New lead­ers, same goals, new stim­u­lus

The pack­age has echoes of pre­vi­ous prom­ises but min­is­ters say that this time they will be kept

Mail & Guardian - - Business - Lyn­ley Donnelly

In 2012, the Mail & Guardian sat down with Eco­nomic De­vel­op­ment Min­is­ter Ebrahim Pa­tel in his of­fice at 120 Plein Street, Cape Town, to talk about in­fra­struc­ture. The in­ter­view delved into govern­ment’s drive to shift govern­ment spend­ing to­wards in­vest­ment, to be spear­headed by the Pres­i­den­tial In­fra­struc­ture Co-or­di­nat­ing Com­mis­sion (PICC). It would in­clude the de­vel­op­ment of 18 strate­gic in­fra­struc­ture projects that cov­ered en­ergy, water, lo­gis­tics cor­ri­dors, mu­nic­i­pal de­vel­op­ment and more.

The state would look to more part­ner­ships with the pri­vate sec­tor to im­prove project de­liv­ery, in­clud­ing fi­nanc­ing from pen­sion funds to match the long-term in­vest­ment hori­zons of these projects. Fund­ing would also come from al­ter­na­tive part­ners such as the other Brics (Brazil, Rus­sia, In­dia, China) na­tions. The PICC would act as a “clear­ing-house” for projects to un­lock ad­min­is­tra­tive block­ages, promis­ing im­proved ef­fi­ciency and co-or­di­na­tion. The state also promised to ad­dress ad­min­is­tra­tive prices — such as ris­ing elec­tric­ity costs — to re­duce the bur­den these were plac­ing on eco­nomic ac­tiv­ity.

Sounds fa­mil­iar?

When Pres­i­dent Cyril Ramaphosa an­nounced the govern­ment’s fis­cal stim­u­lus pack­age last Fri­day, which is un­der­pinned by a ma­jor in­fra­struc­ture drive, the echoes of past prom­ises were eerie.

But Pa­tel told the M&G this week that things will be dif­fer­ent this time, not least be­cause of strong po­lit­i­cal back­ing and the strength­en­ing of the PICC.

“The PICC struc­tures work best when un­der­pinned by strong and con­sis­tent po­lit­i­cal sup­port. The an­nounce­ment by the pres­i­dent pro­vides the nec­es­sary back­ing to it,” Pa­tel said.

From the 2016-2017 pe­riod, in­vest­ment in pub­lic in­fra­struc­ture be­gan to de­cline, Pa­tel said, de­spite sig­nif­i­cant growth up un­til then. The fall was partly driven by slower spend­ing by state-owned en­ti­ties (SOEs), thanks partly to “weak­ened gov­er­nance, im­paired bal­ance sheets and shift in fo­cus … as­cribed to state cap­ture and cor­rup­tion”, he said.

Weak­en­ing gov­er­nance at SOEs — and also at de­part­ments and mu­nic­i­pal­i­ties — be­came a key prob­lem for the PICC, for which Pa­tel’s depart­ment would be­come the sec­re­tariat.

“[It] limited the ef­fec­tive­ness of ef­forts to in­te­grate projects to max­imise their im­pact, or fund new projects in the … pipe­line,” he said.

The stim­u­lus plan will strengthen the PICC by, among other things, the de­vel­op­ment of tech­ni­cal ca­pac­ity that can be drawn on by the ded­i­cated in­fra­struc­ture ex­e­cu­tion team to be set up in the pres­i­dency.

Fos­ter­ing greater pri­vate-sec­tor part­ner­ship will also be a key fea­ture, said Pa­tel, an ex­am­ple of which is the PICC team­ing up with the civil en­gi­neer­ing pro­fes­sion to iden­tify in­fra­struc­ture main­te­nance prob­lems.

Added to this, the stim­u­lus plan is ad­dress­ing pol­icy is­sues that have cre­ated bot­tle­necks, said Pa­tel, in­clud­ing pro­vid­ing more reg­u­la­tory clar­ity for the min­ing sec­tor and fi­nal­is­ing en­ergy pol­icy, no­tably the in­te­grated re­source plan.

A cur­sory ex­am­i­na­tion of some of the ma­jor strate­gic in­fra­struc­ture projects il­lus­trates how they be­came as­so­ci­ated with state cap­ture and mal­ad­min­is­tra­tion, rather than eco­nomic de­vel­op­ment and growth.

Transnet’s pro­cure­ment of bil­lions of rands worth of new rolling stock, which fell un­der the rubric of the de­vel­op­ment of a Dur­ban-Free StateGaut­eng lo­gis­tics and in­dus­trial cor­ri­dor, have be­come case stud­ies for state cap­ture.

