South Africa’s credibility crisis
Unless there’s a massive improvement in the government’s ability to implement policy and spend funds effectively, little will likely be achieved no matter the intent behind it, says Busi Mavuso, the CEO of Business Leadership South Africa (BLSA).
Finance minister Enoch Godongwana will deliver his 2023 budget speech this Wednesday (22 February), where he is expected to announce a raft of changes and revenue adjustments for the year ahead.
According to Mavuso, however, whatever promises made and changes announced, South Africans should not expect much to happen while the government’s credibility crisis persists.
South Africa’s problems are often not due to a lack of money, she said, but rather inappropriately capacitated departments, misgovernance, and corruption that cripples public systems such as energy, health and education.
Key among the announcements expected this week, markets and businesses will be looking for the government to take over a considerable portion of the Eskom’s R400 billion debt. This would follow through from Godonwana’s promises to do so at the October 2022 budget.
Reduced debt service costs for Eskom will ultimately make room for the power utility to finance upgrades, and assist in dealing with the ongoing energy crisis over the longer term.
However, Mavuso said that without political will to back it up, it will be difficult to imagine the budget enjoying credibility for very long.
“(The debt takeover) is no long-term solution. Eskom’s expenses will continue to be higher than the revenue it can generate, particularly with the huge amounts needed for repair and maintenance of power stations, and that is not sustainable,” Mavuso said.
She said that there are multiple steps that need to be taken to get Eskom onto a sound financial footing – including addressing municipal debt and unbundling the group.
In addition to Eskom’s direct woes, businesses and markets are also hoping for further insight into the declared energy state of disaster and what is being done under its banner.
“What we don’t want to see is a big chunk of money being budgeted for under a vague, sweep-all name like ’emergency procurement’ with little further detail,” Mavuso said.
President Cyril Ramaphosa, during the State of the Nation Address (SONA) said that the energy crisis has caused significant harm to the country and poses a serious threat to both businesses and the economy.
Although the president promised that the auditor-general would be “brought in to ensure continuous monitoring of expenditure, in order to guard against any abuses of the funds needed to attend to this disaster”, transparency must not be the only requirement – spending must be confined specifically to areas that directly address the load shedding crisis, Mavuso said.
While the auditor general’s office has served South Africa with an excellent record of delivering audits that meticulously record the amounts that government entities spend irregularly, wastefully or fruitlessly, the forces of patronage have proven to be extremely powerful and resilient, said Mavuso.
Transparency can be a powerful deterrent to corruption and will aid the auditor-general’s important role, she said. “The fact that the energy crisis has been allowed to deteriorate to this extent points to a historical failure of leadership.”
“The latest steps – including the state of disaster and appointment of a new minister of electricity – may be even more damaging to the country without meticulous planning and strong, ethically driven leadership,” she said.
The South African government’s glaring credibility issues were also raised by global ratings agencies last week, with Fitch and Moody’s both highlighting the government’s poor track record with implementing reforms and moving with deciveness and haste in dealing with the country’s biggest issues.
Fitch, in particular, noted that the declaration of a state of disaster and the setting up of a minister of electricity to deal with the energy crisis is having the opposite effect of allaying fears in the market.
While it is possible for the state of disaster and the appointment of a minister of electricity to strengthen the government’s capacity to respond to the power shortage – the government’s generally poor track record on execution and Eskom governance problems will likely have the opposite effect, with Fitch suggesting that further delays are now possible.
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