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State-owned power utility, Eskom, has a spin of surprises for the country as it heads towards the festive season. Just today it went from announcing stage two load-shedding to stage four.

Andrew Kenny: South Africans should brace for more load-shedding over next 12 months

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Stage 4 load shedding is underway as the country’s power utility, Eskom, says the persistent rain results to wet coal leading to generation units unable to perform but what does this mean for business? CNBC Africa&#8217;s Kopano Gumbi is with Mark Seftel, co-Founder and Director, Workshop 17.

SA braces for stage 4 load shedding

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Construction group, Stefanutti is defending itself against allegations of unethical conduct in its dealings with Eskom. The company says its engagements with its clients including Eskom, have been open and transparent. Investigative journalist of the Daily Maverick – and writer of the article, Pieter-Louis Myburgh joins CNBC Africa for more.

Construction group Stefanutti defends itself against unethical conduct allegations

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The Bureau of Economic Research and RMB&#8217;s Business Confidence Index comes out tomorrow and according to many commentators, it is expected to tell of more bad news. Alan Mukoki, CEO of the South African Chamber of Commerce and Industry joins CNBC Africa for more.

SACCI CEO Mukoki how to turn around SA’s economy

SACCI CEO Mukoki how to turn around SA’s economy, Eskom

By Chris Bishop, Head of Programming at CNBC Africa



So, one of the largest unions in Africa says it is not so sure about new Eskom CEO Andre de Ruyter.  It believes his appointment is against transformation and will only work with him if he abandons the unbundling of the national power generator that appears as vital to the operation as an elixir to a sick man.



READ: <a href="https://www.cnbcafrica.com/zdnl-mc/2019/11/19/why-the-new-man-at-eskom-needs-a-backbone-of-steel-and-the-eye-of-a-hawk/">Why the new man at Eskom needs a backbone of steel and the eye of a hawk</a>



There was no surprise when the National Union of Mineworkers
(NUM) kicked up a fuss in the wake of de Ruyter’s appointment. The union is
fighting the good fight very hard these days as it struggles to regain its
former strength. Once it was a powerhouse in the richest mining industry in
Africa with 300,000 members – redundancies have put paid to many members and
down the years many have drifted over to the Association of Mineworkers and
Construction Union (AMCU). A decade ago, AMCU was a fringe union now it is the
king of platinum and growing in numbers in the gold mines.



Therefore it is no surprise that the NUM is all over the
media saying it does not approve of de Ruyter and will not work with him at all
if he carries on with the unbundling of Eskom into three entities: generation;
distribution and transmission.



“We think this is the prelude to privatisation,” says
Livhuwani Mammburu, the spokesman for the NUM.



It is unlikely that Eskom will abandon the unbundling under
its new leader. The national power generator has struggled on for more than a
decade to provide half of Africa’s electricity. Maybe private money could help
the organisation shape up with the help of the discipline of the balance sheet.



As for transformation, I think most people in business,
right now, would support almost anyone from any background on earth if they
could secure a supply of affordable electricity in the long term.



It is also far too early to judge the new man, yet his
reputation looks promising. He was well thought of in his 20-year tenure at Sasol
where he had a reputation for walking the factory floors to learn the processes
of the business. De Ruyter was also seen as an expert on coal quality, which
will help him in his job at Eskom.



Although union muscle flexing appears in vogue in the
difficult South African economy; maybe it is time for the NUM to keep mum on
this appointment. For now at least. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Eskom’s largest union’s ultimatum to  Andre de Ruyter. If you want our support this is what you need to do…

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The announcement of Nampak CEO Andre de Ruyter as the new Eskom CEO saw yields on Eskom’s 2021 dollar bonds jumped the most in more than three months. The appointment of De Ruyter’s sent shockwaves through the market with many analyst concerned that Eskom’s challenges may be too big for him to fix. Rashaad Tayob, Fund Manager at Abax Investments joins CNBC Africa for more.

What lies ahead for new Eskom CEO?

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The National Union of Mineworkers has said that they will work with the new CEO Andre De Ruyter but only if he could stop the unbundling of the power utility. NUM President, Joseph Montisetse joins CNBC Africa for more.

NUM fires first salvo at new Eskom boss

.By Chris Bishop, Head of Programming at CNBC Africa 



The new man charged with the devilish job of turning around South
Africa’s state owned power generator Eskom may enjoy a merry Christmas next
month, but can’t be sure of a happy new year.



