PUBLIC PURSE DECISIONS AND YOU II

In our previous issue we disentangled the link between public purse decisions and their impact on your daily economic options.

In today’s issue we shall focus on another component of public purse decisions being infrastructure development, and its impact on the economy and our lives and daily realities. This comes in the backdrop of stories of a proposed new villa, to add on to the FISH which is about to be completed. A Capital Project is a project that helps maintain or improve a country’s asset base, often called infrastructure and this is included in the country’s capital budget. The rationale for investing in capital projects is often to improve the infrastructure of a country which is often viewed as a critical enabler to the economic growth of a country. This goes to show that the investment in infrastructure projects is not an end in itself but rather a conduit to economic growth. It is therefore, folly to regard infrastructure projects in isolation of the whole growth story of a country.

The narrative is a switch from heavy recurring budget expenditure to a modest capital projects expenditure is what the country needs, since capital projects do not require an annual outlay on the public purse. Well, it is my view that this is only half the story, a comprehensive story cannot be told without considering the growth story of the country too. In recent decades the kingdom embarked on a number of marked infrastructure projects, which include but not limited to; the Mbabane -  Manzini highway, KM III International Airport, The Royal Science and Technology Park, Mavuso Exhibition Centre, etc. These investments have a couple of things in common, they are all marred by serious cost overruns. Also, over the past two decades the country’s economic growth has been stagnant at average growth of below two per cent. The country continues to posit this lacklustergrowth albeit the investment in infrastructure. This is an indicator of the fact that there are serious hindrances to the country’s growth story that need to be addressed if we are to put the country on the right growth trajectory.

Linked

Investment in capital projects needs to always  be linked to the growth story of the country, it is quite imperative to have all the pieces in place before embarking on an infrastructure project. Eswatini is a country that is located in a regional bloc that is an economic hub in the region (SACU). This is both a blessing and a curse, being four hours away by road from Africa’s busiest airport has negative impacts on the country’s ability to attract investments and enough air traffic to turn the return on investment positive for an airport in the country.

The country’s proximity to a regional super power places us at a somewhat of a disadvantageous position in terms of attracting big conferences and gatherings so we can turn a positive return on investment on the villas being constructed and the FISH. This therefore, requires that as a country we invest in niche markets and focus on placing our money where we have a revealed comparative advantage. This should include heavy investments in value addition in the agriculture sector and promotion of high value crops and improved export.

The investment model should be one that is growth driven, the country should consider investing in niche market related projects. The investments should not be seen as an end in themselves but rather a catalyst for growth. Often infrastructure projects are viewed as conduits for job creation, however most of these jobs are usually short term and only valid for the period of the construction. This thus gives an illusion of employment creation yet this is just transient. Renewed focus should be placed on the economic outcomes post the erection of the infrastructure project.

Advantage

The infrastructure should be strategic and should aim at giving the country an economic advantage that will attract FDI, and inspire local entrepreneurs to increase production and thereby grow the economy. This notion is further cemented by the fact that there is no free lunch, all these infrastructure projects are usually financed by loans from development partners and future interest payments limit the scope for expansion of the public purse, this is particularly true if the economy is not growing and the tax base is not increasing. It would seem that the country is now suffering from the negative legacy of past successes. The economy grew in past decades largely owing to political instability in South Africa and Mozambique. Hence the country was the favourable destination for FDI. However, the very instability that gave us an urge, also gave functioning infrastructure, functioning financial systems and functioning justice systems to former unstable countries in the region. Liberalisation took away our economic advantage; we cannot therefore continue investing in the old way. There is need to ramp up marketing and find a new stand for Eswatini in the current age.

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