MARK BARNES: For a metro to prosper, at least one official must understand money

Business makes money, the government takes money. One of the life lessons we all owe our children is to help them understand the value of money.

The poor get that lesson for free (the value of money is defined in its absence, not in its abundance) and the rich don’t feel the need to learn it. It’s easy to tell the difference between them in the result. 

Governments collect taxes, they don’t earn them. If budgets don’t balance, they can make them do so at the stroke of a pen — a little increase in VAT here, an additional import duty there, should do it.

Selectively, wisely, after due consideration, raising taxes is not always a bad idea, and sometimes it is downright necessary. But it always has unintended consequences. One way or another consumers will ultimately bear the brunt — either through less disposable income or higher prices.

Less spending means less taxable profits which means less tax collected — start again. This conundrum can only be avoided if the government, beyond necessary utility expenditure, invests in capital projects that create jobs, increase disposable income and fuel growth.

That objective is better achieved by using other people’s money (foreign direct investment), which requires SA to present a globally competitive tax regime, in whatever guise we extract taxes. 

To start with though, we need to know what we’re doing with our own money. I have seen scant evidence of financial expertise, or even a fundamental understanding of finance, in government structures outside the Treasury — even at the ministerial level — and certainly not at municipalities.

The way numbers are bandied about confirms what must simply be ignorance — it can’t all be corruption? Ignorance feeds corruption, of course. Theft on the grand scale we have here requires being ably abetted by a total disregard for, or the absence of an even vague understanding of, fair market value, or reality.

This finds a welcome home in a tender system (driven by favour rather than value for money), in mispriced contracts (with the government always getting short-changed), in nepotism, in bullying and in all manner of techniques employed by the crooks to either fool, beguile or bribe government counterparties.

This month’s prize goes to an alleged deal, reported in the public domain, where an individual bought a piece of land for R1.1m and then sold it on to a pension fund he managed on behalf of municipal workers for R333m. How does a deal like that even get through the front door of those required to approve it, without being laughed at for its manifest absurdity, and not being reported to the police?

I read about such ridiculous deals in the media just about every day, and nobody seems to bat an eyelid. Is everyone just used to it, or part of it, or ignorant? 

No government department, metro, city or town can hope to prosper if those in charge don’t have among them at least one person who understands money. The trouble is that funding from central government (as opposed to revenue collected from services provided — though seldom paid for) is also not earned — it is driven by budgets, not returns. 

Where is the results-based evidence of investment case analysis, opportunity cost, risk-return and other such tests that are rigorously required when business wants money from capital providers, with discretion? How, for instance, did Joburg come up with a figure (recently published) of R220bn required for infrastructure spend? 

Finance is a checkpoint that can never be ignored in valid capital allocation or expenditure, even if the purpose is not to make a profit but just to get the costs right. Finance isn’t rocket science. Once you get through the jargon used by those who know less than you think, you’ll find it all pretty finite and simple. No decision-making body responsible for spending public money should be entitled to operate without it. 

• Barnes is an investment banker with more than 35 years’ experience in various capacities in the financial sector.