A year after the launch of Asgisa, the government’s blueprint to achieve 6% growth by 2014, the panel of international economists commissioned by the national treasury to advise on the initiative has warned that it could fail if ‘serious macro inconsistencies†in the plan are not addressed.
‘The program as currently envisioned may not be consistent with macroeconomic balance, and envisions a productivity of investment that is roughly nine times smaller than what has been observed in typical growth accelerations,†wrote Jeffrey Frankel and Federico Sturzenegger, from the Kennedy School of Government at Harvard University, and Ben Smit, director of the Bureau of Economic Research at Stellenbosch University, the authors of a recent working paper.
‘Asgisa holds together but it is too focused on investment with too little focus on getting the labour market working,†Sturzenegger told the Mail & Guardian.
The panel is equally concerned that if South Africa’s export-oriented manufacturing sector is not boosted, it will be ‘substantially more difficult†to achieve the Asgisa goals, said Smit.
President Thabo Mbeki officially launched Asgisa in his State of the Nation address last year. He said the initiative would provide ‘a limited set of interventions — intended to serve as catalysts to accelerated and shared growth and developmentâ€.
This Friday, Asgisa will again feature prominently in Mbeki’s address to the nation — just over halfway through his second term in office, he will refocus his Cabinet on implementation and efficiency, and will tighten his oversight of local government (see story below).
The success of Asgisa is key to ensuring Mbeki’s legacy as one of economic growth and delivery.
In order to achieve Asgisa’s target of 6% annual growth, six ‘binding constraints†must be eliminated: currency volatility; inefficiency in the national logistics system; skills shortages; limited market competition; the burdensome regulatory environment; and deficiencies in state organisation.
With a budget of R370-billion in the medium term, the Asgisa project aims to unblock some of these economic bottlenecks by ramping up public sector capital investment to 8% of GDP from current levels of 6%. It is anticipated that expenditure on big-ticket infrastructure projects and massive capital spending by Transnet and Eskom will boost economic growth to 6%, raise private investment from its current level of 18% of GDP to 25% and reduce unemployment from 26% to below 15% by 2014.
This will entail sizeable increases in government capital expenditure, from 15% to 20% every year. It is precisely this over reliance on public capital investment that the international panel of economists has criticised.
In order to achieve the investment goals of Asgisa, public investment would need to increase ‘a daunting†three times, from its current level of R14-billion to R41-billion. As private investment typically increases by 2,37 times a given increase in public investment, this would mean that private investment in South Africa would have to increase from its current level of about R219-billion of GDP to R519-billion. According to the Bureau for Economic Research, it is reasonable to expect that private sector investment would only increase to R264-billion under Asgisa.
‘We see several problems with [Asgisa],†the panellists wrote. ‘First, that there is little evidence in the program suggesting that [the private sector] will have an incentive to increase investment in the magnitudes required. Second, that it seems to be a programme focused on capital deepening when international experience suggests that this is not where the key to growth accelerations lie — Finally, that there is no clear explanation of how the resources for the financing of such an ambitious investment program will be obtained without worsening external imbalances.â€
Even if these investment levels are achieved, Asgisa’s success would be stymied by South Africa’s employment crisis, say the economists. ‘Given the employment/productivity performance of the South African economy, even such [a] large investment programme will barely deliver the desired growth rates while imposing an impossible burden on public investment,†they wrote.
According to the economists, South Africa’s 26% unemployment rate — one of the highest in the world — ‘is very near the steady state, so it is unlikely that the unemployment rate will fall without intervention or an external shock.â€
The economists are also concerned that the large capital spend envisaged in Asgisa will put pressure on South Africa’s current account deficit, which, at 5% of GDP, is already too large.
Panel member Smit believes that the first five-year projection of Asgisa — 4,5% economic growth by 2009 — will be achieved, but he is less certain about the second projection of 6% growth by 2014.
The international panel will present its final round of research to the government in July this year.
A request for an interview with Deputy President Phumzile Mlambo-Ngcuka, who spearheads Asgisa, was turned down because, her spokesperson, Thabang Chiloane said, she did not want to pre-empt Mbeki’s State of the Nation address.
Project Consolidate municipalities no better off
A sample of 20 municipalities that fall under Project Consolidate, the government’s rescue plan for local government, shows that most had spent less than 10% of their capital budgets for the first quarter of this financial year — well below the 25% target. This means that they will be unable to spend their capital budgets by the end of this financial year.
Friday marks the second anniversary of Project Consolidate, officially launched by President Thabo Mbeki in his 2004 State of the Nation address. It also marks the end of the first implementation phase for the project. But the most recent figures for local government show that the municipalities under the project’s care remain in a parlous state.
The project was established through coordinated interventions, involving task teams from all three tiers of government, to nurse 136 (48%) of the country’s 283 municipalities back to financial health.
It comprises municipalities where more than 30% of the population earn a monthly income of less than R1 600, municipalities with an unemployment rate greater than 35% and municipalities where fewer than 60% of households have basic services.
The capital budget is the indicator that measures local government’s ability to deliver — and full expenditure is essential if municipalities are to fulfil their mandates to provide basic services.
Mbeki has continually stressed the need to strengthen skills and spending capacity in local government to achieve delivery targets. Also, the success of Asgisa relies largely on the capacity of municipalities to execute the infrastructure projects envisaged in the growth plan.
In Mbeki’s State of the Nation address last year, he said: ‘For Asgisa to succeed, it is clear that the machinery of the state, and especially local government, should function effectively and efficiently.â€
According to the 2006 local government review, realised expenditure for metropolitan municipalities grew by R2,5-billion between 2001 and 2005, or by 43% a year over this period. Capital expenditure for local municipalities increased annually by 30% over the same period.
But these increases were off a very low base and, in general, the Project Consolidate municipalities are not any better off then they were when the project was launched two years ago. The Nelson Mandela Bay Metro, for example, which has one of the biggest municipal budgets at R3,6-billion, had only spent 4,9% of its capital budget at the end of September last year; it should have spent 25%. The City of Johannesburg had only spent 9,2% of its capital budget, and Cape Town a mere 7,7%.
It is impossible to enumerate whether there have been actual improvements in service delivery figures — the number of households with access to basic services — because the most recent numbers are from the Statistics South Africa 2001 population census — the same data the government used to categorise municipalities that would fall under Project Consolidate.
Statistics South Africa will embark on a community survey this month, the second largest undertaking after the population census, which will collect information from 280 000 households to profile access to service delivery.
Kevin Allan, a local government consultant and former adviser to Provincial and Local Government Minister Sydney Mufamadi, said that while local government was improving, it was still riddled with the appointment of under-qualified personnel, ‘especially at senior management level, who may be politically desirable but invariably struggle to carry out the job for which they have been employedâ€.
According to 126 audits of municipalities by the Auditor General that were completed for the year ended June 2006, 56% were qualified, meaning that they did not fulfil the requirements of the Municipal Financial Management Act. — Vicki Robinson