Outsider Andre de Ruyter will take up his post on January 15
in a rudderless organisation, without a permanent CEO for eight months, struggling
to keep the lights on and wallowing in debt ahead of what threatens to be a
complex unbundling of Eskom this year.



“He will need a backbone of steel,” says James-Brent Styan,
a journalist and author of a book on Eskom’s woes called Blackout. Many have
questioned the appointment of a CEO from the struggling packaging outfit
Nampak, but energy analysts agreed the new man could make a fair fist of the job
in difficult circumstances.



“He will need the full support of cabinet and the full
support of the ANC,”Styan adds.



In many ways de Ruyter has credentials for the job: at 50,
he has youth on his side for a CEO job; he has 20 years international
experience with coal-to-liquid giants and recent experience of cutting down
debt at Nampak where he was CEO for five years. Yet, Eskom, with around 46,000
workers, may prove a very different package to Nampak with 5,600.



“He will have to deal with the faceless, nameless,
politicians who will want to tell him what to do. In many ways his hands will
be tied. He will be charged with the difficult job of running Eskom as a
business while dealing with the politicians,” says Chris Yelland, an Eskom
expert with EE Publishers.



“He has to find a way of providing sustainable electricity
at a cost that the economy can afford.” 



The new CEO’s biggest task will be to cut down Eskom’s debt
estimated at about R450 billion and proving a hazard to the power generator
securing new credit lines in the world money markets. Yelland says the power
generator is servicing a mere 47% of this debt. Any attempts to cut jobs at
Eskom are likely to be opposed by powerful unions.



“The problems are going to be massive and immediate,” says
Yelland.



“Ït is going to take de Ruyter at least six months to come
to terms with the bureaucracy at Eskom and the very complex paperwork that goes
with the procurement system,” says Styan.



Styan also says the cutting of coal, staff and interest
costs will loom large on de Ruyter’s desk when he starts work in January, but
all of this will be dwarfed by the difficult task of unbundling Eskom into
transmission, generation and distribution units. This has been promised by the
politicians as the first step towards curing lumbering Eskom’s ills, but is
long overdue.



“Ï think it is going to take the new man at least six to eight
months to get to grips with this,”says Yelland.



All agree de Ruyter needs the eye of a hawk for his new job.
Eskom has seen a dozen CEOs in the last decade – all have struggled to deal
with Eskom’s complex issues. It is unlikely to be a happy new year for anyone
at the national power generator.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Why the new man at Eskom needs a backbone of steel and the eye of a hawk

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Joining CNBC Africa for a look at the local markets is Byron Lotter, Portfolio Manager, Vestact.

Markets react to Eskom’s new boss Andre de Ruyter

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Embattled state utility Eskom has appointed the CEO of Nampak, Andre de Ruyter as its new CEO effective from January 2020. But the question remains whether or not Andre de Ruyter has the political capital to turn around Eskom’s fortunes. Joining CNBC Africa for more is James Brent Styan the Author of Blackout: The Eskom Crisis.

Why Eskom should focus on power generation rather than unbundling

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Nesan Nair, Senior Portfolio Manager at Sasfin Securities shares his thoughts on Andre de Ruyter&#8217;s appointment to Eskom whittled down from 142 potential candidates..

Eskom names Nampak’s  Andre de Ruyter as CEO

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South African President, Cyril Ramaphosa joined us for an exclusive 60 minute interview earlier today to discuss business, economics and the direction of Africa’s most industrialised nation. Joining CNBC Africa to unpack this interview is Jacques Nel, Economist for Southern and East Africa at NKC African Economies and Peter Worthington, Economist at Absa.

President Cyril Ramaphosa: What the future holds for SA & Africa

By Moody&#8217;s 



Moody&#8217;s Investors Service (&#8220;Moody&#8217;s&#8221;) has today changed the outlook on the Government of South Africa&#8217;s ratings to negative from stable and affirmed the Baa3 long-term foreign-currency and local-currency issuer ratings.



Moody&#8217;s also affirmed South Africa&#8217;s Baa3 long-term foreign-currency and local-currency senior unsecured debt ratings, its (P)Baa3 senior unsecured medium-term note (MTN) and Shelf foreign-currency ratings, as well as its (P)P-3 short-term foreign-currency Other Short Term rating. In a related decision, Moody&#8217;s changed the outlook to negative from stable on ZAR Sovereign Capital Fund Propriety Limited&#8217;s rating and affirmed its Baa3 foreign-currency backed senior unsecured debt rating. ZAR Sovereign Capital Fund Propriety Limited is a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government.



