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Disintegrating state companies imperil SA’s finances

Most South African SOEs spend more cash than they generate.

A meltdown at some of South Africa’s biggest state companies is intensifying, placing the nation’s finances at risk and frustrating President Cyril Ramaphosa’s efforts to attract new investment and resuscitate a moribund economy.

While monolithic power utility Eskom, which is tottering on the brink of insolvency, has dominated recent headlines, arms manufacturer Denel, the South African Broadcasting Corporation and South African Airways have joined the list of the financially destitute entities scrambling for bailouts. The government guarantees most of their debt, so allowing them to go bust isn’t an option, even if it breaks its expenditure ceiling.

  

Official inquiries have shown that state companies were looted of billions of rand and subjected to constant management upheaval during former President Jacob Zuma’s rule. While Ramaphosa has sought to tackle the graft since succeeding Zuma in February last year and replaced the boards and management of several state companies, their debt has continued to accumulate and National Treasury projections shows the trend continuing until at least March 2021.

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Denel gets reprieve with loan to pay salaries

Goodbye, SAA

South Africa has ‘no choice’ but to increase funding for Eskom

“The state-owned entities are a huge risk in terms of government finances,” said Johann Els, chief economist at Old Mutual Investment Group in Cape Town. “We can’t just spend more on Eskom, SABC and Denel or take their debt onto the government’s balance sheet without some concrete plans” to ensure they cut costs and become sustainable, and there is no sign of that happening, he said.

The debt burden of the state companies is a risk to South Africa’s last remaining investment-grade credit rating, Moody’s Investors Service said in April. The loss of that rating could trigger a massive outflow of funds from Africa’s largest economy, because it would preclude a number of index-linked funds from retaining their investments.

Investors see an increased likelihood that the government will have to increase sovereign-bond issuance to bail out Eskom, which is by far the biggest of the state companies and has amassed more than $30 billion in debt. The yield premium of 2048 securities over 2026 notes widened 50 basis points this month to 181, the most on record.

Eskom funding concern shows in the steepest South Africa yield curve on record
“I don’t think we are at a tipping point yet, but we are getting ever closer,” Els said.

© 2019 Bloomberg L.P.

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I am not an economist but I don’t see how you try and cut costs as priority one yet you leave the crooks that caused the problem where they are.

If they don’t lock them up in large numbers quickly they must just forget about fixing anything let alone cutting costs.

The more I deal with SOE and all govt departments the more I stand amazed at the number of people existing there without a brain.This exponentially increases every Friday at 9am and before any long week end. This must be an Africa medical miracle.

The only solution is to shut them all down immediately… except for Eskom which is unfortunately essential to the country’s survival. The rest can go and good riddance to the lot, they won’t be missed. It is high time the State stopped running businesses, it is clearly absolutely useless at it. I highly suspect most of these basket cases were simply used to launder money for the criminal cabal that seized control during the Zuma years. Of course, most of them are still in government, and what does that tell you? Perhaps in the twisted, upside-down universe of the ANC, stealing money isn’t considered a crime, who knows?

My view; Sell the Eskom power station; freely and fairly. That is all Gordhan and fellow clowns should be busy with. Take on the existing debt as SA debt. Eskom can never service it.

The ANC’s trade unions prevent the fixing of the SOE’s. The ANC is just a giant employment agency.

The economy will not get up to speed before the ANC splits.

Get out while you can. Send your money out while possible. This country will look like the rest of Africa in 10 years time.

I agree, but ten years seems a bit optimistic.
Proudly brought to us by the ANC.

You do not have ten years. You may have five but even that is debatable. That aside, you do not want to be around when this country fully embraces it ‘post-colonial’ destiny. There is a great reckoning approaching and it promises misery on an apocalyptic scale. Get out before you have nothing to take with you.

10? You must be joking. 3. Max

Absolutely correct. All our highly qualified children left many years ago. Quality export products as their susequent careers prove.
Leave ASAP if young. Soon the socialist Gordhan etc will run out of other peoples money

That yield curve spike on 2048 debt is the sinking realization of lenders that their debt will be paid off in hyperinflated worthless rands.

The sooner we go broke and get an IMF loan (which will force accountability and market reforms) the better.

Everything in between then will be slow motion train wreck unfolding. The good news is you can make a fortune by short selling the rand.

“The sooner we go broke and get an IMF loan (which will force accountability and market reforms) the better.”

Precisely. In some respects, it would have been better if NDZ had won at NASREC. The downgrade would probably have been near-immediate, the state would have defaulted and collapsed, the IMF would have bailed us out with huge strings attached, and rebuilding would be under way.

Instead, we’re left with a slow slide into oblivion while the ANC cadres fight over how to loot whatever’s left.

yes, CR what a disappointment.

Mr.Els, the ANC’s concrete plan is just that….pumping in more money.

Can’t quite say but I would imagine that iron-age management techniques don’t really work in the quantum age …

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