Will the minister tell us where the R1 trillion in investment is that he promised in the Budget to “turn South Africa into a building site”.
Government will get another opportunity this week to signal real progress in improving the management of the country’s finances. The important question is whether the minister of finance will have anything to show on Wednesday afternoon when he delivers the medium-term budget policy statement (MTBPS).
Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), says this opportunity can cement the positive sentiment created by the removal of South Africa from the Financial Action Task Force (FATF) greylist and show that we are worthy of a credit-rating upgrade.
“The remarkable story is that despite our extremely weak economic growth levels, government managed to keep tight control of expenditure as well as revenue. Indeed, many economists are expecting better numbers than were tabled when the Budget was finally passed earlier in the year, after the debate over a potential VAT increase was resolved.”
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What about VAT?
She points out that without extra VAT, Treasury relied on increased collections by Sars and the MTBPS will reveal how well that worked. “Treasury also kept tight control of spending through its expenditure reviews, going through government departments and assessing the quality of spending.
“Early indicators are that Treasury was able to fill the gap left by the lack of new taxes and that it will be able to confirm it is on track to deliver another primary budget surplus this year. That means its non-interest spending will be less than revenue, leaving a modest amount to start chipping away at our huge debt pile.”
Mavuso says Treasury has been rebuilding the credibility lost during state capture when our debt levels blew up massively and I expect ratings agencies will start to see that this is now reliable. “Investors are already convinced – yields have fallen about 1.5 percentage points since the budget earlier this year, helped by a global rally in emerging markets.
“That means the interest cost on the more-than R500 billion of debt that Treasury will raise this year will be about 15% cheaper than it was. That is the reward for fiscal discipline, freeing up cash that can be used on real spending.”
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Will MTPBS tell us where the public sector infrastructure spend is?
However, she says, one key spending area reveals ongoing challenges.
“In the budget, government promised a R1-trillion spending spree to turn South Africa into a construction site but the figures suggest that is not happening. Public sector infrastructure investment appears to have fallen to a multi-year low, even while the private sector has been picking up its investment levels.
“In part, it should be expected as the private sector took on projects in electricity and is set to invest in logistics too. That means that investment that might otherwise have been made by Transnet and Eskom is instead made by companies. But the key concern is the spending by government itself on the myriad infrastructure requirements from local roads to sewerage plants.”
Mavuso says this is where delivery is simply falling short of Treasury’s spending hopes. “That appears to be a real struggle, with projects not getting off the ground or being completed on time.
“The lack of spending is bound up in the skills crisis, particularly in local government. The Auditor-General earlier this year reported on an assessment of projects intending to deliver critical electricity, housing, road, sanitation and water infrastructure in municipalities.
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Municipal projects delayed by 21 months and Vulindlela steps in
“She found on average that projects were delayed by 21 months, reflecting poor management on the back of a lack of institutional capacity, ineffective planning, weaknesses in procurement and contract management practices and a lack of accountability for poor performance.
“That is the reality on the ground, far from the offices of Church Square, where Treasury must add up lines in spreadsheets. Treasury can and will do much to make investment easier, including by the private sector. But solving our infrastructure and investment challenges must have a whole-of-government solution.”
Turning to Operation Vulindlela, she says the new focus on local government delivery is a welcome step to find ways to improve management of revenue, projects and maintenance in local government. “This is critical work that will take time, but it addresses the fundamental capacity constraints holding back delivery.”
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Professionalisation of public service
She says another key step is the ongoing professionalisation of the public service. Last week, the National Council of Provinces approved the Public Administration Management Bill, one of three pieces of legislation that will implement the professionalisation framework. It is now ready for the president’s signature.
Mavuso says it will do much to ensure that the state capture era destruction of capacity in the public sector can never happen again. “A key change is to prohibit government employees from conducting business with the state. Other legislation will make the directors general of departments responsible for hiring and firing and not their ministers and ban directors general from holding political office in political parties.
“The Public Service Commission will also get more powers to investigate and enforce the law in the public sector. The result should significantly reduce political interference in the day-to-day operations of government departments, creating the conditions for professional, accountable public sector management.”
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