Eskom and Transnet crushed South Africa’s economy

The collapse of South Africa’s key state-owned enterprises (SOEs), Eskom and Transnet, has resulted in stagnant business confidence in the country over the past five years. 

This lack of confidence directly translates into lacklustre investment in the local economy, minimal job creation, and stagnant economic growth. 

As a result, South Africa has lagged behind the performance of its emerging market peers and has a much smaller economy than it should. 

Investec Wealth & Investment International investment strategist Osagyefo Mazwai recently outlined Eskom’s and Transnet’s deteriorating performance over the past five years. 

In particular, Mazwai focused on the impact of the collapse of these two companies on the South African economy since 2020. 

He explained that business confidence, as measured by the Bureau for Economic Research, has stagnated following a sustained upward trend in 2024.

Crucially, even with this uptick, business confidence has remained in negative territory for the past five years, limiting investment and growth. 

The upward trend in business confidence towards the end of 2024 was among the underlying reasons for the robust growth expectations towards the tail-end of last year. 

However, the economy is now expected to grow somewhere between 1% and 1.5% in 2025 and only gradually trend towards 2% over the coming years.

Growth of below 2% is insufficient to solve South Africa’s unemployment crisis and is similarly negative for government tax revenues.

The stagnation in business confidence and poor economic outcomes have coincided with a decline in the performance of South Africa’s SOEs. 

In particular, the performance of Eskom and Transnet has severely impacted business confidence, as electricity and logistics are universal economic inputs. 

Investec analysed the performance of these two SOEs, using the Energy Availability Factor (EAF) as a proxy for Eskom and the number of containers handled as a proxy for Transnet. 

This showed that the performance of these SOEs has steadily declined over the past five years, with a slight uptick in 2023. 

The graph below shows the performance of these SOEs since January 2019, after years of mismanagement and corruption. 

SOEs and business confidence

The poor performance of Eskom and Transnet has a direct impact on South Africa’s business confidence and economic growth. 

Both utilities provide services essential for the functioning of a modern economy, and the decline in their performance has hobbled local economic activity. 

Investec’s analysis showed a close correlation between SOE performance and business confidence since the pandemic. 

As a result, for business confidence to improve, either SOE performance must pick up, or the economy must become less reliant on them. 

Eskom’s performance has improved significantly since March 2024, with the utility being able to substantially reduce load-shedding over the past year. 

This improved performance has been aided by increased private sector participation in the electricity sector, with companies and households investing heavily in alternative energy sources. 

The government is also currently reforming the electricity sector to create an open, competitive market for private generators to compete directly with Eskom. 

While this strong progress has been made in the electricity sector, South Africa’s logistics sector continues to flounder. 

Mazwai pointed to the declining efficiency at Transnet’s ports as one of the key handbrakes on South Africa’s economy. 

This has a significant impact on the country’s exports, foreign exchange earnings, and corporate profits, with the fiscus missing out on billions in additional revenue. 

For example, Mazwai singled out the link between business confidence and industrial metals prices, which are key to the profitability of South Africa’s mining sector. 

South Africa benefited immensely from the post-pandemic economic recovery worldwide, raking in billions from rising metals prices. 

This resulted in meaningful fiscal benefits, with a R200 billion windfall in extra tax revenues and a significantly stronger rand. 

However, Transnet’s performance has declined markedly since then. As a result, despite higher metals prices of late, South Africa is missing out. 

To further illustrate the point, Investec looked at the relationship between GDP growth and exports. Typically, more robust exports coincide with periods of higher GDP growth. 

Therefore, it remains critical that the government magnifies its focus on energy and logistics constraints to solve problems related to South Africa’s export potential and enhance growth outcomes.

The reindustrialisation of the South African economy should be underpinned by a focus on these network industries. The country should, in essence, ensure that energy and logistics operate at higher capacity levels. 

The relationship between exports and South Africa’s economic growth can be seen in the graph below.