Gordhan should have done more, Sibanye CEO says

Froneman says minister wasted opportunity to implement measures that could change the country.
Neal Froneman, Sibanye Gold CEO

South African Finance Minister  Pravin Gordhan wasted an opportunity to improve the health of the economy by not announcing significant sales of state assets and steeper tax increases when he delivered the annual budget on Wednesday, the leader of the biggest producer of gold from mines in the country said.

While Gordhan undertook to cut the civil service and sell a minority stake in the state-owned airline, he should have proposed the privatisation of state power-utility Eskom Holdings, Neal Froneman, the chief executive officer of Sibanye Gold, said in an interview at Bloomberg’s offices in Johannesburg on Thursday. Froneman said South Africans were prepared for Gordhan to announce bigger tax increases.

“Pravin did present a reasonable budget, but I think he could’ve done a lot more,” Froneman said. “He had a once-off opportunity where he’s got a lot of power to implement some of the right things that are necessary for the country to change, especially if growth is the key issue.”

Froneman’s criticism of Gordhan’s budget echoes those of some investors who were expecting more significant tax increases and state asset sales to boost revenue. The finance minister was seeking to restore policy credibility in an economy hit by falling commodity prices, the worst drought in more than a century and sliding investor confidence in President Jacob Zuma’s administration. 

The rand fell as much as 3.5% against the dollar on Wednesday after the release of the budget and yields on 1-year government bonds rose 16 basis points. The rand pared some of its decline on Thursday.

Power rising

Electricity expenses have increased from 7% to 22% as a proportion of costs at some of the mines Sibanye operates over the past ten years, Froneman said. Private owners would probably run the utility more efficiently, which would lower the operating costs of energy-intensive users such as mines, he said. While an 18% rally in the rand gold price since the beginning of the year boosted Sibanye’s profit margins, Eskom’s request for a 16.6% tariff hike could’ve rendered five shafts unprofitable, affecting 15 000 jobs, or a third of Sibanye’s work force, he said.

The country’s mining sector continues to struggle because of uncertainty over legislation and poor labour relations, Froneman said, referring to mining laws which have been under review since 2010 and frequent strikes.

“The budget and the country’s finances perhaps are in check, but there are many other things that are required for South Africa,” Froneman said. “We’ve only heard things. We need to see action. The fundamental issues have not changed.”

© 2016 Bloomberg

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The ANC will never agree to privatisation. They will only allow a maximum of 49% equity in private hands. It’s something like “semi-communism”.

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