The de­vel­op­ment of the Mz­imvubu dam has been dogged by con­tro­versy about cost over­runs and al­le­ga­tions of fishy fund­ing plans.

Eskom’s con­struc­tion of power sta­tions Medupi, Kusile and In­gula was well un­der way be­fore they were in­cluded as part of the strate­gic in­fra­struc­ture projects. They have seen per­sis­tent de­lays and bal­loon­ing costs and the com­pany it­self has been brought to its knees by al­leged cor­rup­tion.

Pub­lic En­ter­prises Min­is­ter Pravin Gord­han also

ar­gues that things are dif­fer­ent this time around.

Ahead of the stim­u­lus plan’s launch the govern­ment had taken “de­ci­sive steps to re­build in­vestor con­fi­dence, con­front cor­rup­tion and state cap­ture head-on, re­store good gov­er­nance at SOEs and strengthen … crit­i­cal pub­lic in­sti­tu­tions like Sars [the South African Rev­enue Ser­vice], the Hawks, the State Se­cu­rity Agency and the NPA [Na­tional Prose­cut­ing Au­thor­ity],” he told the M&G.

Changes at Eskom, “which was brought to the brink of col­lapse by state cap­ture”, said Gord­han, are a case in point. The new board ap­pointed in Jan­uary, along with the new per­ma­nent chief ex­ec­u­tive, is in­sti­tut­ing “a cul­ture of ef­fec­tive and trans­par­ent gov­er­nance, in­clud­ing en­sur­ing that those who were en­gaged in fraud­u­lent ac­tiv­i­ties are brought to ac­count”.

As a re­sult there has been a pos­i­tive change in in­vestor sen­ti­ment to­wards the util­ity, he said. It was able to raise R43-bil­lion be­tween Jan­uary and March, af­ter pre­vi­ously be­ing locked out of cap­i­tal mar­kets.

“The dif­fer­ence be­tween this and pre­vi­ous in­ter­ven­tions is that there is a de­ter­mi­na­tion and an ur­gency, led by Pres­i­dent Ramaphosa,” said Gord­han.

The es­tab­lish­ment of the South Africa In­fra­struc­ture Fund will re­duce the cur­rent frag­men­ta­tion of in­fra­struc­ture spend and en­sure more ef­fi­cient and ef­fec­tive use of re­sources, said Gord­han.

The R400-bil­lion meant to seed the fund will, it ap­pears, be made up largely by the in­fra­struc­ture spend al­ready bud­geted for by the state over the next three years. About R834-bil­lion for in­fra­struc­ture was al­lo­cated in the Fe­bru­ary bud­get for this pe­riod.

But this in­cludes spend­ing by SOEs, other pub­lic en­ti­ties and pub­lic-pri­vate part­ner­ships. When these are ex­cluded na­tional, pro­vin­cial and lo­cal govern­ment de­part­ments will spend a lit­tle over R395-bil­lion on pub­lic-sec­tor in­fra­struc­ture.

The stim­u­lus plan will also repri­ori­tise R50-bil­lion for job cre­ation, health, ed­u­ca­tion and so­cial in­fra­struc­ture im­prove­ment.

But where this money will be found is un­clear, par­tic­u­larly given the al­ready deep cuts an­nounced in the bud­get in Fe­bru­ary driven by the in­tro­duc­tion of fee-free higher ed­u­ca­tion and de­clin­ing tax rev­enues. New fis­cal pres­sures must also be fac­tored in, no­tably the re­cent pub­lic-sec­tor wage set­tle­ment.

Credit rat­ings agency Fitch said this week that the plan is “un­likely to de­liver a sig­nif­i­cant boost to eco­nomic growth”.

Sev­eral of the mea­sures re­late to ex­ist­ing pro­pos­als and oth­ers will take time to fi­nalise and to have an ef­fect, it said in a state­ment.

But the repri­ori­ti­sa­tion of spend­ing could be pos­i­tive for eco­nomic growth, said Azar Jam­mine, chief econ­o­mist at Econometrix, par­tic­u­larly if there was “ap­pro­pri­ate repri­ori­ti­sa­tion” away from waste­ful, ir­reg­u­lar and unau­tho­rised ex­pen­di­ture. Al­though govern­ment has made sim­i­lar prom­ises in the past, “un­der a new lead­er­ship we may be more suc­cess­ful in that re­gard”, said Jam­mine. “The ob­jec­tives and mo­tives be­hind this are more gen­uine than they were in the past.”

Tighterreins: EbrahimPa­tel prom­isesthat things will be dif­fer­ent this timearound

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