As President Cyril Ramaphosa’s stimulus and rescue package did not contain any fiscally stimulating measures, it is doubtful it will have much effect on short-term growth.
The point of a fiscal stimulus is to put money into the economy fast; preferably money that will get spending and investment going, and better still be the kind of investment that reduces the cost of doing business through improved infrastructure and economic network services.
This package puts in no new money and doesn’t alter the composition of spending in the budget, leaving it skewed in favour of consumption, particularly wages, rather than investment.
But, as Ramaphosa said: "We are having to deal with what we have", and clearly the pressure was too much – especially from business and the investor community — that SA stick within the fiscal framework and not be seen to yield to economic populism.
And so, dealing with what we have, the package is good for business and in several regards — visa regulation, mining regulation, broadband spectrum regulation — will improve the environment for investment. Ultimately, this should feed through into growth and job creation.
Ramaphosa spoke of two numbers which have become muddled in the media melee.
The first is R50bn of reprioritised government spending, which will be shifted to urgent priorities. Some of these could be described as growth-enhancing: included is a fund for township entrepreneurs; support for black farmers and agriculture; the accelerated provision of toilets at schools; and support for businesses in defunct industrial parks.
The private sector does like to invest in infrastructure. Apart from the economic benefit to the GDP in general of new roads, dams and so on, the savings industry likes to invest in infrastructure where there is a steady, guaranteed return.
Others are less so: the filling of 1,200 health posts and the purchasing of beds and linen for hospitals. While urgent and important, these will not move the GDP needle.
It is up to the second number then to do the work. This is the R400bn infrastructure "mega-fund" Ramaphosa spoke of, which he said "will galvanise the private sector to come in" to create a blended finance kind of model. As this is where — it is hoped — the only money for the stimulus will come from, an important question is: how does this happen?
The private sector does like to invest in infrastructure. Apart from the economic benefit to the GDP in general of new roads, dams and so on, the savings industry likes to invest in infrastructure where there is a steady, guaranteed return. This is provided by government bonds, but could also be provided by a revenue stream from a dam or a toll road.
But, as we know from e-tolls, and even from the protracted struggle to squeeze user charges for electricity and water from townships, these investments are far from risk free. The private sector will not easily be persuaded to buy equity in basic infrastructure; nor would the SA public be easily persuaded that partially privatised basic services are in its best interests.
The private sector could come in to buy bonds or provide financing, but these would amount to more debt, which the government has said it is not taking on.
A possible solution could lie in an area in which the government and the private sector — through the Association for Savings and Investment SA — have done a fair amount of legwork.
The R400bn referred to by Ramaphosa is roughly half of what is already pencilled into the budget for infrastructure over the next three years. Most of this would be transferred to provinces and municipalities through infrastructure and conditional grants over the next three-year period.
An idea that could be explored is centralising these — for instance, projects for water treatment infrastructure — under the fund, project managing these to minimise cost overruns and corruption, and perhaps even designing a new financing model in which the contractor or investor is paid through revenue streams managed and guaranteed by the Treasury.
But it would require remaking the entire municipal finance model, as these monies and revenue streams actually belong to municipalities. This would be no bad thing: not only are a good many municipalities broke; dozens have gone rogue and stopped paying Eskom for electricity and regional water utilities for water, despite collecting fees.
Public-private partnerships take time to get off the ground though, and even once built get mired in government inefficiencies and bureaucratic and budgetary mismatches. Success could be a little time coming.
So while Ramaphosa’s package is not a fiscal stimulus, it could have several positive effects. We will need patience to see results.
• Paton is writer at large.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.