Corruption ‘limits SOE contribution’
Unlocking billions from budgets will be key to stimulus plan
● State-owned enterprises collectively had a R360bn budget and were expected to play a role in the government’s R50bn plan to boost the economy, public enterprises minister Pravin Gordhan said on Friday.
However, in many SOEs costs had increased because corruption was high, and this put a limit on the contribution these entities could make. “In many of our entities … you are paying double or treble for things.”
Following President Cyril Ramaphosa’s announcement on Friday of an economic recovery plan, Gordhan said SOEs generally played a significant role in infrastructure spend and if investment from such enterprises was unlocked, “you’ll get a lot more bang than we are currently getting, which will make a bigger impact on the economy”.
But it was necessary to clean up corruption and malfeasance at SOEs to get sufficient electricity, the right kind of rail service for mining and manufacturing, and efficient services at ports, Gordhan said. The government would also draw SOEs’ attention to reducing high administered prices to cut the cost of doing business in SA, he said.
Ramaphosa also announced that R400bn in existing public sector funds would be allocated to the South African Infrastructure Fund over the next three years.
Finance minister Nhlanhla Nene said the government was in talks with the Association for Savings & Investment SA, the PIC and other fund managers, and the Brics-backed New Development Bank to contribute to the infrastructure drive. Among the projects the government is looking into are sanitation at schools, and roads and dams.
Nene said the government had discussed the package with Moody’s when the ratings agency was in the country earlier this month. “They understand where we stand and they are quite comfortable with our commitment towards addressing our challenge and they didn’t seem much out of line with the situation we are in.”
Moody’s, the only ratings agency to hold SA on investment grade, is expected to provide a ratings action in October. Last week Moody’s said there was little chance of a downgrade as it had SA on a stable outlook. Moody’s did not respond to a request for comment on Friday.
S&P Global Ratings said in an e-mailed response that Ramaphosa’s plan had “some good initiatives focusing on job creation and infrastructure” and it seemed “largely fiscally neutral”. S&P, which lowered SA’s credit rating to junk last year, said its rating on SA remained on a stable outlook.
Nene said the reprioritisation of the budget to support the economic stimulus plan would ensure the government improved the quality of its spending “to where it actually is able to get the best returns”. Details on which departments and projects the money would be redirected to will be announced during the medium-term budget policy statement (mini budget) on October 24.
The recovery plan has been welcomed by the business sector and economists.
CEO Initiative co-convenor Jabu Mabuza said it demonstrated the political will to make the necessary, tangible reforms. The Initiative was pleased with amendments to the visa regime, clarity and certainty on the Mining Charter, unlocking value in the telecommunications sector and the intention to reduce costs of doing business in SA.
Lumkile Mondi, a senior economics lecturer at Wits University, said the plan was a recovery package rather than a stimulus, adding it was “very exciting and is very encouraging”. He said the plan would be informed by whether the multidisciplinary team that will work with the president has enough projects that can become viable financially to attract core financiers. “We don’t have capital at all. The money the IDC and others have is not enough for us to address the infrastructure deficit in our country.”
He said SA had energy, water and transport problems as well as “health issues and schools issues. We have a huge infrastructure deficit that requires trillions of rands to get it going for a modern economy.”
Debt ratio
The state is unable to raise borrowing, Ramaphosa said. SA has a debt-to-GDP ratio of about 53%.
Gina Schoeman, a South African economist at Citibank, welcomed the announcement that radio frequency spectrum distribution was proceeding. The resultant reduction in data costs could improve real disposable income, consumer spending and remove barriers of entry for the services sector, she said.
Reprioritisation will improve the quality of spending
Nhlanhla Nene Finance minister