Warning over South Africa sending billions down the drain

Business Leadership South Africa CEO Busi Mavuso warns that the South African government risks directing two multi-billion rand initiatives into the void of inefficient spending.

Mavuso noted two high-profile projects that are currently catching the government’s attention: a request for a R3 billion bailout for steel miller Arcellor Mittal (AMSA) and the formation of a R100 billion transformation fund.

The business CEO said that while these projects could bring relief for businesses in the near and medium term, without long-term plans, reforms, and—in the case of the BEE fund—an actual problem to solve, the money spent on these initiatives will likely go to waste.

The AMSA bailout stands out as a particular problem.

According to Mavuso, the steel miller lost R1.1 billion in 2024, exacerbating its need to wind down its longs business.

Many other businesses rely on the longs business to continue operating; hence, the alarms blaring over not only the 3,500 direct jobs that could be lost but also the tens of thousands more all along the supply chain.

The government has already stepped in through the Industrial Development Corporation to support AMSA’s working capital, but the miller says it needs at least R3 billion to improve its operations.

The latest government rescue plan proposes using the Temporary Employer/Employee Relief Scheme (TERS)—created to support workers through the COVID lockdowns—to fund 2,982 employees for the next 12 months at a cost of R417 million.

Mavuso said this would be fine, but only if there was a clear and sustainable endpoint. “There doesn’t appear to be one,” she said.

She added that the government must avoid using public money for jobs that are not sustainable because they do not fundamentally add value.

The CEO said that if the government just delivered the promised structural reforms needed to drive growth in the country, AMSA would likely see considerable demand for its output, negating the need for public funds to be piled into a business that is not sustainable.

“A restructured logistics system, for example, would trigger major investment in rail infrastructure through public-private partnerships,” she said.

“Firms are failing daily while they wait for the structural reforms needed to drive the economy. AMSA is a highly visible example but there are countless others.”

R100 billion transformation fund

The second project drawing considerable concern is the R100 billion transformation fund proposed by the Department of Trade, Industry and Competition (DTIC).

The department published a concept document for the fund last week, outlining the fund’s broad objectives.

It said that the fund would promote economic transformation, improve access to funding for majority black-owned and controlled enterprises, empower and support these businesses, and mobilise financial resources from the private and public sectors using B-BBEE legislation.

However, Mavuso argues that the document does not clearly define a problem this fund is actually expected to resolve.

She said that an estimated 70% of all new businesses fail in South Africa for many reasons, including a lack of skills, access to markets, and access to funds—and various initiatives, including BEE legislation, have tried and failed to address this.

“There are many companies that have failed to get traction despite significant funding,” she said.

“It would be much easier to see the logic of the fund if the concept paper carefully diagnosed the problems and presented a clear institutional solution.”

Mavuso warned that the DTIC’s document says almost nothing about the institutional design of the fund required to achieve its aims or how it will resource it and ensure its success.

Without aim, direction and structure, it is unclear where the billions of rands in funding will even go to, or for what ultimate purpose.

“Again, when money is being directed toward solving a problem, we need to ensure that it will result in a sustainable solution,” she said.