Losses at state-owned companies continue to grow

Several are uncomfortably close to the point of failure.
Among the dubious distinctions of SA’s state-owned enterprises is that Armscor paid R1.12bn in salaries and related employee costs to earn revenue of R450m. Image: AdobeStock

Reading the annual reports of state-owned enterprises (SOEs) is enlightening, but not a lot of fun. Their financial statements show that several of the 26 larger and more familiar entities are close to total failure.

There used to be 28 reports to page through when Moneyweb first aggregated state companies’ results a few years ago, but South African Airways (SAA) and SA Express eventually accepted the reality that they were hopelessly bankrupt. SAA last produced audited figures in 2017 before going into business rescue and SA Express faded away.


The various sets of results for the 2019/2020 financial year indicate that there might be even fewer reports to read a few years from now.

The latest analysis covers the results for the financial years ended in 2020 as results for a lot of SOEs were delayed after government granted extensions to the publication dates due to the Covid-19 pandemic.

These extensions seemed to have translated into delays of 2021 results as well, although several of the bigger companies, and especially those issuing public bonds, have published their 2021 results on time. Unfortunately, a lot of results have still not been released.

Read: Will our banks be able to withstand the escalating SOE crisis?

Total loss

Half of the 26 SOEs suffered losses in 2020, while eight of the profitable ones reported that profits decreased.

The total aggregate loss increased to nearly R28 billion compared with less than R8 billion in 2019.

The losses were actually higher by several billion each year, because the calculation had to exclude SAA which probably chalked up losses of around R5 billion each year during the last few years.

Profit and losses of SA state-owned companies
Rm 2017 2018 2019 2020
Acsa 2 005  842  504 1 390
Alexkor  6  34  6 -109
Armscor -127  2  235  179
ATNS  185  190  188  67
Broadband Infraco -127 -113 -14 -111
CSIR  76 -14  8  69
DBSA 2 821 2 283 3 097  504
Denel  282 -1 084 -1 749 -1 962
Eskom -4 608 -2 337 -20 729 -20 679
IDC 2 200 3 224  720 -3 789
Land Bank  367  254  181 -2 125
Mintek  6 -6 6 -54
Necsa -29  98  98 -132
PetroSA -1 608 -676 -2 082 -5 579
PIC  533  411  301  189
Post Office -967 -908 -1 174 -1 548
Prasa -928 1 442 -1 685 2 279
Rand Water 2 414 3 173 2 800 3 837
SABC -1 040 -744 -482 -511
SABS -46 -71 -4 -62
Sanparks  257  202  414  249
Sanral -4 962 -260 3 026 1 263
Sasria  543 1 025 -1  333
Sentech  105 153  183 -72
Trans-Caledon Tunnel 2 304 2 087 2 200  504
Transnet 2 765 4 851 6 047 3 938
Total 2 427 14 058 -7 906 -21 932

Source: Compiled from annual reports

Eskom, the largest of them all, reported the biggest loss. The loss of more than R20 billion in the year to March 2020 is comparable with that of the previous year and, as in prior years, mostly due to interest payable on its very high borrowings.

Eskom actually made a profit of nearly R6.7 billion before its massive interest charge of R31.5 billion on its R408 billion worth of bonds and long term debt.

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There are a lot of contenders for the worst performer. The SABC, PetroSA, Denel and the Land Bank all suffered huge losses.

PetroSA reported a loss of nearly R5.6 billion compared with a loss of just less than R2.1 billion in the previous year, with management admitting that the entity is in deep trouble.

The Auditor-General drew attention to the big loss and that PetroSA’s total liabilities exceeded total assets by R4.5 billion at year end.

“As stated in note 35 to the consolidated and separate financial statements, these events or conditions, along with other matters as set forth in this note, indicate that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern,” warned the Auditor-General.

Chair Frans Baleni says in his report that the latest loss is a continuation of a string of poor financial performances over the last five years. “These dismal and disappointing results are not something that the board, management and other employees of PetroSA can be proud to be associated with.

“These results are signs of a company that is descending into an unprecedented crisis and the enormity of the underlying business issues that we should honestly confront and decisively deal with as stakeholders,” he said.

