Weak Rand Will Explode Govt Capital Spending Budgets

As is happening with Vodacom, the weak rand is going to fuel a surge of the cost to build capital infrastructure in and around South Africa, and will lead to a major retrenchment of investment in real brick and mortar terms this year and next. It will be interesting to see in government’s budget 2014 when it is announced later this month by how much capital spending inflation rises and must now be extracted from the private sector in the present (taxation) or in the future from our kids (deficits and government borrowing) to pay for it.

It is also possible that the government continues to budget its capital spending according to CPI inflation rates that well understate the rate of capital infrastructure price inflation, and as a result, continues to under-invest on a massive scale to maintain and expand existing infrastructure. This would mean the crumbling of road and water infrastructure continues unabated.