to move the person responsible away from an essential ministry to one dealing with the country’s expansion plans needs to be applauded. His move to quickly replace the late Roy Padayachie as minister of public service and administration also needs to be praised, as there are public sector wage negotiations under way.

If these talks end with workers gaining an increase far above the 5% limit that the Treasury has already earmarked, with no productivity improvements, public sector wages are just going to add to their already unreasonable weighting on the budget — which is not going to increase, because of European economic conditions.

Public sector unions have already rejected an improved offer of 6,5%, and it does look like we are heading for another dispute.

If the country is to one day reach a stage when welfare costs start to fall, we are going to need to see the South African economy reaching growth levels above 5% at the least. The key to achieving this, among other challenges such as better education, is to make sure infrastructure — be it electricity, rail, road — is an enabling factor.

The Reserve Bank’s best-case scenario for growth over the next two years is only 4% on average.

Otherwise, we are stuck where we are, which may be a good place when compared with some European nations right now, but in the long run isn’t too reassuring.

IT’S NOT too often that I’ve written this, but owners of gold stocks have found themselves in the money once again. Since the beginning of last month, anyway, with the top three producers rallying just as European fears take a firm hold of markets.

The third-biggest, Harmony, has been the strongest performer, gaining 21%, with the other two in the high teens. Gold, too, has managed a mini-revival since its low for the year in the middle of last month, gaining more than 5%.

E-mail: derbyr@bdfm.co.za Twitter: @ronderby