Business

Eskom, Transnet cost South Africa over R2 trillion in less than a decade

Eskom and Transnet’s failures mean South Africa has missed out on around R2 trillion in economic activity between 2011 and 2019 – a figure that has likely increased significantly since then.

This is according to the National Treasury’s estimates in its Macroeconomic Policy Review, released alongside the 2024 Budget on Wednesday, 21 February.

In this review, the Treasury explains that South Africa’s weak economic growth is largely due to low levels of investment in the country.

“One of the key ingredients for sustained rapid growth is a high level of investment, generally in excess of 30% of GDP, a level that is a critical target of the National Development Plan.” 

“High levels of investment drive growth by raising aggregate demand, but also reflect economic agents’ confidence in the future.”

However, since 1994, investment in South Africa has hardly ever reached 20% of GDP. In addition, the investment rate has been falling since 2013. 

This is true of both the public and private sectors and is among the most important reasons for South Africa’s declining growth, both on the demand and supply side of the economy, the Treasury explained.

Reduced investment contributes to lower aggregate demand but also results in constrained production capacity and infrastructure, which limits the capacity of the economy to expand the supply of goods and services.

“Reduced investment’s effect on growth has been heightened by the fact that some components of

investment spending, particularly in the state-owned companies, became increasingly inefficient over the past 15 years, as governance challenges beset them,” National Treasury said. 

It said this was particularly true in the two largest and most strategically important state-owned enterprises – Eskom and Transnet.

These companies’ deepening operational crises had cascading negative effects on the commercial

prospects of business across the economy. 

“By one estimate, over a third of the decline in South Africa’s growth after 2010 is explained by the direct effects of reduced productivity from public utilities.” 

“This means that South Africa missed out on an aggregate of around R2 trillion in economic activity between 2011 and 2019 solely because of the weakening performance of Eskom and Transnet, a figure that will have increased significantly since then.”

Enoch Godongwana
Enoch Godongwana

According to some calculations, the Treasury’s R2 trillion estimate may even be too conservative.

A study by the GAIN Group found that Transnet’s collapse is set to cost the country R1 billion a day in economic output in 2023, equivalent to 4.9% of annual GDP or R353 billion. 

The figure of R353 billion for 2023 is actually less than the R411 billion GAIN estimated Transnet cost the South African economy in 2022. 

Director at GAIN Professor Jan Havenga expected the utility’s performance to improve markedly in 2023 due to cooperation between Transnet and mining companies. 

However, this improvement did not materialise as the total freight transported by Transnet declined last year.

Transnet reported a R5.7 billion loss for the year ending March 31, compared with a R5 billion profit in 2022. 

The volumes delivered by its freight rail business dropped 13.6% during the period. Volumes of iron ore and coal transported by Transnet’s freight rail network for export have fallen due to issues like poor management, idle locomotives and cable theft.

According to GAIN, South Africa’s economic growth of 0.5% for 2023 could have been over ten times higher at 5.4% if Transnet operated at full capacity. 

The impact could have been even worse if commodity prices remained close to their 2022 highs. 

The calculated cost to the South African economy includes the failure to achieve potential exports, the impact of inefficient logistics resulting in higher costs, and other indirect impacts from lost revenue on the economy. 

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