“The performance of PetroSA during the year under review, coupled with current harsh business realities, portend more challenging times ahead.

“Without painting an unnecessarily gloomy picture, it is important to state upfront that the business-as-usual approach will not be of any help if we hope to successfully turn around this company into a sustainable business.

“Any hope for a better future requires an honest appraisal of the current situation, new mindsets and robust internal engagements to map out a new path for the company,” he said.

“PetroSA is currently at a crossroad, a critical point in the company’s history.

“We collectively have to do everything within our powers to save PetroSA and keep it afloat or we’ll sink together.”

Hopefully, this realisation of the problem has not come too late. Baleni says the natural gas wells that sustained the Mossel Bay plant for two decades are close to the end of their lives. Production declined 26% in 2020 and was expected to fall anther 22% in 2021.

The costs of alternative feedstocks for the plant are too high and PetroSA cannot afford an exploration and drilling programme to find new reserves.

Baleni said another option would be to acquire another business, but PetroSA hasn’t capital for that either.

Assets and liabilities of state companies

Rm Assets Liabilities Net
Acsa  32 125  9 001  23 124
Alexkor   376   282   94
Armscor  3 465   613  2 852
ATNS  3 337   438  2 899
Broadband Infraco  1 289  2 607 -1 318
CSIR  2 453  1 381  1 072
DBSA  100 465  62 888  37 577
Denel  8 525  10 803 -2 278
Eskom  823 223  637 155  186 068
IDC  112 510  64 439  48 071
Land Bank  46 199  43 636  2 563
Mintek   911   342  569
Necsa  7 761  6 950  811
PetroSA  14 394  18 858 -4 464
PIC  3 912   654  3 258
Post Office  11 067  7 395  3 672
Prasa  82 046  57 972  24 074
Rand Water  33 533  7 908  25 625
SABC  6 183  3 189  2 994
SABS  1 510   679 831
Sanparks  5 642  2 597  3 045
Sanral  462 081  130 586  331 495
Sasria  8 921  1 963  6 958
Sentech  4 287  1 991  2 296
Trans-Caledon Tunnel  24 776  22 699  2 077
Transnet  336 225  205 998  130 227
Total 2 137 216 1 303 024  834 192

Source: Compiled from annual reports

Denel is on the ropes too – it’s basically bankrupt.

Its losses increased to nearly R2 billion in 2020 and its liabilities (R10.8 billion) exceed its assets (R8.5 billion) by more than R2 billion. This was the case in 2019 too, when shareholders’ equity was a negative R1.7 billion.

In addition, the financial statements must be read with caution. The auditor’s report reads in part: “I was unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these consolidated and separate financial statements.”

The Land Bank’s loss of more than R2.1 billion can be attributed to impairments of assets of R1.8 billion, mostly the result of bad debt.


The Passenger Rail Agency SA (Prasa) deserves a special mention.

The reported profit of R2.28 billion in the 2020 financial year is not as good as it looks if one considers that it received government subsidies of close to R8.4 billion.

It earned only R1 billion from moving passengers, and R726 million in renting out retail space at stations.

Prasa chair Leonard Ramatlakane said in his report to shareholders that Prasa is “too significant to fail”.

“As the board, management and employees, we have no choice but to mend this important organisation and bring order to it.

“Failure would be detrimental to our people, customers, employees and the economy; it is therefore not an option,” he wrote.

He said the public perception of Prasa continues to be poor for a number of reasons, including the disclaimed audit opinion by the Auditor-General, imprudent business decisions by senior leadership leading to disastrous consequences, little or no consequence for management and compliance failures throughout the organisation, and inadequate record-keeping (in some instances, no records at all).


Thandeka Mabija, Prasa’s acting CEO in 2020, reiterated that Prasa’s rail performance has declined drastically in recent years, with commuter services at their lowest-ever performance levels.

“During the reporting year, on-time train performance was at 62.34% and 9% for Metrorail and Mainline Passengers Services (MLPS) respectively. 21.17% of trains scheduled for Metrorail and 23% for MLPS were cancelled, with an average delay of over 40 minutes on the Metrorail services and over 150 minutes on MLPS,” she said.