Moody&#8217;s decision to change the outlook to negative from stable reflects the material risk that the government will not succeed in arresting the deterioration of its finances through a revival in economic growth and fiscal consolidation measures. The challenges the government faces are evident in the continued deterioration in South Africa&#8217;s trend in growth and public debt burden, despite ongoing policy responses.



While high unemployment, income inequality and the social and political challenges they imply for policymakers are long-standing features in South Africa, the obstacles that they pose to the government&#8217;s plans to raise potential growth and contain fiscal deficits are proving more severe than expected a year ago. Acute financial stress for state-owned enterprises (SOEs), in particular Eskom Holdings SOC Limited (Eskom, B2 negative), continues to require sizeable ongoing support from the government. The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level.



The Baa3 rating affirmation takes into account the country&#8217;s deep, stable financial sector and robust macroeconomic policy framework, set against ongoing challenges related to weak potential growth and strong fiscal pressures.



South Africa&#8217;s long-term local-currency bond and bank deposits ceilings remain unchanged at A2, and the long-term and short-term foreign-currency bond ceilings are also unchanged at A3/Prime-2. The long-term foreign-currency bank deposits ceilings remain at Baa3, while the short-term foreign-currency bank deposits ceiling remains at Prime-3.



RATINGS RATIONALE



RATIONALE FOR CHANGING THE OUTLOOK TO NEGATIVE FROM STABLE



LOWER GROWTH FORECASTS REFLECT DEEPLY ENTRENCHED CONSTRAINTS ON GROWTH AND REFORM



Socio-economic features in South Africa including structurally high unemployment and income and wealth inequality are longstanding and deeply-entrenched constraints on the country&#8217;s growth potential. Deep inequalities &#8212; South Africa&#8217;s income inequality is among the highest globally, as measured by the Gini index &#8212; and resistance to reforms from key stakeholders limit the government&#8217;s room to adopt and implement structural reforms.



In the last two years, it has become increasingly apparent that those constraints are challenging the government&#8217;s ability to implement reforms that would durably lift growth, to an even greater extent than previously expected. Moody&#8217;s has revised down its medium-term growth projections to 1-1.5%, barely in line with population growth, from earlier expectations of a gradual pick-up towards 2.5-3%.



Job creation remains a central problem, with unemployment at a multi-year high of 29% in the third quarter of 2019. Gross fixed capital formation has been contracting on a year-on-year basis since the second quarter of 2018, as private companies see limited prospects of an improvement in the business environment. Productivity, the level of output per worker, has remained stagnant, in contrast with the steady, even if sometimes limited, growth seen in other countries at similar income levels.



The government has promoted a number of initiatives in response to these long-diagnosed issues. However, its ability to implement those initiatives in a way which generates broadly-based sustainable growth has faced obstacles in part from outstanding vested interests, in part from the social and political challenge of imposing measures that are initially likely to be detrimental for parts of the population. For instance, while the new mining charter has finally been introduced, it is unlikely to boost the sector&#8217;s investment, with regulatory uncertainty persisting amid ongoing appeals against some provisions of the charter. The government has also introduced multiple initiatives in the labour market including the Youth Employment Service programme, but none on a scale likely to materially increase employment. Other politically and socially sensitive reforms such as land reform have seen slow progress given the government&#8217;s need to balance the social and political objective of allowing land restitution, including through expropriation without compensation, and the economic objective of preserving investor confidence.



The negative outlook signals in part Moody&#8217;s rising concern that the government will not find the political capital to implement the range of measures it intends, and that its plans will be largely ineffective in lifting growth.



STRONG, WIDE-SPREAD FISCAL PRESSURES LEAVE GOVERNMENT DEBT ON AN UPWARDS TRAJECTORY



Low growth is exacerbating the pressures on South Africa&#8217;s fiscal position. The government debt burden has risen further than was expected a year ago and will rise still more in the coming years.



South Africa is one of the few countries globally where the average interest rate on government debt markedly exceeds &#8212; by an estimated 3 percentage points in fiscal year 2018 &#8212; nominal GDP growth. Given that condition, the government debt-to-GDP ratio will continue rising unless the government is able to generate large primary surpluses. The likelihood that it is able to do so has fallen materially.



The above-inflation wage indexation agreement, which runs until fiscal 2020 (ending on 31 March 2021), continued transfers to SOEs including the planned capital support for Eskom, and a fast-growing interest bill limit the scope for spending restraint. Meanwhile, acute financial stress for certain SOEs, including but not only Eskom, point to likely ongoing sizeable transfers and broader contingent liabilities for the foreseeable future.



