South Africa

Crumbling SOEs threaten South Africa’s economy – Investec economist

South Africa’s dysfunctional ports and railways, the ongoing electricity crisis, and the remnants of state capture in state-owned enterprises (SOE) prevent businesses from functioning and restrain economic growth.

This is feedback from Investec chief economist Annabel Bishop who spoke to SABC News about the country’s economic outlook.

“The government needs to improve the productive services that it yields to the economy and the goods – whether it be water, electricity, ports or railways – to allow businesses to function better,” Bishop said.

Expensive exports

Bishop explained that the insufficient capacity of South Africa’s ports and railways means that the country is not benefitting from bulk goods exports as much as it could.

This, in turn, negatively impacts sectors like mining and food production, which hampers economic growth.

In a newsletter earlier this year, Business Leadership South Africa CEO Busisiwe Mavuso described the country’s coal export slump as “startling”.

She said this in specific reference to the Richards Bay Coal Terminal (RBCT), where exports in 2022 decreased to their lowest point since 1993.

Despite high demand, high coal prices and an export capacity of 91 million tons, the terminal only exported 50.35 million tons.

Coal is transported to RBCT via Transnet Freight Rail.

Transnet is South Africa’s state-owned ports and freight rail operator that has been plagued with problems like cable theft, maintenance neglect and state capture for the past decade.

Stellenbosch University professor Jan Havenga said the gap between what South Africa could export and what it is exporting amounts to an estimated R80 billion loss. 

“The total hit to South African firms from lost exports and the extra costs of going by road will amount to about R400 billion in 2022,” reported The Economist earlier this year. This amounts to 6% of the country’s GDP.

Dry and dark

Last year, the South African Revenue Service (SARS) set out plans to increase the tax base through tax incentives, with the hope of increasing tax revenue and employment.

When asked about the success of these plans, Bishop told SABC News that, regardless of whether the incentives could work, unexpected events – like load shedding and water shortages – disrupt them.

“Even if you are putting in incentives to stimulate employment in the industry – if the industry itself is unable to have the level of production it needs and get money to pay salaries, then that itself impedes employment,” she explained.

Bishop also said that while individuals avoiding and evading taxes is harmful to the country’s revenue, South Africa is also a highly taxed country.

“We find ourselves in a situation where that has impacted our tax revenue over the past few years, and we are hoping to get it back up to where it was before we had the hollowing out of SARS,” she said.

‘Good, strong governance’

Bishop said what the South African economy needs most is good, strong governance, less corruption and looting, and an end to state capture.

“Unfortunately, we are now in a period where we are repairing the damage from the past decade of state capture, looting and corruption,” she said. 

“We are still finding instances of it, and it takes a long time to repair that before you can actually return to the good governance years under Thabo Mbeki.”

In 2021, director of investigations at Shadow World Investigations Paul Holden told the Zondo commission into state capture that the state spent over R57 billion on state capture contracts involving the Gupta enterprise.


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