Capacity constraints hit economic growth

Finance minister Trevor Manuel says the “electricity outages that South Africans experienced in the first quarter of this year signal capacity constraints in several areas of infrastructure, including roads, rail, ports and most critically in skills”. Delivering his medium term Budget in parliament last week, Manuel said “these capacity constraints have also slowed economic activity and will restrict growth in the near term. “To break these constraints, we must invest more.” However, financing these investments in the period ahead will be challenging. Government will support our state-owned enterprises through providing selective guarantees on their borrowing and through increasing the capacity of our development finance institutions to contribute to funding major infrastructure projects, he said. Signalling that the days of cheap power and water are over, Manuel said: “At the same time, it is essential to price utility services appropriately so that we encourage more efficient use of these inputs and generate the resources to fund greater expansion in capacity. “We must also create a more amenable environment for the private sector to invest in economic and social infrastructure.” Additional expenditure announced by Manuel includes a R2.5 billion bail-out for the Road Accident Fund. Provincial budgets for “increasing investment in housing, roads and other economic infrastructure” have also been increased. According to the annexure provided by the Department of Transport, expenditure in the first six months of 2008/09 was R11.541 billion, or 47.1% of the adjusted appropriation of R24.493 billion for the year as a whole. Expenditure in the first six months of 2008/09 increased by R4.881 billion, or 73.3% compared to spending in the first six months of 2007/08. The main increases for 2008 are “related to the transfer of conditional grants funding to provinces for the Gautrain Rapid Rail Link. Falling behind in its spending is the Department of Public Works, which reported that expenditure in the first six months of 2008/09 was R1.71 billion, or 39.7%of the adjusted appropriation of R4.302 billion for the year as a whole. Expenditure in the first six months of 2008/09 decreased by R260.7 million or 13.2% compared to spending in the first six months of 2007/08. The department said the main decreases were due to “the slow pace of spending on capital projects”.