New type of ‘bailout’ for state companies in South Africa

More bailouts are expected for South Africa’s embattled state-owned enterprises (SOEs) in 2024 – but the government may be open to more involvement from the private sector.

Next Wednesday, 21 February, Finance Minister Enoch Godongwana will deliver the 2024 Budget, with further support expected to SOEs, especially Transnet.

Transnet’s struggles on its rail network and ports have been highlighted by numerous industries, with it having a devastating on the economy.

South Africa also recorded historically low coal and iron-ore exports in 2023 due to transport issues, and consultancy research group GAIN said that the issues in Transnet Freight Rail (TFR) led to a projected loss for 2023 of R353 billion (4.9% of GDP).

In November last year, the National Treasury advanced an R47 billion bailout package for the embattled utility, with R22.8 billion of the facility immediately accessible for drawdown.

The SOE desperately needs a larger capital injection as it has failed to generate sufficient operational revenue to service its R130 billion debt pile.

Nedbank’s economists said they expected bailouts of R25 billion a year in 2024/25 and 2025/26 for Transnet.

These packages will be similar to the Eskom debt deal tabled in last year’s Budget, with the entity required to provide a clear turnaround plan before the funds are disbursed.

Bailouts for the state’s other SOEs will probably be limited and funded from the Contingency Reserve Account.

New type of bailout

The Bureau for Economic Research (BER) will also be looking for bailouts for Transnet during the Budget, noting that the group still needs R100 billion for corridor investment.

“However, unlike straightforward bailouts, as we have seen with other SOEs in the past, it seems like the government is more open to private sector participation in the logistics space,” the BER said.

“It would be welcomed if we saw a mechanism that brings in private partners and development finance institutions.”

“Beyond the logistics space, the Budget is likely to tote infrastructure spending in general.”

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