SA Scenario

Is the bad mood justified? (part I)

JP Landman, Analyst, Private Clients, BOE
 
The mood in the Country, certainly amongst white people, is quite depressed. An annual opinion poll on how optimistic South Africans are, found that, in February 2008, 60% of South Africans felt positive. That was down from an average of mid-sixties in previous years. The poll reveals that Cape Town has the least positive residents (49%); the Vaal triangle has the most optimistic (74%); Pretoria and Johannesburg come in at 62% and 67% (interesting if one considers the crime in Gauteng); young people are more optimistic than their elders (66% vs 51%); and the inland areas of SA more optimistic than the coastal areas. This is probably explained by the fact that optimism amongst coloureds and I ndians is fairly low (40% and 44% respectively), whilst blacks are very optimistic.

Why such a bad mood? In the previous years, we also had crime and malfunctioning municipalities. In my opinion, three factors have contributed: politics, economics and Eskom.

• Politics, particularly the post-Polokwane reaction to ANC elections and decisions about the media, the Scorpions and the judiciary;
• Economic headwinds, particularly rising petrol and food prices which also push up inflation and interest rates and depress general activity; and
• Lastly and the most damaging, Eskom’s inability to supply sufficient power.

Eskom is the straw that broke the camel’s back. It brought up all the subliminal fears that (whites) have about (black) governance. Nevermind the fact that in the mid-seventies, Eskom had a similar crisis when the whole Country was without power for 18 hours and power tariffs rose by 75% to fix the problem. Somehow, the current Eskom crisis is seen as the beginning of the end.

At the heart of the Eskom problem is a lack of investment and maintenance. Is that being fixed? Last year, Eskom invested R17.7bn, 67% more than the previous year. This year, it will spend R46bn • • • and next year R80bn. By 2012, it would have spent R360bn. Sure, it will take time for these investments to work through; 2012 means another four years of pain and interruptions. But distinguish that from a situation where power cuts take place and no investment is taking place to improve matters (as with Zimbabwe). So Eskom will turn, even if it takes four years.

This investment story repeats itself all over the SA economy. Transnet is investing R78bn over five years; about R12bn a year are being spent on roads, and toll roads will add to that amount; municipalities are budgeted to spend R100bn over three years on infrastructure. Then add airports, broadband telecommunications, hospital upgrading, electrification, school building… I don’t even need to mention the World Cup stadiums.

By the way, comfortably more than 90% of these budgets are actually spent. Just take last year, when total Capex budgets came to R128bn of which R124bn was actually spent (97%). All the public attention fell on the R4bn not spent (3%).

All over the Country, there is a frantic search for skilled people. Engineers who were retrenched are being called back; the collapse in Zimbabwe helps SA construction companies fill their complements; labour brokers are bringing people in from foreign shores to work here. The Country is booming beyond its ability to supply skills.

One hears a lot that SA spends on social welfare but not on investment. This fiscal year, the Country will invest 7% of GDP… and spend 4.6% of GDP on social security, including the Road Accident Fund, UIF and of course the R12.4m social allowances paid out every 30 days. Whilst the State probably spends 80% of what is spent on social security (churches, NGOs and individuals do the rest), its investment spend is only about 30% of what the Country invests. The private sector does the rest.

Can we now please bin this nonsense that we spend more on social welfare than investment?
 
email: jpland@iafrica.com