Defend Truth


The time has come for government to unbundle and privatise, with urgency


Ghaleb Cachalia is a Democratic Alliance MP in the National Assembly.

South Africa’s state-owned enterprises are in a parlous state. The government, hellbent on statist control, not entirely dissimilar to the apartheid government’s command and control agenda, continues to resist the required changes and the result is soaring costs and unending bailouts for bankrupt entities.

Unlike companies which operate under market conditions where inefficiencies and poor results are punished, the government appears to tolerate mismanagement at best and reward it at worst. Moreover, it dictates labour policies and facilitates graft – by design or default – in the structures it imposes.

The ruling party and the cadres it deploys have been both beneficiaries and perpetrators of this unholy mess.

It comes as no particular surprise, then, that a 2015/16 government investigation into private-sector investment in some of the more than 700 state-owned enterprises (SOEs) came to nought. The report simply called for rationalisation. We have yet to witness any serious action in this regard.

In the absence of any rationalisation, President Cyril Ramaphosa has gone one step further and has recently made it abundantly clear, in spite of the fact that many of the SOEs are on the verge of collapse, that privatisation is off the table.

If this were a horse race, one might say that the gates are open and off they go, blinkers on, limping around the track like injured animals waiting to be put out of their misery.

Of the 28 larger SOEs, only eight posted tolerable results. SOEs continue to limp and bleed with losses increasing year on year — with total losses approaching R34-billion.

Eskom is the biggest culprit. The power utility has reported a net loss after tax of R20.7-billion for the 2019 financial year. PetroSA, the Post Office and Prasa also posted significant losses.

The published losses, however, only tell half the story – Prasa, by way of example, posted a loss of nearly R1.7-billion after receiving a total of more than R10-billion in operating subsidies and grants for capital expenditure.

PetroSA, with assets of R18-billion, has been ravaged by graft and patronage. Its net assets now amount to R499-million and the Attorney-General (AG) questioned its ability to continue as a going concern.

And then there’s SAA. The struggling state-owned airline lost more than R10.4-billion in the past two financial years and has not made a profit since 2011. Like the others, it is dependent on government bailouts to remain solvent.

The AG also raised doubts as to whether Eskom can be seen as a going concern. The utility boasts, if that’s the right word, irregular expenditure of more than R25-billion. 

“The group’s current liabilities exceed its current assets by R44-billion. The current and prior year’s losses, deterioration of most of the group’s financial indicators and the impact of reduced generation performance indicate that a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern,” says the auditor’s report.

Losses at the SA Post Office increased by R95-million to R1.1-billion for the 2018/19 financial year and the AG has given the company a qualified financial opinion.

The South African Broadcasting Corporation suffered a net loss of R482.4-million for the period ending March 2019.

While Transnet’s operating results were solid, it received a qualified audit opinion, largely due to management ignoring proper process in the ordering of R41.5-billion-worth of new train sets. Fruitless and wasteful expenditure in the transport utility amounted to R507-million.

Alexkor diamond mine is circling the drain and Necsa, Rand Water and the Trans-Caledon Tunnel Authority also failed to publish their results on time — a bad sign, indicative of problems with financial management and governance.

Denel reported a net loss of R1.749-million in 2018/19, cushioned by improved profits from associate companies who supply guided bombs to combatants in Yemen in contravention of South Africa’s National Conventional Arms Control Act – but that’s another issue entirely.

This litany of losses, this cornucopia of corruption, this malaise of mismanagement and preoccupation with command and control is unsustainable. 

Take the example of the most egregious culprit, Eskom. Reports estimate the combined total of Eskom’s off- and on-balance sheet debt, plus the full cost of restructuring, to be in the region of R242-billion.

As a consequence of this staggering figure and other SOE liabilities, South Africa’s public debt could rise as high as 95% of gross domestic product by 2024, according to a report from the Institute of International Finance.

South Africa’s government debt will top 70% of gross domestic product in the next three years and may continue rising thereafter as bailouts for state-owned companies boost spending, according to the National Treasury.

If immediate actions are not taken, the magnitude of changes required in the future will be greater. That’s polite-speak for Defcon 5. If large primary deficits (deficits in excess of the net interest payment) persist or if the interest rate on the debt exceeds economic growth indefinitely, it may become harder for government to find investors willing to purchase new debt.

This might lead to an inherently unstable situation with regard to the government’s ability to incur future debt. And as we all know, in order to survive, under a debt-based system there needs to be growth – growth which the IMF now pegs at 0.8% in 2020, down from a previous forecast for 1.1% growth, and 1.0% in 2021, down from an earlier prediction for 1.4% growth.

There is no wiggle room.

In short, this situation is untenable and foretells economic disaster. 

The time has come for the government to unbundle and privatise, so the market can drive efficiencies and punish failure. Ideologies aside, it’s the only rational course of action for South African SOEs. 

It’s not a question of nationalisation versus privatisation. After all, in Sweden, the state-owned carmaker, Volvo, survived and prospered while the elegant private motor firm SAAB bit the dust. But that was in Scandinavia where different levels of probity are at play. In South Africa, the wise money is vested in market-led initiatives. Best we move on this, with urgency. DM


Please peer review 3 community comments before your comment can be posted

Become a Maverick Insider

This could have been a paywall

On another site this would have been a paywall. Maverick Insider keeps our content free for all.

Become an Insider
Elections24 Newsletter Banner

On May 29 2024, South Africans will make their mark in another way.

Get your exclusive, in-depth Election 2024 newsletter curated by Ferial Haffajee delivered straight to your inbox.