Much work ahead


POSTED ON: November 1, 2019 IN , by Admin

Recovery should kick off with allowing state-owned enterprises to be run like businesses


By Busi Mavuso

Sobriety was the main message emanating from this week’s medium-term budget speech by Finance Minister Tito Mboweni as he outlined our fiscal position. Our options are running thin, evidenced by the forecasts of the rise in the country’s debt to GDP – that is serious and alarming, with expectations that it will reach 81% by 2027.

There’s much work to be done by all of us. An immediate area of focus must be the health of our state-owned enterprises and in particular Eskom, that elephant in the room in all our economic debates for more than a decade. Mboweni urged that it be “run like a business”. While we’re at it, we have to audit almost 700 state-owned enterprises and ask whether it’s still paramount that government owns them. It’s best we do it on our own, before we are in a position where bondholders or the likes of international funding agencies such as the International Monetary Fund enforce such introspection upon us. History teaches us that at such a point, there’s very little consideration for the developmental objectives of a country and in order to avoid certainly what will be considered a doomsday scenario, we need to face up to some truths.

Admittedly, that’s a long-term process, given our current ailments – but nonetheless, it is an important project that may just need Codesa-like engagements. But we can and should today examine Eskom’s dual mandate. As it stands, it is to supply reliable and affordable electricity as well as a developmental mandate.

Is it not time to start rethinking this mandate? In no way am I calling for us to abandon the electrification programme that has certainly changed the lives of the vast majority of South Africans. But in this period of restructuring, where we must aim to remove Eskom as a weight on the sovereign, it can’t be business as usual. Perhaps Eskom’s developmental mandate, where costs are unrelated to the efficient supply of reliable and affordable electricity, should be suspended.

Treasury has made any future support for tackling Eskom’s debt burden – that worryingly is more than R450bn – dependent on the company fixing its operational fissures. If we are to allow Eskom’s new chief executive officer and his team to deal with the structural flaws in the 96-year old firm with power stations that are nearly 50 years old, we need to accept some uncomfortable truths. We may have to accept higher, cost-reflective tariffs and a maintenance programme that may just mean load-shedding remains part of our regular calendar entries.

Then there’s the matter of negotiating about the hard reality of Eskom’s inflated staff numbers – about 15,000, by some estimates. It’s a prickly situation and understandably so as the country’s unemployment sits at a destabilising level of 29.1%. However, there is an opportunity to unlock more than R150bn in investments in the renewables space through breaking the monopoly that Eskom has over our energy market. Opening up the generation space will not only bring much-needed investment into the South African economy, it will also provide job opportunities in the electricity sector – skills that reside within Eskom.

But this needs to be properly fostered by policymakers and the spinning out of the transmission system operator from Eskom is the single most important piece of the jigsaw puzzle. The TSO will be an intermediary between the generation and distribution functions and serve as a buyer of power from Eskom and from other power producers.

If Eskom and SAA, among others, are allowed to be run as businesses, there’s a path to a place where it isn’t as big a burden on the state. While our energies should certainly be focused on these enterprises, our debt-to-GDP forecasts for 2027 – without the impact of Eskom – are still worrying. At 76%, it is still too high and will crowd out investment in the economy as government absorbs savings which cannot, therefore, be invested in the private sector.

This has to be solved by spending reductions as well as revenue enhancements driven by economic growth. Revenue collections in the coming three years are expected to fall short by a total of more than R250bn and the planned expenditure cuts announced by Mboweni only partly compensate.

With revenues under pressure, the wage bill is cause for concern, but by the same token a drastic cut in staffing numbers is undesirable in a climate of heightened unemployment. It would only serve to further weaken demand in an economy that is in desperate need of stimulatory effects. But that doesn’t escape the fact that there is some belt tightening needed in the public sector.

The finance minister indicated government’s intention to find R150bn in savings over the medium term, the details of which will be announced only in the 2020 budget. These savings will depend on negotiating steep reductions in the wage bill with its alliance partner, Cosatu, whose strength now lies predominantly in the public sector.

There will be hard negotiations between Treasury, the various government departments unhappy with austerity-like cuts and the union movements. Against the backdrop of such talks, as business we should play our part by participating in government’s R500bn infrastructure fund that will be hosted by the Development Bank of Southern Africa. It was one of the few positive elements in what was largely a moribund medium-term budget speech.

The infrastructure fund is an important attempt at trying to stimulate the economy outside of the welcome changes to policy affecting labour-intensive industries such as tourism. Reducing expenditure and allowing the space to turn around ailing institutions such as Eskom are important steps, but both the state and private sector should ensure the economy is stimulated.

At the beginning of this year, Treasury pencilled in growth of 1.5% and this week, it was revised down to 0.5%. Our growth dynamics are serving only to raise the debt-to-GDP ratios, so we understand that there can’t be a focus on expenditure reductions without looking at how to get GDP rising – never mind our structural challenges.

As business, we’ll play our part in what must be a joint effort.


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