Wednesday’s budget lopped R50-billion off the public wage bill, and in doing so took a very clear step back from government’s previous efforts to increase public employment.
The strategy of upping the number of people employed by the public purse -used in the first part of the last decade to mitigate the effects of the worldwide economic recession – has been replaced by a renewed focus in infrastructure spending.
Public infrastructure expenditure increased from R49-billion in 1998/99 to R236-billion in 2017/18. In real terms, it grew by an annual average of 4.3%. Over the period, state-owned companies have spent R1.3-trillion on infrastructure. The budget also shows that municipalities and provincial departments have spent R612.8-billion and R705.2-billion respectively to build things such as schools, hospitals, clinics and other community-related infrastructure.
Over the last 20 years, public-sector infrastructure expenditure as a share of gross domestic product averaged just under 6%. Government agencies and public corporations substantially increased their spending on economic infrastructure over the past decade, says the budget.
Wednesday’s budget candidly noted that these efforts had failed to hit the mark: “The speed, quality and efficiency of many of these projects has not matched the level of investment,” it conceded. “Project planning at all levels, including for long-term maintenance, has proven inadequate.”
Gross fixed capital formation over the past four years has seen a slump, symptomatic of the country’s overall sluggish economic growth, downgrades in the country’s credit ratings and a lack of investor confidence. It grew by 2.3% in 2015, but was followed by a sharp retraction to negative 3.9% the following year. In 2017, gross fixed capital formation managed to claw its way back into positive territory and grew by 0.3%, but treasury estimates that it once again shrank last year by 0.2%.
The budget outlines, as one of its three key focuses, the intention to “renew economic growth by strengthening private-sector investment, improving the planning and implementation of infrastructure projects, and rebuilding state institutions.”
The hope is to make infrastructure spending bigger, bolder, more efficient and more of a team sport.
Supporting this is a number of new programmes and funds, with the aim that these – combined with strengthened policy certainty – will attract the private sector investment the economy so desperately needs to boost growth. The government outlined a few of these:
• The Budget Facility for Infrastructure has been created. Described as a technical task team that reviews complex capital projects, “it has already strengthened state capacity to consider and budget for large infrastructure projects, and to turn down projects that do not represent value for money,” says the budget detail.
• The Development Bank of Southern Africa, the Government Technical Advisory Centre and the Presidential Infrastructure Coordinating Commission will collectively receive R625-million for project preparation and implementation. These organisations provide a range of support for infrastructure development – from funding to advisory services.
• The government also outlined plans to “increase flexibility” and incentivise private financing for local government infrastructure. “Municipal borrowing policy is being reviewed, and well-governed cities are encouraged to expand borrowing for infrastructure projects”.
• The government has adopted a strategic focus on the metropolitan municipalities, where it has identified programmes that will generate mixed-use, mixed-income living environments. “The intention is to attract substantial contributions from the private sector over the long term,” says the budget. Seven priority programmes currently under way in the metros are worth an estimated R32.6-billion.
All in all, the government is expected to plough R864-billion into public infrastructure in the next four years. More than one third (36%) will be devoted to transport and logistics spending.
This will roll out plans to improve the national transport infrastructure network and hopefully facilitate employment for the majority of South Africans, through efforts to “enhance the mobility of people and the provision of services, reduce transport costs and facilitate regional trade”.
Energy spending will take up 18% of the total; the lion’s share of which (R134-billion) will go to Eskom. At a total amount of R132-billion, water and sanitation projects will comprise 15% of the spend. The department of human settlements will use R105.7-billion over the medium term, envisaged to provide 520 000 housing subsidies. Smaller allocations include R40.5-billion set aside for improving school infrastructure, and R23.5-billion that will be spent on healthcare infrastructure “in the areas of greatest need”.