Economic collapse warning for South Africa
Eskom’s rising municipal debt could reach R200 billion within a few years, and if this issue isn’t resolved urgently, South Africa’s entire economy could collapse.
This was the warning given by Cosatu’s parliamentary coordinator Matthew Parks, speaking to Newzroom Afrika.
In 2023, the National Treasury introduced a debt incentive scheme that allows municipalities to have debt owed to Eskom written off if they adhere to monthly payment schedules.
However, only 14 municipalities out of 72 have met their debt obligations so far, making the scheme a failure.
Parks explained that these defaulting municipalities are in a “very, very serious crisis”.
“For any functioning modern economy to work, you must have reliable, affordable electricity.”
However, he said that, just like any other business, Eskom cannot operate if half of its customers choose not to pay or delay payments.
While many people are paying their electricity bills – municipalities are not passing that money on to Eskom.
According to Parks, it is “deeply alarming that Eskom was getting itself out of a hole, but municipalities are going and digging that hole deeper.”
Despite the measures taken by the Treasury to try to resolve this issue—which includes a debt relief package of about R80 billion for municipalities—the situation continues to worsen as municipalities add more to Eskom’s debt.
“Eskom is right to say if this issue is not resolved, Eskom is not a viable business, which means the entire economy will collapse. So we’ve got to have a solution.”
Parks said that a potential solution is allowing customers to pay Eskom directly while municipalities recover costs for infrastructure maintenance.
Eskom cannot be a “piggy bank” or a “slush fund” that bails out dysfunctional municipalities.
“We can’t have this situation right now where municipalities simply choose to rob Eskom for other funding issues. We’ve got to fix Eskom because that’s the solution to the entire economy.”
Parks said municipalities also need an alternative funding model since many rely on Eskom tariffs to support other services.
“We do need to have a very frank and urgent conversation about what is an alternative funding model for municipalities, because many municipalities use Eskom electricity tariffs to cross-subsidise poorer communities, to cross-subsidise other municipal functions.”
“That’s fine. Let’s have that discussion, but what we can’t do is to employ Eskom because that means the entire economy is going to go down the drain.”
He added that the situation is urgent since the debt is set to reach an estimated R82 billion by the end of the year.
By the end of the tax year, this number will increase to R100 billion, and by 2028, it will reach about R200 billion.
“There’s no amount of bailing out that the government can do for Eskom to resolve that scenario. We’ve got to fix it and fix it urgently. At the same time, we’ve got to find a solution to fix municipalities, but we can’t allow one crisis to implode.”
Parks said that some municipalities repeatedly fail to pay their debts, often because they lack a sustainable revenue base.
Many are simply too small to function independently, a problem which could be resolved by combining some of these municipalities.
“I think 257 municipalities is something we just don’t have the resources for, but we should see how to consolidate them and perhaps move to a district development model.”
“You’ll find the same ones are the ones who often don’t pay municipal workers, who don’t pay municipal workers pension funds, who don’t provide municipal services, causing companies to close.”
These same municipalities also do not effectively spend their infrastructure grants, often returning billions of rands in unspent grants to the national government.
This is mainly due to a lack of competent leadership and management, which has led to a decline in local government.
Parks said the national government needs to act quickly since the current approach is not working.
“Simply having a hands-off approach doesn’t work because we’re witnessing the collapse of local government.”
“If you look at the auditor General’s reports, they are a horror story, and the worst part is that they get worse each year.”
“About a decade ago, we had about 10% of municipalities in distress – today it’s about two-thirds, and it’s getting worse and worse each year.”
Parks added that even though there has been progress at Eskom and Transnet, South Africa is witnessing the “ death of local government”.
“What’s extremely frustrating is that you just don’t see SALGA (The South African Local Government Association) or CoGTA (Cooperative Governance and Traditional Affairs) intervening. They just seem to be sleeping on the job.”
“This is a crisis that needs to exercise the minds of the highest leadership of government urgently.”
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