The Civil Engineering Contractor April 2019 | Page 3

COMMENT Infrastructure Fund — just smoke and mirrors Eamonn Ryan - editor [email protected] T here were groans of disappointment among civil engineering contractors on listening to finance minister Tito Mboweni’s Budget Speech to Parliament in February, with economists scouring the budget numbers to locate the promised stimulus spending on infrastructure. Speaking at a post-Budget breakfast hosted by AfriSam, economist Dr Azar Jammine noted that spending allocated to infrastructure had in fact shrunk in real terms for 2018/19. There is no infrastructure boom or stimulus package in the current budget. Capital investment is either flat in most cases or reduced. He said the figures “don’t add up” in light of the large amounts supposedly raised by President Ramaphosa as part of his USD100-billion foreign investment pledges. The Budget noted that there had been −0.2% Gross Fixed Capital Formation (yes, negative) in 2018, rising minimally to 1.5% in 2019 and 2.1% in 2020 (down from the previous estimate of 3.7% in last year’s Budget). Where is the stimulus or the USD100-billion? Where is the fiscal www.civilsonline.co.za consolidation, Jammine posed? The rate of growth of government spending, far from falling, is budgeted to grow 9.7% compared to 7.9% in the previous Budget. This looks a lot like an election budget from an ailing party rather than a fiscal consolidation budget by a confident government. “If you think this budget is going to create an infrastructure boom, you’re wrong,” said Jammine, repeatedly emphasising that the stimulus package had so far been a lot of talk with no figures to back it up. Ramaphosa was cut a little slack when he became president, in the hope that the stimulus package would become more concrete in time. Now was the time for it to be revealed, but what was revealed was smoke and mirrors. Growth of hardware and materials sales had been negative for two years, with the latest figures the worst yet. No sign of stimulus there. Jammine noted that sources of potential stimulus had been mooted as either public sector investment (the private sector has renewed its investment strike, as Expropriation Without Compensation has simply replaced State Capture as a barrier to trust between the public and private sectors) or diverting expenditure from the public sector wage bill to capital investment. Jammine pointed out that neither had occurred in the Budget or on the ground. Private sector investment was down and the government wage bill was up. What was included in the Budget comprised ‘accelerating’ R526- billion of on-budget projects by bringing in the private sector and development finance institutions. In several cases, the private sector would design, build, and operate key infrastructure assets. The government was to commit R100-billion “over the next decade”. An additional promise in September by Ramaphosa was a R400-billion contribution from the national fiscus to an Infrastructure Fund, which would be reprioritised in the existing three-year budget cycle and spent on investment in infrastructure. This would be used to leverage additional resources from development finance institutions, multilateral development banks, and private lenders and investors, the president said back in September. One possibility, noted Jammine, was that extra capital could yet be found in the fiscus from strengthening controls. He attributed R40-billion lost in 2018 due to the gutting of SARS under the previous management — a loss which would not be recurring if remedial steps were taken at the tax body; R26-billion had been lost at municipal level through irregular and unauthorised expenditure, which would also not be recurring if systems were tightened. Significant savings could therefore be made by reducing corruption and mismanagement. Members of the audience questioned whether government understood the need for infrastructure development, given a statistic quoted by Jammine that construction accounted for just 3% of GDP but 10% of its workforce. This is a labour-intensive industry that should be prioritised by government over under-achieving state-owned enterprises. CEC April 2019 | 1