‘Smoke and mirrors’ from government on infrastructure expenditure

Claims that the budget boosts infrastructure spending exposed as false.
The discrepancy was picked up by Econometrix, Industry Insight and no doubt others. Image: Moneyweb

Government’s claims that the 2021 budget boosts infrastructure expenditure have been exposed as false.

Read: Infrastructure spending boost in the budget

Econometrix chief economist and director Azar Jammine said on Friday that Finance Minister Tito Mboweni made much of the fact that the government has a programme to spend R791.2 billion on infrastructural investment over the next three years.

“We have been given that kind of figure for each of the last two or three years. Don’t be fooled,” he said during a webinar hosted by cement producer AfriSam, on the outlook for South Africa’s economy in context of the 2021 national budget.

“Two years ago that figure was R865 billion. Last year it came down to R815 billion. Now it’s R791.2 billion. So there is a gap.”

This issue was also picked up by construction market intelligence firm Industry Insight, which stressed: “What was really disappointing are quite hefty cuts to infrastructure spending over the Medium-Term Expenditure Framework (MTEF) period.

Figures show a decline in spending

“Even though on page 4 of the Budget Review it says ‘The 2021 budget boosts infrastructure spending’, they call their own bluff by providing the actual figures, which show a 7.2% decline in infrastructure spending over the MTEF period, from R815 billion in last year’s budget down to R791.2 billion over the next three years.”

Industry Insight added that assuming the SA Reserve Bank’s average inflation forecast of 4.3%, this comes to a real 7.2% decline, “which is disheartening”.

It said this is another bad omen for the medium-term outlook for the economy because infrastructure spending, and capital expenditure/investment in general, are probably one of the only categories of spending where economists have been calling for increased expenditure.

Rhetoric

Industry Insight said it is well documented that investing in infrastructure is a significant driver of long-term sustainable growth and can also create a lot of jobs in the short run.

“It is also extremely disappointing given the government’s rhetoric over the last year or so, especially in the president’s initial stimulus response, saying that ‘massive infrastructure spending’ was on the cards.

“This is not ‘massive infrastructure spending’,” said Industry Insight.

“This is less and less infrastructure spending, simply continuing the downward spiral in public sector investment over the last nine to 10 years.”

Jammine questioned why the government infrastructure expenditure figure is declining and yet government is telling everyone that it is determined to embark on major infrastructural investment.

He said in terms of infrastructural projects, the government has set forward a programme of 51 separate projects in tandem with agreement by the National Economic Development and Labour Council (Nedlac), big business and organised labour, worth R340 billion in all the various spheres.

Jammine said Mboweni has suggested that some of these programmes are already under way, but stressed the key is whether or not South Africa has the capacity to spend that money.

Underspending is part of the problem

“A couple of years ago, there was a study that showed that among municipalities a mere 9% had actually spent their municipal infrastructural budgets and around two thirds spent less than 85% of their capital budgets. That is part of the problem.

“The one weakness of the budget is that very little was said about state-owned enterprises and commitment to infrastructural investment. I felt that that was a gap in the budget,” he said.

Jammine said that from the point of view of the cement industry, which is closely linked to capital formation and fixed investment, the bad news is that there was a contraction of almost 20% in investment activity last year.

He said the forecast, on the tailwind of last year going into this year, is for a 2.4% contraction in investment this year and only thereafter will there be a meaningful pickup, with an improvement of about 4% in each of the next two years.

“This is not as great as one would like to see,” he said.

However, Jammine said historically investment data is volatile and if economic growth starts to improve, these forecasts could very soon move into the double-digit range.

Private sector involvement

Industry Insight said it is clear that more emphasis is being placed on infrastructure projects, even though the government admits it has major financial constraints.

It said this is why the government is trying even harder to get the private sector more involved through the Infrastructure Fund, as well as building a pipeline of projects with the Department of Public Works and the newly established Infrastructure Office of the Presidency working together.

“While it is certainly a step in the right direction, it remains to be seen whether the private sector can be incentivised enough to get involved with these projects, given the state of business and consumer confidence and the state of the political economy. We remain sceptical.

“Many of these projects that are going through the Infrastructure Fund are also a long way away from breaking ground, with the overwhelming majority of these projects only at feasibility stage or even ‘pre-feasibility stage’, which is just a conceptual stage,” it said.

