Big capital projects are set to boost the economy, reports Simon Segal
AN estimated extra R65-billion in the pipeline for big capital projects could boost economic growth by an extra three percent a year, adjusted for inflation, over the next three years.
That R65-billion, identified by stockbroking firm Frankel Pollak Vinderine’s economist Mike Brown, does not include infrastructural spending under the ANC’s grand plan for getting rid of apartheid backlogs, the reconstruction and development programme.
Brown also notes a further R35-billion on proposed capital expenditure projects.
With government and corporate savings rising by R30-billion over the past two years, such capital projects should be — initially anyway — comfortably financed.
But Brown warns high Budget deficits and more money going into government current spending — the bulk of which is consumption spending, in turn mainly salaries — could stifle a sustained programme of capital spending.
Of current projects — the bulk of whose expenditure is from this year to 1996 — mining will contribute 20 percent (R11,9-billion), manufacturing and processing 37 percent (R22,2- billion), infrastructure 35 percent (21,2-billion) and property nine percent (R5,5-billion).
Proposed projects are defined as those where enterprises have announced feasibility studies. In such instances the mining sector’s announcements amount to R8,6-billion, manufacturing and processing R10,1-billion, infrastructure R14,7- billion and property R500-million.
In both announced and possible projects Brown identifies 26 projects with capex plans that exceed R1-billion.
The largest mining projects are Eastvaal extensions (Moab) at Anglo’s Vaal Reefs (R1,87-billion), Anglo’s Namakwa Sands mineral sands project (R1,4- billion), installing sub-vertical shafts at Anglo’s Western Deep (R1,2-billion) and the No 16 shaft at Gencor’s Impala (R1,1-billion).
Gengold’s Oryx gold mine is the only “new” mine where, in addition to the R1,3-billion already spent, a further R380-million is anticipated to 1998.
There are five possible mining projects that exceed R1-billion — new mines by Anglovaal (R1,5-billion) and JCI (R1,5-billion), Gold Fields developing the base mineral deposit at Gamsberg (R1,5-billion), extension of Moab (R1,3-billion) and Iscor developing the mineral sands deposit at Richards Bay (R1-billion).
Manufacturing and processing developments include Gencor’s Alusaf aluminium smelter (R6,2-billion), the Columbus stainless steel plant by Gencor and AMIC (R3,5-billion), the motor industry’s Phase Seven local content programme (R2,5-billion), oil refinery expansions (R2,3-billion), cellular phones (R2-billion) and Sappi’s expansion of its Umkomaas plant (R1-billion).
Possible projects include the Foskor/IDC development (R3-billion), the Pande natural gas project in Mozambique with major Sasol involvement (R3,1-billion) and Tongaat’s expansion of its aluminium rolling facility (R1,4-billion).
Infrastructural spending, funded entirely by public enterprises, comprises electricity (R9,8-billion), water (R8,7-billion) and transport/communication (R2,7-billion). The infrastructure projects are primarily Eskom’s R5,5-billion electrification programme for low-income housing, R2,9-billion on its new Majuba power station and R6-billion on phase 1A of the Lesotho-Highlands Water Project (LHWP).
Possible infrastructural projects are phase 1B of the LHWP (R7-billion), Cape Town’s Olympic bid (R3,6-billion) and Mossgas’ conversion to conventional refining (R3-billion).
Public sector participation occurs in around 60 percent of the property projects, the largest being Pretoria City Council’s lake development (R600- million) and Transnet’s Durban Point development (R450-million).
In this economic upswing fixed investment spending — essential if the infrastructural base is to be maintained — appears to have started earlier than usual. Brown notes that in the past three economic upcycles gross domestic fixed investment spending lagged the economic upturn by two to four quarters. GDFI has grown by 0,7, 0,8, 2,6 and 1,7 percent in the four quarters to March. He cites various factors including:
* Inventory levels at their lowest in 20 years (16 percent of gross domestic product, the main measure of national economic activity)
* GDFI as a portion of GDP is down to a 40-year low (14,5 percent in 1993)
* Investment in new capacity for export programmes following the lifting of trade sanctions, implementation of tax concessions to promote new export capacity, the Industrial Development Corporation’s financing scheme and the bias towards processed export products implicit in the GEIS export scheme
* Ageing capital stock — plant and so on
* The new secondary tax on companies encourages reinvestment of corporate profits
* Growing investor confidence in the country