South Africa

South Africa heading for a serious financial crisis

Renowned economist Dawie Roodt warned that South Africa will face a serious financial crisis within the next two years.

Speaking to The Carol Ofori Podcast, Roodt said he is concerned about three main issues: municipal problems, collapsing state-owned enterprises, and the state’s poor finances.

The local authorities are in severe financial trouble. The municipalities are not functioning properly and do not provide good services to residents.

“Poor municipalities which do not provide reliable services are bad for business and economic growth,” Roodt said.

“More than 70% of local authorities are in financial trouble. Municipalities owe Eskom around R70 billion.”

He added that municipalities’ rising debt would eventually become the problem of the finance minister as they would look for bailouts.

The second big challenge in South Africa is state-owned enterprises like Eskom, the SA Post Office, South African Airways, Transnet, and Denel.

“Eskom’s debt sits at R450 billion. Transnet just made a loss of R6 billion. The Post Office is collapsing, and Transnet is just not working any longer,” he said.

Most of the state-owned enterprises’ debt is guaranteed by the finance minister. He has already budgeted to give large amounts to Eskom.

“All the state-owned enterprises want more money because they have become bankrupt following mismanagement,” he said.

Dawie Roodt
Dawie Roodt

The third problem is the Finance Minister. State debt has reached record levels and is rising at an alarming rate.

The private sector funds state debt. However, Roodt warned that the day would come when the private sector will be reluctant to continue funding the rising debt.

“Very soon, the private sector is going to demand much higher returns on the increasing risk for funding the growing state debt,” Roodt said.

“Even the South African Reserve Bank is concerned about the growing amount of state debt the banking sector is funding.”

He said any local or international crisis can cause havoc on South Africa’s market. It will lead to a much weaker rand, higher inflation and interest rates, and weak economic growth.

“At the current trajectory, we are heading towards this scenario of a serious financial crisis,” he said.

Roodt added that Finance Minister Enoch Godongwana knows about this and even warned his colleagues that they must cut state spending to avoid a crisis.

However, he was overruled by other cabinet ministers focused on winning the 2024 general election instead of saving the country from a financial disaster.

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