For me, one of the more interesting sidebars to Finance Minister Pravin Gordhan’s 2011 Budget was a note entitled ‘Budgeting for better results in infrastructure spending’. On closer examination, I found that government is intending to create a register of ‘shovel-ready’ infrastructure projects, that would be fully planned and life-cycle costed. Initially, the focus would be on public–private partnerships, but over time, this new “systematic approach” would be extended to all public sector megaprojects.
The idea, it emerged, is designed to ensure that investments proceed “smoothly” when funds become available, as well as to help improve the management of public sector capital spending, which is currently weak. So weak, in fact, that during 2009/10, the public sector failed to spend about R12,4-billion of much needed and budgeted for capital expenditure (capex). Capacity-strained local governments, where the trend is particularly pronounced, failed to spend 17 cents out of every rand budgeted for infrastructure during the period.
Public sector spending on infrastructure, which is currently forecast at R260-billion for 2010/11, or 9,8% of gross domestic product (GDP), is expected to average 8,4% of GDP between 2011/12 and 2013/14. That means that over the full three-year period, some R806-billion should be spent on both economic infrastructure, such as electricity and roads, as well as on social infrastructure, such as hospitals and schools.
Over the coming fiscal period, State-owned enterprises (SoEs), primarily Eskom and Transnet, are expected to spend R392,6-billion on infrastructure projects, while provincial infrastructure spending is expected to total R150,3-billion and municipal infrastructure spending, R131-billion.
But given the public sector’s poor record on infrastructure expenditure delivery, actual implementation could well underperform against budgeted amounts across national, provincial and municipal government – even the SoEs spent only 72% of their capex budgets in 2009/10.
Indeed, there is deep concern among technical professionals and contractors that this promised expenditure might fail to match up to its advertised hype.
Consulting Engineers South Africa (Cesa) recently expressed frustration with quality of capex planning within the public sector and warned that the problem of budget overruns and poor service delivery would grow unless departments took active steps to recruit and retain a better cadre of technical professionals. Cesa, which represents more than 460 consulting engineering practices, was particularly concerned with the quality of capex planning and even suggested that new procurement models may be needed to ensure better designed and implemented capex programmes.
The initial response from Gordhan and the National Treasury is promising. It has been acknowledged that the building of new, as well as the maintenance of existing, infrastructure is critical to the realisation of government’s goal of creating five-million jobs over the next ten years.
The Budget Review promises that government will seek to apply a more systematic approach to the planning and budgeting for major new infrastructure and it has emerged that National Treasury is developing a framework for appraising projects with the intention of reducing bottlenecks in infrastructure planning and approval.
National government is also realigning infrastructure grants to provinces, and was building capacity in provincial treasuries and at the departments of health, education and roads to roll-out infrastructure projects more effectively. Further, the Department of Cooperative Governance and Traditional Affairs will establish a specialist support unit to help rural municipalities plan and contract infrastructure projects.
If progress is made, then infrastructure could truly begin playing the role envisaged for it in the New Growth Path of supporting more rapid economic growth and job creation and improving service delivery.