/ 26 October 2012

Midterm budget: Spending on infrastructure presents a silver lining

Finance Minister Pravin Gordhan.
Finance Minister Pravin Gordhan.

Labour, the government and business had to “come to the party” to better address the economic difficulties facing the country, he said on Thursday.

In the aftermath of Marikana and spreading wildcat strikes, the state has promised to speed up the rolling out of infrastructure in a bid to create jobs and boost inclusive growth. It is one of the key elements of the response plan outlined after a high-level meeting on the state of the economy convened by the presidency earlier this month.

“We haven’t had labour unrest on a generalised scale,” said Gordhan, “but I think there is a greater recognition … that each of us will have to come to the party and, at the end of the day, all of us will benefit.

“You will create a more competitive country, you will have a workforce that has work and continuing reward for that [work], and you will have businesses that make a fair share of profit and pay their taxes. That’s the deal we want.”

He was speaking before he delivered the medium-term budget policy statement in Parliament.

A greater effort to increase spending on infrastructure has been a key feature of Gordhan’s recent budget statements, while at the same time the state is fighting to curb increasing current expenditure on items such as public sector wages.

<strong>Public distrust</strong>
Inefficiency, waste, corruption and poor capacity has hampered spending on infrastructure, particularly at provincial and local government level, sparking a growing public distrust of state institutions.  

“The public is concerned,” said Gordhan. “We do need to assure the public that we are making strides towards good governance.” But, he said, the impression was being created that “every politician is a crook, every public servant is a crook”, which undermined the credibility of honest people in the public sector.

He said the issue had to be put into perspective. “If we are talking about the spending of a trillion rands, what percentage of that might be leaking into the right hands?” he asked.

In the medium-term budget policy statement the treasury outlined measures that the government was taking to reassess its spending, shifting it away from underperforming programmes and finding savings in existing budgets.

Gordhan said the state had ramped up this work, identifying R40-billion in savings in the coming three years.

The policy statement said the treasury was also taking concrete steps to “combat waste, inefficiency and corruption”.

<strong>Greater safeguards</strong>
The measures would include reforms to procurement systems that “prioritise value for money and introducing centralised procurement where warranted”. That would take place under the auspices of a chief procurement officer, who would shortly be appointed in the treasury.

Measures would also include greater safeguards such as “reviews by the auditor general and the parliamentary standing committee on public accounts for tenders above a certain amount”.

Although the state was trying to manage waste and corruption and accelerate the building of infrastructure, the private sector could play a more active role in terms of investment in the country, Gordhan said. “We need to mobilise both government resources and private sector resources to deliver.”

But questions of corruption had  to be managed in this arena, too, to avoid the controversies seen in the wake of the infrastructure that was built for the 2010 Fifa World Cup.

Gordhan called for “open-book contracting”, requiring companies to be transparent about the financing of infrastructure projects. This would ensure that companies that priced contracts affordably had a steady stream of work and the state got the “best bang for our buck”, said Gordhan.

According to the medium-term budget policy statement, although  corporate companies are sitting on large cash piles, they are reluctant to invest in new projects because of “weaker business confidence, domestic supply constraints and low levels of demand”.  

In contrast to this, the state is increasing its levels of investment. Gross fixed-capital development by the public sector had expanded at an annual rate of 10.9% during the first half of 2012, the document noted, driven in a large part by South Africa’s parastatals. Eskom, Transnet and the South African National Roads Agency accounted for about 95% of capital spending by state-owned enterprises, it said.

Government spending on water, health, sanitation and road infrastructure had also picked up, supporting a nascent recovery in the construction sector.