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Was the R787bn stimulus promise merely a number on a page?

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Was the R787bn stimulus promise merely a number on a page?

25th June 2010

By: Terence Creamer
Creamer Media Editor

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Much was made by South Africa’s political and economic leadership in early 2009 of the stimulus that could be provided by the country’s R787-billion infrastructure programme as it became clear that the domestic economy would not be able to avoid the fallout from what eventually became known as the ‘Great Recession’.

Without question, the three-year programme was the centrepiece of the blandly named ‘Framework for South Africa’s Response to the International Economic Crisis’, drafted jointly by government, business and labour.

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The document stressed that the programme “must be maintained”, that it should be “implemented on an expedited basis where possible”, and that efforts should be made to “secure additional resources to expand this programme”.

“Social partners, particularly the business and trade union sectors, commit themselves to identifying mechanisms to support the public investment programme, including considering ways in which the implementation of public infrastructure projects can be fast-tracked,” the document read, while noting that a task team would be set up to consider how to give effect to this.

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However, as with some many other things in South Africa, a serious gap emerged between these sentiments and actual implementation. Indeed, it could even be argued that, besides the World Cup-related investment, which was bound by the June 11 deadline, the balance of the so-called infrastructure stimulus package became a mere ‘number on a page’.

Evidence of this can be seen from the recent results for South Africa’s two largest State-owned enterprises, Eskom and Transnet, whose projects make up the lion’s share of the investment figures quoted.

First, Eskom, which is pursuing a R553-billion, seven-year investment programme, confirmed that it had trimmed its capital expenditure (capex) by a massive R15-billion in its year to March 31, 2010, against a target of R70-billion for the period.

The State-owned power utility ended the year spending R57-billion on capital projects, which was up on the R47,1-billion spent in 2008/9.

These cuts related mostly to delays at the R141,5-billion Kusile project, in Mpumalanga province, but were not confined to this project site.

Then, State-owned freight logistics group Transnet disclosed that it had spent only R18,4-billion on rail, ports and pipeline projects during its 2009/10 financial year, down from the record R19,3-billion invested in the previous year, and below its own R21,9-billion budget for the period.

In both instances, the decision to ‘cull capex’ was easily justifiable from a corporate perspective. Eskom was still struggling to finalise a plan to ensure that it could indeed fund its projects, while Transnet reprioritised spending in light of a fundamental change to demand patterns associated with South Africa’s first recession in 17 years.

However, from a national perspective, this pattern of investment cutbacks – which I am convinced will emerge as a recurrent theme when other State-owned enterprises (SoEs) and government departments report back on their activities for 2009/10 – is problematic on several levels.

Firstly, the cuts would have certainly contributed to the slowdown of certain sectors, which, in turn, would have added to business uncertainty and employment vulnerability.

The most devastating consequences relate to job creation, particularly when considered in the context of this country’s chronic unemployment problem, which is also at the core of income inequality, which, in turn, is arguably the biggest threat to long-term social stability.

South Africa shed almost one- million jobs in 2009, which again raised the country’s official unemployment figure to above 25%, or to 4,31-million people – the highest in the world, even before taking into account unofficial statistics, which would put the figure above 30%.

Then, the fact that the cuts were made by stealth, rather than through public pronouncements, resulted in serious misalignment between the prenouncements of South Africa’s leaders and the departments and SoEs charged with implementation.

This would have heightened the uncertainty among construction companies and equipment suppliers, which had been given official assurance that the infrastructure programme was part of an established secular trend in the South African economy and had been urged to upscale their enterprises in a bid to align capacity with this growing demand.

In reality, though, the tender flow ebbed and the future project pipeline became extremely blurry.

No doubt, that it also why all the major construction companies, which had pulled in their international horns in anticipation of a building boom, began announcing aggressive plans to return to international markets.

Talk has emerged of a post-World Cup hangover, with contractors warning that the lack of tender invitations and contract awards will result in a period of “project paralysis”.

Sadly, this, arguably, is a scenario that could have been avoided entirely. But that would have required government to provide the leadership required to ensure that departments and the key SoEs held the line as outlined in the Framework Response.

Worryingly, though, this was most definitely not the case in 2009 and it is a failure that will linger in the minds of all businesses every time govern- ment statements are made about delivery – a gap that has to be closed if we are to deal with the many deep challenges facing this country and its economy.

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