By Kevin Lings

Amid the gloom, embattled consumers can be forgiven for missing the positive news that not even an avalanche of interest rate rises can sweep from the economic landscape: infrastructure spending is moving up a gear and billions committed to major projects should help cushion the effects of higher interest rates on the broader economy.

Rates are up again. So is petrol, the price of food and bad debts. About everything else is down: car and furniture sales; house prices, too. Business confidence is at a seven-year low.

Yet much of the infrastructure-related fixed investment spending will carry on regardless. The spending has already been budgeted and work has commenced on a number of major projects.

In 2007, expenditure on fixed investment activity grew 14.8% year on year in real terms. This is the fastest growth in fixed investment spending in more than 20 years.

Fixed investment activity is up from 15% of gross domestic product in 2002 to 21% today. The target is to take fixed investment to 25% of GDP by 2014. In the last National Budget, government forecast that spending on public infrastructure will increase from R124.4-billion in 2007/08 to R210.6-billion in 2010/11; a rise of 69%.

About 90% of the public sector’s fixed-investment annual budget is being spent; this is well up on less than 50% six years ago.

Capacity building has taken place in all major sectors of the economy, with an almost equal contribution from the public and private sectors.

There’s a preponderance of new investment activity within the airport, port, electricity, rail and water supply components of the economy. But we’ve also seen healthy expansion in the manufacturing, communication, transport, mining and financial sectors.

Since 2000, construction has been the best- performing industry, growing by 199%. Most large construction companies have full order books and are not significantly affected by electricity problems. The second best performer has been finance, with cumulative growth of 68%. Mining and agriculture lag with growth of just 7% and 3% respectively. Fortunately, mining and agriculture combined represent less than 10% of our economy.

We see a clear focus on investment in stadiums and public transport to ensure a successful 2010 Fifa World Cup. Government is also looking to step up investment on housing, roads, water, sanitation and community facilities. There is also a policy drive to improve economic efficiency through investment in rail, electricity generation and supply, dam construction and skills development.

There’s a perverse upside to our skills shortage. Even companies hard hit by current economic woes will think twice about retrenching staff. Where will they get good, experienced people when the recovery comes? In the past, the jobs axe fell pretty quickly. Back in 1991-93 we hit recession while fixed investment remained stagnant or tended lower. Jobs were cut. Unemployment raced ahead.

Yet over the past four years more than 1.6million jobs have been created. It’s a step in the right direction and work on national infrastructure should help to ensure that unemployment won’t rocket as it did in the past.

These positives won’t vanish when the final whistle blows in the World Cup. Many of the projects underpinning the fixed investment initiative extend well beyond 2010.

Fixed investment provides a welcome cushion as the Reserve Bank kicks the chair from under the consumer. Okay, we’ll still feel quite a bump. Fixed investment accounts for just 21% of our economy; the consumer for 62%. But there should be enough padding to limit the bruising.

Source: The Times