The Sunday Mail
Business Reporter
The decision by Government to put a significant portion of the 2021 National Budget in infrastructure is in line with the Keynesian theory that aggregate demand can be reactivated by increasing public expenditure.
The Keynesian theory is a macroeconomic theory of total spending in the economy and its effects on output, employment, and inflation.
The theory suggests that investing in infrastructure is a popular form of fiscal stimulus because it produces highly visible results.
In spite of some practical limitations, evidence shows that infrastructure can create significant economic stimulus even compared to other forms of spending.
Finance and Economic Development Minister, Professor Mthuli Ncube might have had this theory in mind when he proposed to spend $139,8 billion on infrastructure in 2021.
The infrastructure spend, which is 33 percent of the 2021 National Budget of $421,6 billion, could easily be the biggest spend Government has made on infrastructure in years.
For the past 10 years or so, recurrent expenditures dominated Government spending, albeit with the bulk toward employment costs. This left Government with little space to spend on fixed investment in social infrastructure (schools, hospitals, low cost housing, etc.) or physical infrastructure (roads, bridges, harbours, airports, etc.).
For the period to September 2011 recurrent expenditures amounted to US$1,68 billion, against capital expenditures of US$0,192 billion. That’s only 11,4 percent of total expenditure spent on capex.
In 2013, the Budget plan was to spend 86,4 percent on recurrent expenditures and only 13,6 percent on capital development.
This was the norm and it got worse in 2016. By end of September of that year, employment costs alone accounted for 95 percent of collected revenue.
The implications of underinvestment in infrastructure are easy to understand and need no further explanation.
Insufficient investment in an economy means sub-optimal economic growth, sub-optimal job creation, and inferior overall living standards.
Tackling the country’s infrastructure gap thus remains an outstanding challenge.
According to Prof Ncube, Government is determined to improve delivery of infrastructure projects through sustained public spending on construction activities, even under the difficult environment posed by the Covid-19.
Infrastructure spending meaningfully redresses some of the challenges arising from the prevailing infrastructure gap, which naturally constrained rapid economic growth and development.
Consistent with the National Development Strategy, the priorities for the National Public Infrastructure Investment Programme for 2021 will be towards maintaining and repairing current infrastructure, complete ongoing and stalled projects, while investing in project development activities that would ensure we have a compendium of pipeline bankable projects, ready for the market, Secretary for Finance George Guvamatanga wrote in the preface to the Government document titled “2021 Infrastructure Investment Programme”.
Drawing from NDS1, the 2021 Infrastructure Investment Programme provides new impetus in the delivery of projects that support economic recovery and growth, protect lives and livelihoods, create jobs, and stimulate productive investment.
Consistent with this objective, overall capital funding through the fiscus will be increased to 5,5 percent of GDP in 2021.
Overall support under the Infrastructure Investment Programme for 2021 amounts to $139,8 billion.
With national electricity access at 47 percent and the quality of the supply remaining a key challenge, the energy sector got the biggest share with a target spend of $45,7 billion.
Ongoing works at Hwange 7 & 8 Expansion Project, funded through a US$997,7 million loan from China, remains a priority, with $32,2 billion expected to be disbursed during 2021.
Transport related infrastructure is also favoured with targeted allocation amounting to $36,4 billion. The amount is mainly targeting ongoing works in the roads sector, $31,6 billion, aviation $4,57 billion with $250 million being set aside for the rail sub-sector.