As a result, scope for spending restraint is mainly in relation to purchases of goods and services (15% of total government spending) and a reduction in headcount numbers in the public sector, most likely through natural attrition.



On the revenue side, Moody&#8217;s expects that tax collection performance will improve over the medium term as the South African Revenue Service&#8217;s efforts to improve tax compliance yield some results, with taxes increasing at a faster pace than nominal growth from 2021 onwards. Over the near term, however, tax revenues have underperformed budget targets in fiscal 2018 and the 2019 main budget execution for the first six months suggests that this will be once again the case for full fiscal year 2019.



In the absence of any further policy response, the combination of rising expenditures and underperforming revenues will cause the fiscal deficit to widen to 6%-6.5% of GDP over 2019-22, from around 4% over 2015-18. Government debt will continue to rise to around 70% of GDP by end of fiscal year 2022, from 57% as of end of fiscal 2018. Taking into account the 7.5% of GDP in government guarantees to SOEs that Moody&#8217;s includes in the government debt perimeter from fiscal 2019 onwards, debt will approach 80% of GDP at the end of fiscal 2022 and remain on a rising trajectory. In Moody&#8217;s view, the combination of low potential growth and high and inexorably rising debt as outlined in the Medium Term Budget Policy Statement (MTBPS) published this week would not be consistent with a Baa3 rating. The current rating rests on the government&#8217;s ability to quickly develop a credible strategy to halt and ultimately reverse the rise in debt.



Such a strategy has not been forthcoming to date. The MTBPS represents a further step towards developing one. It broadly quantifies the ZAR150 billion (3% of 2019 GDP) additional cost saving measures that will be needed to balance the main budget net of interest and support to Eskom by fiscal 2022, its fiscal target, and stabilise government debt. It does not yet identify what those measures will be, other than that they will focus on containing the public sector wage bill. The MTBPS also reiterates that additional operational and financial reforms will be needed to curb the drain on public finances from Eskom and SOEs in general. In short, this week&#8217;s announcements do not yet represent a developed, credible fiscal strategy. The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level.



RATIONALE FOR AFFIRMING THE RATINGS AT Baa3



The Baa3 rating reflects South Africa&#8217;s deep, stable financial sector, resilience to a prolonged period of low growth, and a robust macroeconomic policy framework. The South African Reserve Bank has a demonstrated track record in implementing credible and effective monetary policy and preserving financial stability. Moreover, the government remains committed to fighting the so-called &#8220;state capture&#8221;, even though the process will take time to gain legitimacy and show results in improved institutions and business environment.



Balancing these relative strengths, South Africa&#8217;s institutions continue to be tested by weak growth and strong fiscal pressures.



ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS



Social considerations are material for South Africa&#8217;s credit profile and their implications for the economy and public finances are a driver of the negative outlook. Deep socio-economic inequalities complicate the implementation of reforms which would otherwise unlock the economy&#8217;s potential, and contribute to tensions that fuel latent political risk .



Governance considerations are material to South Africa&#8217;s credit profile. South Africa&#8217;s ranking under the Worldwide Governance Indicators is in line with that of Baa3-rated sovereigns, and the strength of key institutions, in particular the South African Reserve Bank and the Treasury, continue to support the rating. Set against those qualities, the broader erosion in institutional strength induced by the corruption of the Zuma administration is an important factor behind the erosion in South Africa&#8217;s credit profile in recent years. The legacy that era has bequeathed of poor governance of SOEs, and of Eskom in particular, remains a key drain on fiscal resources and also weighs on South Africa&#8217;s fiscal strength.



Due to its geographical location, South Africa is subject to frequent climate-related shocks such as droughts, which undermine the agricultural sector&#8217;s performance and have weighed on growth in recent years. That said, the country&#8217;s economic diversification and sophisticated agricultural techniques mitigate the impact of environmental considerations on South Africa&#8217;s credit profile.



WHAT COULD CHANGE THE RATING UP



A rating upgrade is very unlikely in the near future. Moody&#8217;s would likely change the rating outlook to stable if it were to conclude that the government will succeed in stabilizing its debt ratios over the medium term, by reining in expenditures, improving tax compliance and by lifting potential growth.



Moody&#8217;s will have regard to a number of factors in this respect, including the government&#8217;s progress early on in its tenure in delivering the additional fiscal adjustments which the MTBPS identifies are needed, but also in addressing long-standing issues related to corruption and the financially weak SOEs sector, and in particular at Eskom. If achieved, these should ultimately enhance business confidence and private sector investment prospects.