Read: First post-pandemic-recovery infrastructure projects gazetted

“In fact, only seven out of the 50 SIPs (strategic infrastructure projects) [that make up the much-hyped R360 billion pipeline] are either in construction or implementation phase.”

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The classic African government symptom. Spend less and less on CAPEX and more and more on OPEX until you have thousands of paid state employees who are employed but have no material or infrastructure to do what they are required to do.

anc could not work out the long term liability that comes along with a massive and mainly incompetent government staff

The synonym for “Smoke and Mirrors” is

LIES, DECEIT,LOOT

They live acronyms so stick with LDL

So typical ANC, thats why this country is in a mess

I live in a city where much needed infrastructure (Reservoir, road upgrade, and a sewage network) is required..I’m sure there are many cities requiring this

This spend would kick start developments and the developers bulk contribution (yes, developers must pay upwards of R100m2 as a contribution or R1 million per ha) for the privilege to develop.The council sits back and does nothing but collect Rates and send out bills for water and electricity

This lax attitude is once again indicative of the calibre of people employed because they just cannot seem to calculate that for every Rand they spend assisting developers, they would make R20, without lifting a finger

Educated people are needed in Municipalities, not cadre deployment and nepotism

It also takes years for City Managers and useless Mayors to sing off on Service Agreements, unless of course their palms are greased!

It goes beyond me that even the Honorable Minister cannot see this..or perhaps she does

But then again, she has her own agenda, and growing SA for all citizens is clearly not on the priority list of the ANC

Kick starting and assisting developers will bring in billions to Municipalities

Why is it that as a normal tax paying citizen i can see the potential, but they can’t.. And i only have a grade 9!

You cannot pay Peter without robbing Paul. Our government can spend lots of money on infrastructure development, or it can spend lots of money on social development (social grants, salaries for public sector employees and the like). It cannot do both.

and the government’s preference choice is now a forced choice of social grants, salaries for public sector employees and the like brought onto sa by the short sighted / incompetent anc themselves.

The collectivist attitude of the ANC government cannibalises the future of the nation through the public sector wage bill and social grants. The political infighting over BEE spoils resembles the lawlessness of the Maffia in the streets of Chicago half a century ago. The vested interests of BEE tenderpreneurs in coal mining and Eskom’s emergency generation projects prevent investments in green energy.

This criminal lobby has total control over the actions of the Minister of Mineral Resources and Energy. The ministry is paralysed with inaction, preventing the much-needed private sector investments that are supposed to pull us out of the economic doldrums.

We are consuming our roads, bridges, schools, hospitals and harbour infrastructure through neglect, to feed the overpaid and unproductive government employees under the Cosatu banner. Our economic future and social cohesion disappear into the mouths of the obese and inactive Cosatu members.

This situation led to the French Revolution. The difference under this socialist government is that the privileged Marie Antoinette is a teacher and member of SADTU now. Tito Mboweni with his austerity budget is building the guillotine in the town square. The court is the executioner.

Let’s say there are a few honest and hardworking engineers and project managers in municipalities.

The minute they try to do a project they run into the red tape of the PPPFA and internal procurement policies. Out of frustration they take a shortcut or two and get a project done for the benefit of the public. The minute the boss finds out he disciplines them for ‘not following procedures’ instead of praising them for ‘putting infrastructure on the ground’. These poor blokes then become despondent and don’t try so hard to get the next project of the ground.

The issue is that there are too many corrupt officials and they are trying to correct that with legislation. Obviously it is impossible to legislate honesty. But more red-tape is also not the solution.

We need the right people in the right positions with the freedom to do their jobs. And obviously a massive forensic audit team that work tirelessly behind the scenes to get rid of the bad apples. But please, get rid of the red-tape.

Reminds me of the movie Mars Attacks, where the Martians say that they come in peace but blow everything to smithereens. That was a comedy, this is real is real life and not funny at all.

Shame they have picked up all the jargon but don’t understand a word of it.

That is the ANC’S style, make promises that are never achievable and then go steal whatever money is left.

Infrastructure is debt based spending that only gives returns over decades of spending. There’s essential infrastructure like a 5G rollout and then there’s unnecessary infrastructure spending which is only EXTRA DEBT!

In other words not all infrastructure spending is productive! Stop forcing infrastructure down people’s throats and stop taxing the life out of the economy!

The truth will out, and very disappointing truth it is.

End of comments.

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