Jammin' – Budget shows economy treading water

Even as Finance Minister Enoch KodongwanaThe budget, released on February 21, seemed somewhat sensible, Econometrix Director and Chief Economist Dr. Azhar Jammin That said, there is little to be optimistic about South Africa's economic future.

„The budget provides some relief to the markets in the sense that it is not reckless. It has maintained an element of fiscal austerity. I am not disappointed with the budget, but I am not particularly excited. I have nothing to say that economic growth will start creating more jobs from 1.3% per annum to 3% to 5%. Not saying,” he said.

Speaking at an event hosted by cement company AfriSam in Modderfontein, Gauteng on February 23, he pointed out that the heart of South Africa's economic failure or success rests on its level of fixed capital formation.

“In theory, more money should be spent on infrastructure. That is, on paper, a very positive development. But will we actually see it come true? Unfortunately, looking at everything, I still get the feeling: What is going to be done in this budget to make economic growth grow even stronger? I didn't get that sense,” he said.

Jammin pointed out that South Africa's fixed capital formation has recovered somewhat to 15% of gross domestic product (GDP), showing signs of optimism.

However, he explained that on average, in developing countries like South Africa, capital project investment should be between 25% and 30% of GDP.

Jammin noted that fixed capital formation, which peaked at 24% of GDP just before the 2008 World Cup, declined to 19% of GDP in 2013 and 2014, followed by less than 13% of GDP in 2021.

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He said the needle is moving again in the right direction, but continued corruption and criminality will undermine progress.

Jammin pointed out that as fixed capital formation has declined over the past decade, consumer spending has increased — which he says is unsustainable.

“Since 2020, the trend in capital investment has started to move upwards much faster than consumer spending. So structurally, we're starting to see some things fall into place. The bad news is that in the third quarter of last year, we saw a slight decline in it, and one believes that it is a temporary phenomenon,” he said.

Jammin noted, however, that the private sector continues to outpace the government in determining where current capital formation primarily comes from. State-owned enterprises (SOEs) performed particularly poorly.

„They ran out of money to invest more,” he said.

Jammin pointed out that in the construction sector, the lion's share of investment has gone into machinery and equipment rather than new developments.

„Africa is not completely behind from a technology perspective, investment in machinery and equipment has recovered very well in recent years. But the bad news is that the construction sector, which includes civil engineering, residential and non-residential building activities, has seen a decline of about 40% to 45% over the last decade. This is appalling, and There is little sign of recovery,” Jammin said.

The good news is that the share of capital expenditure in the total budget will rise from 4.7% to 5.9% over the next three years, which means the government wants to increase its own capital expenditure by 10% annually.

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„But we've already faced that in the past, and we're still waiting to see the manifestation of increased government spending on capital projects, which haven't materialized. So can we trust these numbers going forward?” he wondered.

He noted the R943.8-billion that Kotongwana had promised to spend on energy, water and sanitation, transport and logistics. He said the figure was about 12% higher than the R812-billion forecast a year ago.

„If it's any consolation, more money has been officially added to capital projects over the next three years,” Jammin said.

he said. However, the budget was built around a number of short-term, one-time fixes that were not sustainable in the long run, and addressing several key issues was the only way to ensure rapid economic growth.

In Jammin's view, the biggest problems in South African SOEs can be summed up as corruption and staffing, fed by poor management and inefficiency.

„Of course, energy insecurity, transport bottlenecks, low investment relative to consumption, excess regulation and bureaucracy, government's desire to do everything by itself without embracing the private sector and cadre deployment leading to capacity shortages are integral to this. Especially at the municipal level – to implement,” Jammin said, at the center of it all. , South Africa needs to build human capital skills that can truly cope with a more technologically intensive economy, and those skills to take full advantage of opportunities. are there.

„It's not a total disaster. It could be worse. It's not collapsing,” he concluded.

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