Bad omen as capital spending halves



28-01-2015
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BusinessDay
Source

THE value of spending on new infrastructure, central to the government’s stated strategy of using infrastructure investment to spur growth and create jobs, halved last year compared with 2013.

Nedbank Capital’s expenditure project listing, released on Tuesday, found the private sector contributed 77% of the 65 new projects worth R95.4bn announced last year. This was down from 85 projects worth R187.9bn in 2013.

In the public sector new projects announced last year were worth R10.5bn — significantly lower than R42.4bn in 2013, according to Nedbank.

Treasury declined to comment on this figure on Tuesday.

The government has been trying to use infrastructure expenditure as the trigger to lift SA’s economy out its low-growth trajectory despite a desperate electricity crisis. It hopes large-scale spending on infrastructure will create jobs.

Reserve Bank governor Lesetja Kganyago said last week that SA had a "significant implementation deficit" when it came to its development plans.

Private-sector spending was at its lowest in a decade last year, and government spending was the lowest since 2010, amid low global growth and drawn-out strikes in mining and manufacturing.

Nedbank economist Johannes Khosa said the subdued spending was a result of anaemic economic activity that led to weaker consumer and business confidence. "When confidence is low, businesses tend to be very cautious in expanding capacity given the low demand," he said.

If SA was not able rapidly to build new infrastructure, particularly to increase its power capacity and improve transport, it would not be able to achieve sustained growth of more than 3% a year, the Reserve Bank warned.

First National Bank industry analyst Jason Muscat said the private sector was generally the dominant contributor to gross fixed capital formation, accounting for about two-thirds of expenditure.

In low-growth cycles, public-sector spending tended to drive growth and act as a catalyst for private-sector investment. "Given the large fiscal deficit, however, funding for many of these (public-sector) projects is becoming too expensive, or simply not available," Mr Muscat said.

Falling levels of capex raise a number of concerns.

"Fixed investment spending is a good indicator of the direction of the economy in general and a good gauge of confidence," Mr Khosa said.

Foreign investors would cut spending in response to low confidence, which would damp economic growth.

Henk Langenhoven, Steel and Engineering Industries Federation of SA chief economist, said the fall in new private-sector projects reflected that firms were not using their current capacity.

"If the mines are not using their capacity, because of disruptions or lower commodity prices, they won’t expand. It’s the same with manufacturing, and an indication of the lack of investment for future growth," he said.

SA’s economy is forecast to have grown 1.4% last year. The Bank and Treasury forecast growth of 2.5% for this year, and the International Monetary Fund expects 2.1%.

Mr Muscat called for the rapid rollout of the NDP and more public-private partnerships. "A greater willingness to privatise would improve our attractiveness as an investment destination."

There were signs the government was "moving toward a more collaborative growth path".

"Neither the government nor the private sector can improve the infrastructure and growth trajectory on their own," he said.

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