In a recent presentation to parliament, public enterprises minister Pravin Gordhan said the government had spent R234bn on “bailouts” to state-owned enterprises (SOEs) and received dividends of only R1m over the past five years.
Eskom (R182bn) accounted for 78% of the bailouts. SAA (R37bn) accounted for another 16%. Since the gap between the airline’s revenues and costs was about R2bn a year from 2010 to 2017, it would probably have cost less to keep it operating.
The commentariat said SOEs were bleeding SA dry and draining the fiscus. But the idea that the government should not invest in its own companies is absurd. It is a major contributor to the public sector investment strike that has resulted in a collapse in SA’s trend GDP growth rate since 2015. Public investment (by general government and public corporations) plummeted by 38% between 2015 and 2022.
The idea that government spending on infrastructure is a drain on the fiscus is a disturbing sign of economic illiteracy. According to the IMF, infrastructure spending in developing countries has a fiscal multiplier — the GDP generated by each rand of spending — of 2.7. Since it generates the income to more than pay for itself, there should be no budget constraint on infrastructure spending.
When the government spends on its people and infrastructure, the economy grows and creates jobs. When it stops spending on its people and infrastructure, GDP growth collapses and unemployment increases.
From 2003 to 2008 public investment soared 14% a year. The economy grew by 4.5% a year during this period. It created 3.1-million jobs from the first quarter of 2003 to the fourth quarter of 2008. From 2009 to 2022, public investment fell 2.4% a year. The GDP growth rate plunged to 1.2% a year, lower than the population growth rate. From the fourth quarter of 2008 to the first quarter of 2023, the number of unemployed people increased by 6-million to 11.9-million.
During the late 1990s the government instructed Eskom not to invest in new capacity because the private sector would do so. Nothing happened for nine years. In 2007, just before its build programme started, Eskom made a profit of R6.5bn on revenues of R40.1bn. It had debt of R40.5bn. In the 2009 annual report chair Bobby Godsell said Eskom could not fund the first major expansion of the grid in decades from tariff increases alone. A normal business would fund its growth with a balance between owner’s equity, reserves and debt, he said.
Eskom had an inadequately capitalised balance sheet, which could not finance the expansion. From 2007 to 2019 its capital spending was R613.9bn — 41% of revenues. Electricity prices increased by 14% a year and revenues by 13% due to lower sales. This was far less than the increase in costs, which soared to 116% of revenues from 87%. Tariff increases reach a point where they become politically unacceptable, counterproductive and unaffordable for most people. So the increase in Eskom’s debt to R441bn in 2019 was roughly equal to difference between the regulated price determinations and the National Treasury’s support to Eskom of R84bn during this period.
The Treasury’s support of R182bn from 2019/20 to 2023/24 is wasted money since it was used to pay interest and not reduce Eskom’s debt. It addressed the symptom, not the problem. In the 2023 budget the Treasury announced debt relief of R254bn. But only R168bn — 40% of Eskom’s R423bn debt — will be used to reduce debt. This does not provide Eskom with sufficient financial runway to make the large investments it must make — almost R400bn in transmission alone until 2035, according to the just energy transition investment plan.
The government will have to eliminate all Eskom debt and have a permanent line item in the budget to invest in new capacity. Let us stop talking about bailouts.
• Gqubule is research associate at the Social Policy Initiative.
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