STATISTICS may seem dry at times, but there are occasions when they are cause for shock. That was my reaction when I started investigating what government's contribution was in cushioning the recession.
The public sector was supposed to shield SA from the effects of the recession in three ways: government spending on infrastructure and other capital expenditure; government spending on salaries and other recurrent spending; and spending on public sector corporations such as Eskom and Transnet.
What I've found is that the public corporations spent last year and government had no trouble in spending on salaries. What was shocking, though, was that nothing came of government's much-vaunted infrastructure spending programme. No wonder there are riots in the townships about service delivery.
According to figures in the Reserve Bank's March Quarterly Bulletin, gross fixed capital formation by general government "declined further" in the fourth quarter of 2009, registering annualised rates of contraction of 6.9% in the third quarter of 2009 and 10% in the fourth quarter.
The trend definitely worsened over the year. The decline for the year as a whole was 1.2%.
The textbook definition of "general government" is all three tiers of government - national, provincial and municipal. How is it possible that after so much fanfare, and during a recession year, government actually reduced its spending on infrastructure and other much-needed capital assets?
("Gross fixed capital formation" includes infrastructure such as roads and pipes, and spending on other fixed assets such as hospitals, houses and schools.)
The Quarterly Bulletin, in its dry way, said provinces were spending less on capital budgets than had been budgeted. To be fair, it must be pointed out that general government spending on capital budgets rose 13.4% in 2008, so it was a hard act to follow the previous year's impressive performance.
Barking up the wrong tree
But the stark truth remains that provinces failed miserably in spending their capital budgets in 2009 - a year in which they were desperately required to do so. It also shows that past problems in spending allocated budgets haven't disappeared, as had been thought. It's also worrying that the situation worsened over the year, suggesting a major blockage that has to be cleared.
Of course, government didn't have the same problem in spending on salaries. There was an increase in general government consumption spending of 4.7% in the last quarter of 2009. This followed a whopping 8.1% increase in the third quarter. The third-quarter figure was swelled by arms purchases, which are - despite being hard assets - classified as consumption expenditure. (This is because arms purchases don't enhance the economy's growth potential.)
The Quarterly Bulletin said: "The increase in government consumption expenditure in the final quarter of 2009 mainly reflected high employment levels emanating from labour-intensive programmes launched at provincial government level."
This raises an important question: if provincial spending on infrastructure fell, what were those employed in labour-intensive schemes doing? They weren't building houses, roads, hospitals and schools.
In the job creation programme, there are non-capital spending programmes, such as home-based care for the elderly and Aids patients. While these are laudable programmes, the question must be asked whether these activities are being pushed at the expense of the more difficult infrastructure-related job creation programmes.
Infrastructure scandal
This seems to be the case and it would be a shame, as the infrastructure spending creates hard assets communities need and also enhances the potential for economic growth. For instance, building a proper road to a farm provides the farmer with better opportunities to transport his produce and sell it.
The benefit to growth lies not just in the spending on the road, but also in the spin-offs this generates. Even for expenditure on hospitals, one can argue that a healthy workforce is a productive workforce, and this is good for growth. Self-evidently, the building and maintenance of schools enhances growth.
One question that isn't answered either in the bulletin or in the Budget review is whether the funds provinces failed to spend on infrastructure were diverted to salaries, or whether this spending is still going to take place.
What is clear, though, is that the share of government consumption in the economy has grown, rising from 19.1% in 2008 to 20.8% in 2009. The bulletin says this probably reflects the rising staff complement in the total public sector.
In his Budget speech, Finance Minister Pravin Gordhan warned public servants their salary increases would have to be restrained. But it seems that SA is now counting the cost of a highly-paid public servant elite which is unable to get much-needed infrastructure spending off the ground.
That this happened in a recession year makes it an absolute scandal.
Looking ahead, it's scary to see that a lot of weight is placed on the provinces' ability to deliver. Housing grants are budgeted to grow at an average annual rate of 19.2% in the three fiscal years to 2011/12 "in an effort to speed up implementation of the comprehensive housing strategy".
But if spending on housing and other capital assets fell in 2009, will those same public servants be able to raise expenditure so dramatically in the near future?
