The ‘calamity’ threatening to blow up South Africa’s finances
South Africa’s major state companies are in a mess, and according to many analysts represent the single biggest risk to the country’s economy.
Ratings agencies have warned that the country is putting itself at risk of further economic decline by mismanaging its SOEs, with Eskom, SAA, and others continuing to hit headlines amid reports of mismanagement, cash shortages and corruption scandals for years.
And while finance minister Tito Mboweni, who is set to deliver his maiden medium-term budget policy speech at 14h00 on Wednesday, is unlikely to have had too much input in its content considering the time he has spent in his new post, head of Research at ETM Analytics, George Glynos, says that it is important that the minister address ‘the big elephant in the room’ – namely SOEs.
Speaking on radio station 702, Glynos said that the medium-term budget is more of a ‘report back’ session and a transparency communication tool than a policy implementation tool.
“The way we deal with state owned enterprises in this country – that’s essentially the big elephant in the room,” he said.
“We can talk about reprioritising spending, we can talk about utilising funds a little more effectively and efficiently here and there, but the real big calamity sitting on the sidelines is the state of state owned enterprises and the fact that they are a huge unfunded liability that, if rolled up onto the government balance sheet, would explode South Africa’s debt to GDP ratio – and that is of particular concern to me,” said Glynos.
“It’s time that we start talking about things like partial privatisations, just as we did with Telkom – that’s become a huge success.” He pointed to the profits being made by the telco. “It’s completely off the radar as a risk factor,” he said.
“I think the same principles could be applied to other state owned enterprises,” Glynos said.
Moody’s Investors Service said last week that South Africa could see its credit rating upgraded if it successfully implements structural reforms that would raise economic growth and stabilise the nation’s debt burden.
Reforms to state-owned companies that reduce contingent liabilities would exert upward pressure on ratings, Lucie Villa, a vice president and senior credit officer who’s the lead analyst for South Africa at Moody’s, said in a research note.
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