WHAT COULD CHANGE THE RATING DOWN



South Africa&#8217;s ratings would likely be downgraded were Moody&#8217;s to conclude that those conditions will not be met and that South Africa&#8217;s fiscal and/or economic strength will continue to erode. Ultimately, this conclusion would likely reflect diminishing prospects that growth will be sufficient to preserve current income levels for the majority and halt the rise in government debt over the medium term. Signs of diminishing resilience to external financing shocks would also exert downwards pressure on the rating.



More immediately, a decision to downgrade the rating would reflect growing clarity that the government will not be able to further develop and implement its fiscal and economic strategy to halt and ultimately reverse the debt trajectory. The 2020 budget in particular will be a key indication in Moody&#8217;s view of whether or not the government is committed to the fiscal consolidation recommended by the MTBPS.



GDP per capita (PPP basis, US$): 13,630 (2018 Actual) (also known as Per Capita Income)



Real GDP growth (% change): 0.8% (2018 Actual) (also known as GDP Growth)



Inflation Rate (CPI, % change Dec/Dec): 4.4% (2018 Actual)



Gen. Gov. Financial Balance/GDP: -4.2% (2018 Actual) (also known as Fiscal Balance)



Current Account Balance/GDP: -3.5% (2018 Actual) (also known as External Balance)



External debt/GDP: 47% (2018 Actual)



Level of economic development: Moderate level of economic resilience



Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.



On 31 October 2019, a rating committee was called to discuss the rating of the Government of South Africa. The main points raised during the discussion were: The issuer&#8217;s economic fundamentals, including its economic strength, have not materially changed. The issuer&#8217;s institutional strength/ framework, have not materially changed. The issuer&#8217;s fiscal or financial strength, including its debt profile, has materially decreased. The issuer has become increasingly susceptible to event risks.



The principal methodology used in these ratings was Sovereign Bond Ratings published in November 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.



The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.



REGULATORY DISCLOSURES



For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody&#8217;s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider&#8217;s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.



For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Moody’s changes SA’s outlook from stable to negative

By Kopano Gumbi, CNBC Africa reporter 



State-owned entities are on the chopping block. The minister of finance, Tito Mboweni says the state will be selling some assets and that discussions are underway to re-evaluate the countries portfolio.



READ: <a href="https://www.cnbcafrica.com/zdnl-mc/2019/10/30/sa-mtbps2019-finance-minister-tito-mbowenis-full-speech/">SA #MTBPS2019: Finance Minister Tito Mboweni’s full speech</a>



“We have an agreement that we are selling assets but we won’t tell you which ones,” said the minister ahead of his medium-term budget policy statement. He says the government has between now and the budget speech of February 2020 to negotiate which assets will have to be let go. The minister said South Africa needs to have a serious conversation, with no grand standing, if it is to get back on the growth path.



READ: <a href="https://www.cnbcafrica.com/news/financial/2019/10/30/mtbps2019-low-growth-high-spend-continues-to-plague-sa-economy-but-saa-eskom-get-more-funds/">#MTBPS2019: Low growth, high spend continues to plague SA economy, but SAA, Eskom get more funds</a>



The country currently has a tax collection
shortfall of R53 billion and a widening budget deficit. In addition, South
Africa is struggling with a runaway debt-to-GDP ratio, which the minister
called unsustainably high. Releasing some assets would inject some much needed
liquidity into the state’s budget and relieve the burden of constantly bailing
out unsuccessful state owned companies.



“Maybe the time has come to consider
closing or selling SA Express,” said the minister, “it may be an interesting
case study, if in future you want to close something else.” SAA and SA Express
have been struggling to remain a going concern. The airline requires R21 billion
in order to stay in the sky but the government is only willing to extend R5.5
billion to SAA and R300 million to SA Express. 



Public expenditure needs to be reduced by
R250 billion a year in order to bring down the countries debt-to-GDP ratio to
an acceptable level, the minister advised. &nbsp;But the minister admits that getting to this
point would require very decisive actions.

SA #MTBPS2019: We are selling assets Finance Minister Tito Mboweni declares

By Kopano Gumbi, reporter at CNBC Africa 



In his inaugural medium-term budget policy statement, Minister of Finance Tito Mboweni had the difficult task of explaining to South Africans and the broader investment community how each one of the levers&#8211; save, spend and grow&#8211; would be pulled, and in what ratio, to arrest fiscal wastage, reignite economic growth, stave off a sovereign downgrade and improve the lives of 56 million South <a>Africans</a>. 



