By Godfrey Mutizwa
South Africa’s economic growth is likely to remain sub-par until President Cyril Ramaphosa fixes Eskom and other state-owned enterprises which have been haemorrhaging scarce resources, experts say.
“Unless we fix the state-owned enterprises which are catalysts for growth in most economies we will continue to suffer a leaking bucket,’’ Terence Sibiya, Nedbank Managing Executive: Client Coverage CIB told a post budget panel sponsored by his company and Old Mutual in Cape Town.
Dennis Dykes, Nedbank’s Chief Economist said Eskom had vastly overspent on projects and this was being exacerbated by poor execution resulting in the government having to find money to repay the loans while paying interest on capital being under-utilised.
While the government had taken some positive steps including appointing new executives and boards at power utility Eskom and South African Airways (SAA), it wasn’t enough, he warned.
“So far the patient has been wheeled into ICU (intensive care unit) and stabilised,’’ Dykes said. “But you really want to see the patient running marathons. That’s going to be much more difficult.’’
In his 2018 budget review document, Finance Minister Malusi Gigaba noted the overall profitability of state-owned companies deteriorated to 0.3 percent from 0.8 percent on a return on equity basis during the fiscal year largely because of corruption, mismanagement and poor governance. Several firms were in financial distress, he said.
Moreover, government guarantees to these companies remains extremely high at R466 billion compared with R469 billion two years ago, largely on the back of poor performance by Eskom and SAA.
However Owen Willcox, Chief Director, Economic Services, Public Finance Unit at the National Treasury told the debate the government was committed to dealing with the SOEs as reflected in the commitment to find a strategic equity partner for SAA and fund any future requirements for others in a deficit neutral way through the sale of some of the 1,400 state properties.
The budget had also been prepared with an eye on spurring economic growth said, Wilcox, pointing to specific funding for small enterprises, special economic zones and extended public works programmes.
Dykes said a study he had conducted showed the country may have lost as much as R500 billion since 2014 because of what he called the “toxic political environment’’ in the second term of former President Jacob Zuma’s administration.
“If you take a 30 percent of the half a trillion rand that’s a considerable amount of tax revenue: we could have paid for Medupi (power station) cash,’’ he said. “It’s enormously important that the economy is growing. You have to actually make it conducive for growth for the private sector to actually start participating much more aggressively. You have to actually roll out the red carpet rather making things uncertain and beating business on the head.’’
He acknowledged the mood had changed following the election of Ramaphosa as president of the ruling African National Congress party last December. He saw the potential for a quicker upturn in the mining and renewable energy sectors while other industries would take more time.
New Finance Minister Nhlanhla Nene recently said it is too early to revise growth estimates and he would only provide his numbers in the Medium-Term Budget Policy Statement in October. Gigaba estimated growth of 1 percent for 2017 which was expected to reach 2.1 percent by 2020.
The one big cloud hanging over higher growth forecasts was the government’s plans to expropriate land without compensation, said Dykes.
“It’s gonna be very tricky because once the constitution is changed, it opens the way for future governments who might not be as investor friendly as the current one,’’ he said. “ I can’t think of anywhere where it has actually worked well.’’