More SOE bailouts inevitable 

South African taxpayers will have to bail out state-owned enterprises (SOEs) again as there has been no significant change to the operations or financial standing of state-run companies to make them self-sustaining. 

This is feedback from Stanlib, one of South Africa’s largest asset managers, in their analysis of the Finance Minister’s Budget Speech delivered last week. 

In his speech, Finance Minister Enoch Godongwana did not propose any additional allocations to other SOEs and gave scant details about the R47 billion guarantee facility granted to Transnet. 

He took a tough stance on Eskom, which has been in the process of receiving a R254 billion bailout over three years. 

Godongwana shaved R4 billion off this bailout over the next two years as Eskom failed to meet all the conditions for the transfer of its debt to the government’s balance sheet. 

Stanlib said this is encouraging, as it shows the National Treasury is taking a hardline approach towards SOEs overall, insisting that they restructure before any funds are allocated. 

However, most of South Africa’s SOEs are “in serious financial difficulty and will probably need government assistance sooner or later”, Stanlib said. 

“By not making provisions for SOEs now, the Minister is simply delaying the inevitable and pushing the problem down the road.”

Furthermore, “by not implementing a more significant financial restructuring of SOEs, the Minister risks only delaying further bailouts.”

Many economists and analysts have said that the state is creating a false impression that SOEs will not need to be bailed out in the future. 

Managing director at Krutham, Peter Attard Montalto, previously said the Treasury has little choice but to come through in some form and provide more support for SOEs. 

“If you did not do these bailouts, they would come back to bite you ten times worse later regarding defaults and investors pulling out of the country,” he said.

“There is a massive moral hazard problem here: Treasury has an implicit 100% guarantee against all SOEs, and the markets sense this. It is only really about the conditions the Treasury can apply through the bailouts.”

Economist Dawie Roodt echoed this view, saying that the impression from the Minister that there will not be further bailouts for failing SOEs is “just not true”.

“We have heard the same story many times before. There will be further bailouts. Transnet will get a bailout. Eskom will get more money,” he said.

He said there will be conditions associated with the bailouts. However, they will get money from the state whether they achieve all the objectives or not.

“If you don’t support Transnet and Eskom, the economy will collapse. You have to support them financially, whether they comply with the conditions or not,” he said.

He added that South African Airways, the South African Post Office, and other failing SOEs would get more money. “It does not matter whether they comply with the conditions,” he said.