Experts urge government to relook bailout culture of SOEs

Analysts says the government needs to relook at the bailout culture of troubled state-owned enterprises (SOEs).

As the finance minister fine tunes his 2023 budget allocation due to be announced on Wednesday, he will aim to strike a balance between competing national spending priorities and the limited resources available to the National Treasury.

With the Budget Speech just around the corner, the country is looking at how Finance Minister Enoch Godongwana will be able to keep expenditure under control.

The impact of load shedding has already forecasted negative growth and continues to cost the economy millions if not billions of rands per day.

If there’s no intervention with regard to Eskom, South Africa could head for a disaster.

Economist at Lehumo Capital, Maudi Lentsoane, says: “The direction which he’s going to take is not going to be from what was already pronounced by the president in his State of the Nation Address – that the government is intending to prioritise the big elephant in the room which is Eskom, the energy security. Fundamentally that’s what we have to resolve to be able to move this economy forward. Currently things are going so bad. If we don’t find a solution around the big elephant in the room which is Eskom, then we are going to head into a disaster.”

Expenditure control

This year’s budget speech is said to prioritise SOEs that are needed to drive economic growth.

Entities like Eskom and Transnet will probably receive the lion’s share.

Without them, South Africa would be able to manufacture goods and export commodities.

This would help state’s tax collection exceed expenditure in order to cushion any economic shocks in the future.

Economist at Nedbank, Jones Gondo, says: “I think it’s mostly about expenditure control – a lot of pressures that weren’t perhaps estimated in the medium-term budget policy statement last year. Things like the wage bill, the size and scope of SOE bailouts. These things can make the expenditure run quite significantly, but otherwise on the revenue side they’re on the back of quite significant tax collections which are in South Africa’s favour. So given the balance of those two, they are in a better position than perhaps previously. But I think the thing that creates a very tight rope would be on expenditure pressure side.”

Room for privatisation

Jones believes that the government can allow room for privatisation and that it does not need to play a leading role in some sectors.

He believes that private sector participation especially in sectors like energy can help with energy security and hedging inflation.

“I think private sector participation and particularly private sector investment in the infrastructure is a smart way to go simply because there’s a better role for the state sometimes as a regulator of the industry as opposed to being a participant. There are other areas where clearly the state has to play a leading role. That’s where the tension comes and the clarity needs to be that in this area for instance, in energy. Clearly there’s an Independent Power producer framework IPP framework, and we can see where private participation comes in, we can see at what prices that comes in and whether or not that helps with things like inflation and energy security.”

Bailouts non-viable

Opposition parties like the DA are unhappy about using the state’s money to bailout Eskom, saying it is a non-viable option.

DA Finance Spokesperson, Dion George says: “Given the already strained fiscus. Transferring debt from SOEs to the national balance sheet remains a non-viable option. The DA will not support any offloading of Eskom’s debt onto the country’s sovereign balance sheet without a comprehensive plan to unbundle the entity and change its funding model.”

Report on Presidential SOE Council

The minister is likely to give a progress report on the work of the Presidential State-Owned Enterprises Council.

In last year’s budget speech, the minister said state-owned companies must develop and implement sustainable turnaround plans and their future is under consideration by the Presidential SOE Council.

This council would assess the value they create and whether they can be run as sustainable entities without bailouts from the fiscus.

Meanwhile, ahead of the budget speech, the DA has once again called for the privatisation of Eskom in order to keep the lights on, to grow the economy and slash food prices.

It has also warned against tax increases.

More details in the report below: 

[embedded content]