OCKERT DOYER: The budget is clear on why we’re in this mess and how to get out of it

These two lines from last week's budget speech summarise the results of more than 10 years’ of sub-par economic growth in SA: “... 2.1-million fewer people employed in the third quarter of 2021 compared with the final quarter of 2019,”  and “ ... nearly half of the population currently receives at least one social grant from the state.”

If ever circumstances required bold action from government to boost a stuttering economy, the time is now. 

Did the budget deliver? Can the millions of jobless and hopeless South Africans reasonably expect a better future? The answer is yes, and also, unfortunately, no. 

The budget was clear on why we’re in this mess and even how to get out of this mess, with the key task of government being to introduce reforms that will enable the private sector to emerge, to grow, to access new markets, to create new products, and to hire more employees. 

Stimulating demand through investing in infrastructure will be a key component of spurring renewed economic growth. This will be complemented by employment programmes and social transfers that boost household consumption. Modernising network industries will support an increase in the economy’s productive capacity, boost electricity production and reduce the cost of doing business.

But how quickly will the reforms be implemented? Will investment in infrastructure be enough? Will electricity production increase sufficiently? Can the infrastructure rollout be fast-tracked? To answer these questions, we need to look at the detail of the finance minister’s Budget Review. 

Investment in capital goods such as infrastructure creates the scope for increased economic activity and in effect raises the potential growth rate of an economy. As an economy grows and economic activity increases, associated increases in job opportunities should follow.

Unfortunately, SA is not investing nearly enough. To grow the economy and reduce unemployment and poverty, capital investment by the public and private sectors needs to significantly increase. In fact, to achieve the target as per the National Development Plan (NDP), government’s investment would need to increase from the current level of 3.9% (of GDP) to 10%, and the private sector would need to grow investment from 9.8% to 20% over the next few years.

That would get total investment to 30% of GDP — a tall order given the current level of 13.7%. For government it will require a reallocation of spending to investment, away from consumption. To unlock investment from the private sector, structural reforms, regulatory reforms, policy certainty and improved investor confidence would be required. 

This budget has positives and negatives. The government will spend R812.5bn over the next three years on infrastructure. The planned spending of R287.5bn in 2025 will be 29% higher than in 2022 (R223.6bn). These are big numbers and point to increased investment into sorely needed areas. However, in relation to GDP government infrastructure investment is projected to grow only marginally from the current level of 3.9% to just over 4% of GDP between 2022 and 2025. Well below the 10% level referenced in the NDP.  

Some 70% of the government infrastructure spend will be on energy, water and sanitation, and transport and logistics. These are three crucial areas that desperately need investment. It is positive that the bulk of the infrastructure budget will be allocated here. If done effectively this could have positive knock-on effects as the electricity supply constraints are eased, port and harbours become more effective, and water is made available for irrigation, industrial and residential use. An even more positive outcome, as envisaged in the budget, would be a scenario where substantial amounts of private sector capital are also allocated to these sectors.  

Projects are under way in water and energy, but they are moving slowly. For instance, 11 strategic projects with an estimated value of R115bn could create 20,000 temporary jobs during construction and 14,000 jobs during the operational phases, but they could be years away from completion.  

The Renewable Energy Independent Power Producer Procurement Programme is expected to procure additional capacity of 6,783MW, with an investment of at least R128bn over the medium term. However, embedded generation projects seem to be held up through a slow and inefficient registration process. Swift action is needed here too. The list goes on. Spending is not enough, success and speedy implementation is critical. 

The Treasury, department of public works and infrastructure, Infrastructure SA and the Infrastructure Fund are undertaking complementary reforms to strengthen the infrastructure value chain. Initiatives include the National Infrastructure Plan 2050 (NIP2050) and the budget Facility for Infrastructure. The NIP2050 provides a strategic vision that links the NDP objectives to actionable steps and intermediate outcomes.

Phase 1 of the plan focuses on critical economic network infrastructure in the energy (specifically electricity), digital communications, freight transport and water sectors. Phase 2 will focus on distributed infrastructure and related municipal services. 

Public-private partnership (PPP) reform and Regulation 28 amendment are also notable reforms. So yes, we have all the right reforms under way, but it is so disappointing that some of the reforms, specifically the PPP reforms, will only be implemented over the next 24 months. 

Through the reforms, both regulatory and from a policy perspective, the government is creating an environment conducive to enabling the private sector to increase investment into infrastructure. The government has identified the sectors where the biggest positive multiplier effects could be achieved, and they are actively trying to involve the private sector more via partnerships.

Things are moving in the right direction to stimulate economic growth and improve job creation. If only bigger steps had been taken, and the pace had picked up a bit.

• Doyer is lead portfolio manager of Sanlam Investments’ Sustainable Infrastructure Fund.