South African state-owned enterprises fail dismally

South Africa’s state-owned enterprises (SOEs), including Eskom and South African Airways, have failed to publish their annual reports as legislation requires.

SOEs have been a drain on South Africa’s economy for years, and many have required large bailouts to stay afloat.

Many SOEs, including Eskom, South African Airways, the South African Post Office, and the SABC, are associated with mismanagement and corruption.

Billions have been stolen from these institutions, and many have become a feeding ground for politically connected individuals.

Unsurprisingly, all these institutions are in financial distress and rely on government funding to keep operating.

Finance Minister Enoch Godongwana revealed that the cost of SOE bailouts had reached over R520 billion since the 2008/9 financial year.

This unnecessary spending means the country cut spending on other important areas, like health, education, and policing.

SOE bailouts have reached such concerning levels that it is influencing South Africa’s economy and worrying rating agencies.

Stanlib’s head of credit in the fixed income team, Tarryn Sankar, said the lack of provisions for future bailouts is a lingering threat to South Africa’s finances.

“There is definitely an elephant in the room regarding how the balance sheets of SOEs will be sustainably restructured to repay the debt they already owe,” Sankar said.

Stanlib has also warned that without significant restructuring of SOEs, future bailouts are guaranteed.

Kruthum managing director Peter Attard Montalto previously said the Treasury has little choice but to act 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 – the 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.”

SOEs late to publish annual reports

Annual reports are one way for the public to see what is going on at SOEs, which are funded using taxpayer money.

The Public Finance Management Act (PFMA) and the Treasury Regulations provide guidelines on the publication of annual reports.

For example, public entities must submit their draft annual report to the Auditor-General of South Africa (AGSA) by 31 May each year.

The chief executive officer must present the final printed annual report to the executive authority by 31 August.

The final printed annual report must be tabled in Parliament by 30 September and be published on the entity’s website.

Despite these guidelines, most South African state-owned enterprises do not publish their annual reports on their websites as required.

South African Airways (SAA) has failed to submit its financial statements in 2019, 2020, 2021, and 2022.

This year, SAA once again failed to submit its financial statements for auditing and oversight within the prescribed timeframes.

Earlier this month, the JSE warned that Eskom failed to submit its financial information within its stipulated timeframes.

As such, Eskom’s debt securities and the registration of its programme memorandums are threatened with suspension and possible removal.

“If Eskom still fails to submit its financial information by 30 November 2024, then its programme and the listing of its debt securities may be suspended,” the JSE said.

It raises the question of which prominent SOEs have published their annual reports on their websites by 1 November 2024.

Daily Investor visited the websites of all prominent SOEs and found that most have not published their annual reports seven months after their financial years ended.