MICHAEL AVERY | The president’s green shoots encounter hard ground of vested interests

When President Cyril Ramaphosa takes the stage at the sixth South Africa Investment Conference this morning, investors will know the script and will be listening for more urgency and clarity on key reforms and how his administration will respond to the largest looming energy shock the country has faced since load-shedding began.

There will be all the usual talk of resilience, reform and renewed investor confidence. And, to be fair, much of it is deserved. The lights are on, for now. South Africa is off the Financial Action Task Force greylist. The fiscus, still strained, has steadied, with primary surpluses restoring some credibility. Logistics reform is creeping ahead. And as the president notes, four quarters of growth and a long-awaited sovereign upgrade suggest tentative momentum.

These are not trivial gains. In a country where expectations have been serially disappointed, they matter. They are the difference between despair and possibility. But if this is the overture, the main act remains stubbornly unfinished. Nowhere is that more apparent than in energy and competition policy, the twin arteries through which capital must flow if this recovery is to become something more durable than a cyclical reprieve.

The government’s narrative is that we are building a competitive electricity market. The reality is murkier than the goings-on at the Madlanga commission. The South African Wholesale Electricity Market, meant to anchor reform, is being delayed. What was supposed to deliver price discovery and competition is becoming a cautious, phased rollout, starting with an internal market in 2026 and only gradually evolving into a functional market years later, with a growing risk of missing the 2030 deadline.

Much of this reflects a reluctance to confront the uncomfortable truth about Eskom. We are still, fundamentally, trying to save the utility rather than fix the system. The debate is framed around asset ownership and the financial sustainability of Eskom’s generation and distribution units. But this framing is backwards. The relevant question is not whether Eskom can be preserved in its present form, but whether its form is compatible with a competitive electricity system.

If it is not, and the evidence increasingly suggests it isn’t, then preserving it becomes part of the problem. Meanwhile, the real system adjusts around this inertia. Private generation expands while grid capacity remains the bottleneck. A legal clash between Mulilo Renewable Energy and Eskom, involving projects tied to Scatec, underscores intensifying competition for scarce grid capacity. Eskom’s decision to reassign previously allocated access from a private solar project to Renewable Energy Independent Power Producer Procurement Programme bidders has triggered court action and an interim interdict.

The government’s narrative is that we are building a competitive electricity market. The reality is murkier than the goings-on at the Madlanga commission. The South African Wholesale Electricity Market, meant to anchor reform, is being delayed.

For the system to change, something has to give, and the hardest conversations, about uncompetitive legacy generation assets and a distribution network plagued by nonpayment, remain conspicuously absent. Yet if the structural issues in electricity reform are abstract, their consequences are anything but. From Wednesday, South Africans will face a double Fool’s Day blow with a record increase in fuel prices, driven by global oil markets and the Iran war, alongside an 8.76% electricity tariff hike, which is nearly three times the official inflation target set by the Reserve Bank. It is quite simply a tax on growth.

Then there is the industrial base. South Africa’s smelting sector is now in visible distress. Ferrochrome producers such as Glencore and Merafe are locked in fragile negotiations with Eskom over discounted tariffs, even as retrenchments loom across the industry. At Samancor job cuts are already advancing while in Mozambique South32 has mothballed the Mozal aluminium smelter. With electricity accounting for more than half of production costs, tariffs are driving demand destruction, eroding competitiveness and threatening a deeper industrial retreat across the region.

What is the point of preserving a utility if in doing so you destroy the customers that make it viable?

There is, however, one area where the tide appears to be turning decisively. The recent Supreme Court of Appeal judgment compelling Eskom to open its coal and diesel procurement contracts prises loose a corner of the system that has long resisted scrutiny and may help explain the entrenched resistance to meaningful reform. Pricing, counterparties and procurement practices once hidden from view will now come into the light. That is unquestionably welcome.

Transparency is the foundation of accountability, and accountability the foundation of reform. But transparency, on its own, is insufficient. Without decisive follow-through it risks becoming yet another well-meaning intervention that illuminates the problem without changing the outcome. If energy reform is stuck in implementation, competition policy is stuck in ideology.

Different reality in the trenches

The president’s pitch to investors emphasises a “sound policy and regulatory environment” and a commitment to reducing risk. Yet in the trenches of dealmaking a different reality prevails. As I have argued before, South Africa’s competition regime has evolved into something closer to a transaction tax than a guardian of market efficiency. Mergers are no longer assessed solely on whether they harm competition. They must also satisfy an expansive and often arbitrary set of “public interest” conditions.

Deals are delayed, burdened with conditions, or abandoned altogether. Yet a senior competition lawyer put it to me bluntly this week that there is “zero chance” that public interest provisions disappear altogether. The political economy simply won’t allow it. The government remains firmly of the view that large transactions with potential negative consequences for jobs or key industries must be subject to scrutiny.

But that does not mean the system is beyond reform. A more sensible approach would be for parliament to clarify that public interest provisions are triggered only where there is demonstrable, material harm, not as a default hurdle to every transaction. The interpretation, which in effect requires all merging parties to prove a positive public interest outcome, has drifted well beyond the intent of the law. The commission’s guidelines, which entrench this expansive reading, should be withdrawn or substantially revised.

Equally pressing is the administrative bottleneck. The Competition Tribunal remains undercapacitated, with too few permanent members to handle an increasingly complex and voluminous caseload, resulting in delays and mounting costs. Appointing the four additional permanent tribunal members is low-hanging fruit, and yet inexplicably, it remains outstanding.

There are even easier wins. Raising merger thresholds would ease the burden on low-risk deals. A fast-track for noncontentious transactions with no overlaps and no public interest issues could deliver approvals within 20 business days, restoring efficiency and predictability. This needs no overhaul of the act, just administrative urgency and a willingness to recalibrate a system that risks deterring the very investment it aims to attract.

This is where the president’s contradiction becomes unavoidable. The state wants to court investment with promises of reform, yet its own institutions make investing more complex, costly and uncertain. You cannot have it both ways.

• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at michael@fmr.co.za.