‘Smoke and mirrors’ from government on infrastructure expenditure

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Claims that the budget boosts infrastructure spending exposed as false.

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.


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.

“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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