South Africa

Billions in bailouts for corrupt and mismanaged SOEs

Enoch Godongwana

In February 2022, finance minister Enoch Godongwana promised “tough love” to make state-owned enterprises (SOEs) sustainable. However, a few months later, he handed out billions more in bailouts.

During his budget speech eight months ago, Godongwana revealed that more than R308 billion had been directed towards bailing out failing state-owned companies.

“We will also reduce the continual demands on South Africa’s limited public resources from state-owned companies,” he said.

“For this reason, state-owned companies need to develop and implement sustainable turnaround plans.”

Godongwana added that SOEs’ futures will be informed by the value they create and whether they can be run as sustainable entities without bailouts from the fiscus.

It sounded like the government was finally putting an end to bailouts and wasting taxpayers’ money on mismanaged and corrupt SOEs.

However, fast forward eight months to the finance minister’s medium-term budget policy statement (MTBPS), and nothing has changed.

He revealed that a Special Appropriation Bill would be implemented to restore the long-term financial viability of these entities.

He also revealed many other bailouts, including taking over a large chunk of Eskom’s debt and giving more money to SANRAL.

Here is a summary of the bailouts unveiled in the MTBPS on Wednesday.

  • R5.8 billion to Transnet – R2.9 billion to re-employ out-of-service locomotives and another R2.9 billion to deal with flood damages.
  • R3.4 billion to Denel – To stabilise the entity.
  • R23.7 billion to SANRAL – It would also be bailed out by the Gauteng provincial government, which would settle 30% of its debt and cover all costs of maintaining the 201km of freeway and interchanges of the Gauteng Freeway Improvement Project, while the National government would settle 70% of its debt.
  • Between R132 billion and R260 billion to Eskom – The government will take over a significant portion of the utility’s R400 billion debt.

Apart from the bailouts, another R30 billion will be spent per year on extending the social relief of distress grant.

What it means is that the government is suffering from a fiscal deficit which is increasing debt. For nearly 15 years, the South African government has been tabling higher deficits.

The government debt is projected to be more than R4.7 trillion in the current financial year, compared to R627 billion in 2009.

This debt is incurring debt-service costs that will average R355.2 billion per year over the medium-term expenditure framework.

The debt-to-GDP ratio is creeping up all the time, which, according to many economists, is reaching unsustainable levels.

Efficient Group chief economist Dawie Roodt said South Africa could not continue to run a fiscal deficit at the magnitude that it is currently happening.

With slow economic growth, reducing state spending is the only solution to this problem. It includes stopping SOE bailouts, cutting the state’s salary bill, and capping grant payments.

However, with an election looming and the state’s socialist agenda, it is unlikely that the government has the political will to implement what is needed.


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