SA is running out time and money to ease a cash crunch at state-owned companies, the CEO Nedbank said, the latest business leader to express frustration at the pace of turnaround efforts at parastatals that also include debt-laden Eskom.
Fixing the state-owned companies, many of whom are losing money and survive on cash injections for the government, is vital to President Cyril Ramaphosa's drive to revive the economy and shore up investor confidence.
“Significantly more urgency is required to institute structural reforms to stem the economic and fiscal deterioration currently being experienced in the SA economy,” Nedbank CEOMike Brown said at the bank’s earnings results presentation in Johannesburg on Tuesday.
Brown is the second prominent business leader this week to express dissatisfaction with the speed the government is moving at in addressing the financial crises at SOEs. His comments, as well as those Sipho Pityana, president of business lobby group Business Unity South Africa, call into question Ramaphosa's credentials as a political leader who will push unpopular reforms to put the economy on a robust growth path.
PODCAST | Business Day Spotlight - SOEs haemorrhage state funds and impact investor confidence
For more episodes, click here.
Subscribe: iono.fm | Spotify | Apple Podcast | Pocket Casts | Player.fm
“It should be clear to everybody in our country that the economy right now is at a critical juncture, and going forward what is required is coherent economic policy, and that difficult decisions are made and not postponed, and urgent action on structural reform is required,” Brown said.
One of the top priorities requiring urgent action is Eskom, which Brown referred to as the “very sick” elephant in the room. Eskom's is operating at a hefty loss and is unable to pay interest on its more than R400bn borrowings raked up over the last 12 years.
The company, often cited as the biggest risk to SA's remaining investment grade sovereign rating, is expected to suffer a R20bn loss in the 2017/20 fiscal year, a headache for Finance Minister Tito Mboweni at them time of fiscal constraints.
Brown, whose company reported a slight increase in half-year headline earnings per share in the face of tough competition and the a weak economy, said the recent bailout for Eskom should have come with conditions
“What we do not have is any certainty as to the long-term strategy, structure, leadership, operational capacity or financial forecasts for Eskom, and these need to be publicly set out as the conditions for the recent bail-out that was funded by taxpayers,” Brown said.
The government had promised R69bn of support over the next three years, but expanded this by another R59bn in July, and R105bn of this will flow over the 2020/2021 period.
Eskom, which the IMF has said it had a bloated workforce, is behind Fitch -- which rates SA debt a notch below investment grade -- latest move to downgrade SA's outlook to negative.
Moody's Investor Service, whose forecasts in May pegged SA debt to GDP ratio at as much as 70% in the next few years, said on Tuesday Eskom's capital structure was not sustainable without continued government support.
Moody's is the last of the big three ratings agencies to have SA in investment grade.
Investec bond portfolio manager Malcolm Charles said the currency and the bond market have priced in Moody's changing its outlook on SA’s credit rating from neutral to negative in November, which would be a sign that the country is headed for an inevitable downgrade.
But Charles said the government could still avoid a downgrade, which would SA is kicked of of major bond indices tracked trillion of dollars of funds, if it quickly delivers a credible plan to restructure Eskom.
In the meantime, investors in energy-intensive sectors such as mines, smelters and manufacturing are holding back, Brown said.
"Until we are able to have much stronger line of sight on the turnaround plans for Eskom, on which these bailouts should be contingent, I think it’s very unlikely you will see materially increased levels of investment," he said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.