A Treasury presentation to parliament this week highlighted the spectacularly terrible financial record of SA’s state-owned enterprises (SOEs) and the cost to taxpayers.
Just in the past three years the government has bailed out six failing SOEs to the tune of R281bn. That is not counting an additional R24bn for the SA National Roads Agency, which was not included in the Treasury’s presentation, presumably because it was a supersized Gauteng toll payment rather than a bailout as such.
The Treasury’s presentation came just ahead of finance minister Enoch Godongwana’s budget speech on Wednesday and put a depressing frame around the budget, which is likely to show further deterioration in SA’s public finances.
At more than R300bn the taxpayer cash that has been allocated for bailouts in just three years is more than SA’s annual budget for basic education or social grants, and significantly more than its health budget. It is equivalent to more than half the R554bn the government expects to have to borrow each year.
Without it, the government’s deficit and its borrowing requirement would be meaningfully lower. The public finances would be in far less trouble than they are. The finance minister might have more scope to spend on improving people’s lives instead of being endlessly arm wrestled into providing crisis cash for SOEs.
The latest round of bailouts comes on top of more than R250bn that had already been granted, mainly to Eskom, in the previous decade. In theory, the government’s R5-trillion of debt would be more than 10% lower if it had never had to provide for all these bailouts, and we would not be spending 20c in every rand of tax government collects on debt costs.
Nor does SA have much to show for it, despite all that money, and despite the “tough love” Godongwana has supposedly meted out to SOEs. Most of the bailouts have been pitched as supporting turnaround plans at these entities, with Eskom and Transnet seen as too big to fail, or so the argument goes.
Significant losses
The minister has imposed ever more stringent conditions and closer monitoring of these SOEs by the Treasury. Yet its presentation, which reported on the quarter to end-December, showed a continuing litany of financial and operational disaster. All six of the entities are making significant losses and falling well behind their own operational and financial targets, never mind delivering what they should to SA’s citizens or its economy.
The Land Bank went into default in 2020 and has yet to come out, despite extensive and expensive restructuring plans and a R7bn bailout package in 2021. You have to ask what bank would even want to survive with Land Bank’s 55% non-performing loan ratio.
SA Airways was allocated R10.5bn in late 2020 for its business rescue plan and a further R1bn in February 2023. It is flying despite the fact that the Takatso consortium takeover has yet to be concluded, and the airline even made a small profit for a while but is now again loss-making.
The SA Post Office got R2.4bn to support its “Post Office of Tomorrow” strategy before its creditors put it into liquidation a year ago, and as of today it is deep in the red. Denel was allocated R3.4bn in 2022 after it presented a revised turnaround plan, which clearly has yet to turn it profitable.
Then there are the “too big to fail” twins, whose performance is credited with the collapse in SA’s economic growth in recent years, and in Transnet’s case particularly in the past year. This time last year Eskom finally got its R254bn debt relief package from the Treasury, of which R78bn is in the current year and the rest over the next two years.
The package came complete with a string of conditions, including an independent expert report on the state of its power stations, which has yet to be made public. You have to ask why a company allowed consistent double-digit price increases by its regulator based on its supposedly “efficient costs” still makes a R7.5bn net loss in a single quarter.
The Treasury masked the impact of the Eskom bailout on the budget, but not on the government’s borrowing requirement, by accounting for it as debt, not spending, which helped flatter its expenditure growth last year too.
It is under pressure to provide a similar debt relief package for Transnet, which managed to get just a baby bailout of R2.9bn in 2022. Transnet’s debt has climbed to R130bn from R110bn in 2015. It came close to defaulting on its debt obligations late in 2023, forcing the Treasury to provide a R47bn guarantee facility, albeit with a long list of conditions. But the next step is bound to be a cash package, whether that materialises as soon as next week’s budget.
Until its finances began falling apart, the government did not seem to realise there was a problem at Transnet, despite loud screams from exporters that could not rail their product to market, or get it in or out through Transnet’s ports. Some cynics believe the government likes it when SOEs are financially dependent, because it keeps them under control. We are the ones who pay.
Management
One of the big failings is that the government and SOEs themselves always seem to zero in on money as the problem, while the Treasury focuses on attaching ever longer lists of conditions to that money to get failing SOEs to cut costs and corruption and improve efficiency and services. But no amount of money or conditions is going to solve the more fundamental problem, which more often than not is management.
A report in the Sunday Times confirmed, as many suspected, that the government has priorities other than competence and relevant experience when it comes to choosing executives to lead SOEs. Acting Transnet CEO Michelle Phillips and acting Transnet Freight Rail CEO Russell Baartjes, both highly regarded by the market and Transnet’s customers, were deemed “not black enough” to be appointed to permanent CEO positions, the Sunday Times reported. Since both are black, the suspicion has to be that it is really about friends in the ANC and access to contracts.
The IMF has estimated the government could permanently save 1.5% of GDP by implementing SOE reforms, including divestments, liquidations or restructuring. In theory, the government is committed to reforms. In practice, it takes forever for anything to happen. And that is even where reforms are supposedly under way.
Whether this reflects passive resistance within departments and SOEs to reform, or sheer incompetence, is unclear. But the costs are clear. If Transnet were to actually sign the contract with the Philippines private concessionaire it chose in July to run the Durban container port terminal, it could rake in R10bn-R11bn.
A few more concessions could shrink the bailout it says it needs and improve SA’s rail and port services. Perhaps Godongwana’s love needs to be even tougher.
• Joffe is editor-at-large.
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