The Treasury is likely to have to soften its stance of no further bailouts for Transnet, Old Mutual’s asset management arm says, casting doubt on the credibility of the finance minister Enoch Godongwana’s promises.
Old Mutual Investment Group (OMIG), which manages assets valued at more than R400bn, insisted that the importance of additional fiscal support for the state-owned entity’s performance was too significant for government to overlook in its pursuit for economic growth.
Jason Swartz, portfolio manager at OMIG, said one of the disappointments from Wednesday’s medium-term budget policy statement (MTBPS) was the failure to announce any bailout or capital injection for Transnet.
“This was probably in line with consensus expectations on funding announcements, but Transnet is in desperate need of recapitalising its infrastructure to the tune of R150bn and needs fiscal support to lighten its R1bn a month interest burden,” Swartz said.
“We are still hopeful that there will be some progress in the February budget regarding its fiscal support, as conditions stipulated by the Treasury are met, and that this will be specifically focused on certain rail network projects for prioritisation.
“Our view is that fixing SA’s logistics network is by far one of the biggest levers to lift long-term growth. Transnet’s reform is critically important to improve business confidence and private sector participation, and drive employment growth and household consumption.”
Swartz’s comments implicitly question the feasibility and credibility of the MTBPS, which painted a picture of fiscal slippage even as Godongwana was forceful in the government of national unity’s commitment to stabilising SA’s finances and paying down debt.
Trevor Manuel, a former finance minister and current Old Mutual chair, introduced the MTBPS in December 1997 as a means to provide an update on the Treasury’s economic forecasts, as well as government revenue and expenditure.
In December 2023, Transnet received a R47bn guarantee from the Treasury to make it easier for the entity to raise capital from the market. This was a month after it had said no bailouts were on the cards for Transnet. Its year-old appeal to the government, its sole shareholder, for the restructuring of more than R61bn in debt and an injection of R47bn in equity remains unapproved.
Transnet’s reform is critically important to improve business confidence and private sector participation, and ultimately drive employment growth and household consumption.”
— Jason Swartz, portfolio manager at OMIG
Asset manager Stanlib on Thursday said that while the Treasury’s stance to show SOEs tough love by not granting them further bailouts was well received, it was unlikely to hold as various SOEs would require additional government support in future.
“Transnet raises the most concern,” said Stanlib which has assets under management of nearly R700bn.
“The minister said the government will continue to limit further financial support to SOEs while completing the resolution of the debt obligations of Eskom and Sanral. This is encouraging, as it shows the Treasury is taking a hard-line approach towards SOEs, insisting that they restructure before any funds are allocated,” Stanlib said.
“On the other hand, many SOEs remain in serious financial difficulty and will need government assistance sooner or later. By not making provisions for SOEs now, the minister is simply delaying the inevitable and pushing the problem down the road.”
The country’s leading money managers welcomed the MTBPS commitment to ramping up infrastructure spending.
Swartz said unlike previous years, where a lot was said about infrastructure spending, the tone of this year’s MTBPS was decisive as it mentioned various mechanisms to improve private sector participation. “This is really encouraging,” he said.
The MTBPS said government consolidated spending on building new as well as rehabilitating existing infrastructure would increase from R78.1bn in 2023/24 to R131.1bn in 2027/28. This included roads, bridges, storm water systems and public buildings.
Ninety One, SA’s largest asset manager, said the MTBPS sent the right signals on infrastructure. Sisa Kobus, an analyst within the SA and Africa fixed income team at Ninety One, said the MTBPS re-emphasised the government’s commitment to infrastructure, economic growth and job creation.
“They noted the weakness we have seen in investment growth over the past few years and highlighted the positive impact on growth and jobs that infrastructure investment has,” Kobus said. “They showed that from a job growth perspective, the short-term impact of R1bn spent on construction of a project is more than three jobs created for low-skilled workers.
“The government is developing a blended finance risk-sharing platform, which will include a credit guarantee vehicle to help derisk some of the projects. Some projects will be funded through the budget, but the funding will be shown as a defined category of the borrowing programme. This will include infrastructure bonds, bilateral loans, and concessional funding,” he said.
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