In the 2014 financial year, Metrorail transported 543 million paying passengers, but this has declined to just 125 million 2020. MLPS transported only 205 793 passengers in 2020.

“The unavailability and unreliability of rolling stock and infrastructure, key enablers of regular, reliable and ontime train services, can no longer guarantee that rail is the backbone of public transport,” she said.

The Auditor-General listed 99 concerns with the financial statements and accounting system with his commentary running to an unprecedented 16 pages in Prasa’s annual report.

The billions paid for Spanish locomotives that did not fit on local tracks – ordered by an engineer with fake degrees – are still in the books as prior years’ irregular expenditure. The total figure is R28.6 billion.


Armscor also deserves a special mention. It made profit, after receiving a government grant of R1.15 billion.

Of interests is that it paid R1.12 billion in salaries and related employee costs to earn revenue of R450 million. According to the annual report, Armscor employed 1 555 people in order to earn this revenue.



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The financial statements of SOEs are merely a financial expression of the cognitive ability and mindset of the average voter. The financial health of private businesses and public enterprises both reflect the mindset of the shareholders.

The process that handpicks shareholders in the private sector selects for efficiency, accountability, frugality, and effective service delivery. These private shareholders were identified and selected for their ability to work hard, for the discipline to delay their gratification to accumulate capital, for the proper value-adding mindset, and the prior ability to provide some form of service to the community. The shareholders of private companies go through a strict, positive, and proven selection process. Only the most efficient mindsets own shares in private companies.

The shareholders of SOEs on the other hand, go through a negative selection process. Most ANC supporters cannot, or do not read. They are unemployed and depend on a social grant. They do not save and they have no discipline to delay gratification. They are communalists and inclined to exploit and not build shared resources. They have the victim mentality and a sense of entitlement. These characteristics will inevitably bankrupt any business under their control.

The financial health of a business is a reflection of the mindset of the owners. The same factors that drive the profitability of private companies, cause the bankruptcy of State-Owned Businesses. The decay at SOEs is an ongoing process because equilibrium with the mindset of the average voter has not been reached yet. Equilibrium with the mindset of the average voter lies in a hyperinflationary collapse like in Zimbabwe and Venezuela.

When the majority of voters are collectivist and unemployed, then a democracy equals bankruptcy.

There are solutions though, but they require a level of understanding and foresight that the average voter does not have. Privatization is the only option because this process will insulate the results from the destructive mindset of the voter, to display the proper mindset of savers and capitalists.

Great comment Sensei, however I fear that there is no solution given the skewed population mix, regardless of Privatization! The uptake/ vacuumfill of the correct personnel for the job is not available, and therefore it will still be a long downhill slide before SA can turn around to progress!

Sincerely hope I am dead wrong!

This is why the BEE project is so destructive for economic growth and job creation. BEE is a Trojan Horse that injects the enemies of capital formation, as opportunistic false capitalists, into the boardroom and the ownership structure. The beneficiaries never had to prove themselves like normal shareholders have to. They do not have the proper value-adding mindset. On the contrary, the very process displays the exploitative, extortive, and extraction-orientated mentality of that particular class.

BEE creates shareholders who have an anti-capitalist mindset. The process is about the consumption of capital, not the building of capital.

No economy can survive such a level of legalized plunder and extortion. The unemployment level is the canary in the coal mine.

Yet another example of how RET and BEE policies have destroyed valuable assets and all at the taxpayers expense. This will continue until there is nothing more to take….but human beings are funny, those like me continue to hope! Others have faced the reality and moved to greener pastures where their tax dollars/pounds/euros give them real benefits and a first world life!

Entrepreneurship is the solving of problems. The ANC creates many problems, therefore they also create many new opportunities for that part of the community with the proven ability to solve problems. That happens to be the small minority who pays 90% of taxes. It is possible to live in relative safety and luxury if one is a problem solver. There are many super-wealthy individuals who choose to live in Zimbabwe, Venezuela, and Brazil.

To Quote Sensei:

“They have the victim mentality and a sense of entitlement. These characteristics will inevitably bankrupt any business under their control.”

Right there we have the built-in self destruct that is Africa … still they strive to blame the past from a hundred + years ago.

End of comments.



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