Finance Minister Enoch Godongwana has slammed state-owned entities (SOE), saying they are being run in an unsustainable way.
This comes after the SOEs have not implemented their turnaround strategies, resulting in the government having to back the companies with expensive guarantees.
In addition to struggling to be profitable, the SOEs resulted in government having to redirect money meant for service delivery to bail out the companies.
“A key driver of South Africa’s increasingly constrained fiscal position is the expansion of financial support to state-owned companies.
“Many state-owned companies have failed to implement their turnaround plans. This has resulted in deteriorating profitability, an increased need for guarantees in order to borrow, and more requests for bailouts,” said Godongwana while delivering the 2024/2025 Budget Speech.”
Insufficient revenue collection
According to the National Treasury 2024/2025 Budget Review, the debt of the SOEs is expected to amount to R67.8-billion, of which 21% (R14.4-billion) is guaranteed by government.
He pointed out that insufficient revenue collection and high operating costs continue to reduce the cash available to fund business operations.
This has resulted in net cash available after interest, debt service, and capital expenditure declining by a whopping 39.1% per year to R119-billion in 2022/23.
“State-owned companies are struggling to access capital markets without government guarantees and, increasingly, request bailouts to service debt and fund turnaround plans, which is unsustainable.
“These bailouts erode policy space, as they require the redirection of resources from key public service priorities, such as education, public safety, and criminal justice, to entities that are meant to be financially self-sufficient,” bemoaned Godongwana.
He pointed this out after freight and logistics SOE Transnet was granted a R47-billion guarantee, with R22.8-billion available for immediate use.
Godongwana emphasised that the guarantee was mainly aimed at addressing persistent challenges relating to liquidity and supply chain backlogs.
“Transnet reported a net loss of R5.7 billion for 2022/23. Its inability to generate sufficient cash from operations has seen total borrowing increase from R122.6-billion at the end-March 2018 to R131.8-billion by the end-December 2023, increasing the burden of interest costs, refinancing risk, and liquidity pressures.”
Transnet’s cost structure
He revealed that Transnet was required to divest non-core assets, reduce its current cost structure, and explore alternative funding models for infrastructure and maintenance, including project finance, third-party access, concessions, and joint ventures.
Turning to Eskom, he said the power producer and distributor was the major beneficiary of state bailouts.
“From 2008/09 to 2022/23, Eskom received R241.6 billion in fiscal support. In some cases, rapid injections into the budget had little to no impact on the service offering.
“For example, SAA received a total of R48.2-billion over six years and still went into business rescue,” he said.
He stated that energy supply and logistics failures were being addressed through measures to accelerate private investment in infrastructure and stabilise Eskom and Transnet.
