Tito Mboweni will deliver the budget next week. It is all but a done deal now. While considerable attention has been paid to the “zero-based” approach the budget office might pursue, many of us undoubtedly expect the budget to be a statement of fiscal consolidation and restraint amid unprecedented crisis.
The constrained macro-fiscal environment compels policymakers to consider how non-transfer sources of financing can fund catalytic and necessary social and economic infrastructure at a district level — to improve the long-run growth potential of these areas as a critical feature of the “third phase” of the recovery.
The third phase, we have been told, will be “infrastructure-led”. I would add that it is not just about economic infrastructure, or infrastructure that fits neat risk-return frameworks with predictable cash flows to finance coupon and interest payments. Rather, it is about prioritising social infrastructure, in areas such as water, housing, care facilities, shelters, electricity, roads and recreational facilities. It is these investments that can, in the immediate future, respond to the unfolding crisis of social reproduction in our communities. These investments (alongside the economic infrastructure), even for the market-orientated observer, lower transaction costs for workers and firms alike, and boost competitiveness, productivity and by extension the viability and success of firms in the economy.
In February Mboweni told us he expected to collect R1.43-trillion in revenue. Clearly this is no longer the case. Just when infrastructure needs repair and rejuvenation, the largest contributor to capital spend, outside metros, will thus be reducing expenditure.
The finance minister has committed that reduced budgets will prioritise infrastructure. What is unclear, though, is how that prioritisation will confront the effect reduced baselines will have on community infrastructure.
Policy has to confront these imbalances and allocate technical, financial and other resources in a manner responsive to the distributional consequences of how we now finance infrastructure
Reeling from years of neglect in some instances, municipalities are unable to internally finance new investment or maintenance due to low revenue collection or economic bases. For example, in one of the pilot districts in the recently launched district development model (DDM) — the OR Tambo district — less than 1% of capital spend in 2016/2017 came from own revenue, and in subsequent years all capital spending was financed through conditional grants. This compared with regional port hub Ethekwini (another metro in the DDM pilot), which financed 42.5% of its capital spend from its own revenue in 2016/2017.
Priority infrastructure projects should thus consider economic and social infrastructure, with a balance determined by historic patterns of underdevelopment.
The city of Ethekwini is able to raise capital in debt markets to finance critical economic and other infrastructure. OR Tambo clearly is not. From this, a key implication emerges: policy has to confront these imbalances and allocate technical, financial and other resources in a manner responsive to the distributional consequences of how we now finance infrastructure.
In the context of constrained fiscal resources, municipal debt markets furthermore need to be part of the debate. This R70.6bn-strong market, dominated by the Development Bank of Southern Africa, with 37% of the total stock of municipal debt and most funding going to projects in the metros, needs to finance catalytic projects on the periphery.
The issue in many rural infrastructure projects has not only been about money but also about capacity, social and governance challenges. In some cases weak consultation leads to community rejection of projects and opportunistic vandalism, while in others organised syndicates (at times with the collusion of officials) use infrastructure projects for narrow benefit.
To “crowd-in” private funds, well co-ordinated preparation, planning and execution of projects is needed. Such a deal with pensions, commercial banks and others empowered by the Municipal Finance Management Act to lend to municipalities will be crucial in keeping the lights on and taps running, and staving off the “real” implications of what is happening at the local level, which predates our immediate concerns of contagion.
• Cawe (@aycawe), a development economist, is MD of Xesibe Holdings and hosts Metro FM Talk on Metro FM.
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