READ:<a href="https://www.cnbcafrica.com/zdnl-mc/2019/10/30/sa-mtbps2019-finance-minister-tito-mbowenis-full-speech/">SA #MTBPS2019: Finance Minister Tito Mboweni’s full speech</a>



The South African economy has struggled to recover after over a decade of low and jobless growth. The downward spiral, partly initiated by the global financial crisis, was exacerbated by a failure to implement structural reforms, policy uncertainty and wide spread looting. GDP growth since 2010 has averaged at 1.8 percent. Lagging far behind continental peers of similar market sizes and economic activity. South Africa’s debt-to-GDP ratio is currently at an unsustainably high, 56.7 percent, with outlooks estimating up to 80 percent in the next decade, if nothing changes. 



READ:<a href="https://www.cnbcafrica.com/news/financial/2019/10/30/mtbps2019-low-growth-high-spend-continues-to-plague-sa-economy-but-saa-eskom-get-more-funds/">#MTBPS2019: Low growth, high spend continues to plague SA economy, but SAA, Eskom get more funds</a>



“Our
problem is that we spend more than we earn. It is as simple as that,” said the
minister, while delivering his speech in parliament. And while he tried to
assure the public that this bad habit would soon be kicked, the government
finds itself in the not so simple situation of needing to save, spend and grow
the economy.



GDP growth has been revised down for the year
to 0.5 percent. In February this year growth was forecast at 1.5 percent but
was later revised down to 0.6 percent. Unemployment is at the highest it has
been in over 10 years, currently at 29.1 percent. In this MTBPS, the government
acknowledges that there is little chance that the 9.4 million unemployed adults
will find a job. 



Tax revenue collection continued to be constrained. The government expects a collection shortfall of R53 billion this year and R84 billion next year. The majority of tax, 38 percent, is collected from personal income taxes, 16.7% from company taxes and just over a quarter from Value-Added Tax. 



“We
must also wean state-owned companies off the national budget. They must learn
to stand on their own feet,” said Mboweni during his speech. Currently this is
easier said than done. The state has committed to spend an additional R60
billion this year to make sure delinquent state-owned entities remain going
concerns. 



Power
utility Eskom, is seen as the biggest risk to the South African economy and
will receive an extra R26 billion in this financial year. &nbsp;This is in addition to the R23 billion it
received at the beginning of the year. Smaller state-owned entities will
receive R11 billion and R450 million will be given to support an increase in
student housing. On top of that, the National Prosecuting Authority will receive
R1.3 billion to continue its work, including prosecuting state capture crimes.
And the South Africa Revenue Services will receive R1 billion over two years. 



Another state-owned entity which has failed to
take off is struggling airline South African Airways and its subsidiary SA
Express. The companies are currently discussing the possibility of a merger as
well as equity buyouts from the private sector. 



“We have essentially chosen to subsidise the
middle class and wealthy flying around the country and other parts of the
world,” said Mboweni, “rather than the ordinary workers who sit in old trains
from the townships every day, often getting stuck and being late for work.” The
minister has been clear in that he doesn’t see the value of having a state-controlled
airline, and yet the national carrier will receive R5.5 billion in a bailout
this year. 



Savings efforts have been muted, the minister says
that efforts to reduce spend and save have not materialised. Stricter measures
around cabinet and provincial executive salaries have been proposed, as well as
the controversial e-Toll system remaining as an additional revenue collection
stream.



Whether
the minister’s stern words will be enough to stave off a sovereign downgrade,
remains to be seen.&nbsp; Moody’s is the last
of the international ratings agencies to keep South Africa at investment grade.
They are expected to release a note on our ratings on November 1, 2019. 



“We
shall return to this House next February with the nation’s beloved Aloe Ferox
plant having flourished and show a government at work,” said the minister in
closing. 



<hr class="wp-block-separator"/>

#MTBPS2019: Low growth, high spend continues to plague SA economy, but SAA, Eskom get more funds

SA #MTBPS2019: Finance Minister Tito Mboweni’s full speech

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South African government has revealed that plans are in place for struggling power utility, Eskom to be separated into three entities around 2022. Eskom which is cited the biggest risk to Africa’s most industrialised economy, will be split into units for generation, transmission and distribution. Minister of Public Enterprises, Pravin Gordhan spoke to CNBC Africa for more.

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