No amount of fresh capital will save South African SOEs – it’s time for a change in business models: Nene

State-owned companies, which should play a critical role for national development, are paralysed by large debt burdens and a legacy of poor governance.

This is according to finance minister, Nhlanhla Nene, who was speaking at the Moody’s Annual Sub-Saharan Africa Summit on Thursday (13 September).

Nene said that the country was battling with several known expenditure pressures – including a new public service wage agreement which is forecast to cost an additional R30.2 billion, the depreciation of the rand and an increase in government bond yields – meaning that more resources will be required to service debt going forward.

“The precarious financial positions of several state-owned companies has created an over-reliance on borrowing to fund ongoing regular operational expenditures-an untenable situation over the long term,” he said.

“Ten years ago government looked to Eskom, the Trans-Caledon Tunnel Authority (TCTA), Transnet and others to launch an infrastructure drive that helped mitigate the worst effects of the global financial crisis.

“Unfortunately, in recent years, many of these critical state-owned companies (SOCs) have had their ability to contribute to economic growth severely weakened.

“Government will have to explore ways to strengthen the balance sheets of these institutions in a way that does not harm fiscal sustainability. It is abundantly clear that in the long-term, no amount of fresh capital or debt will save these institutions outside a radical rethinking of their business models and a commitment to good clean governance,” he said.

Medium Term Budget Policy Statement

Nene noted that in a month’s time, government will present the 2018 Medium Term Budget Policy Statement (MTBPS).

While he would not disclose any of the details of the presentation, he noted that Cabinet has already agreed that fiscal sustainability must remain the focus of government’s efforts in public finance management.

“This should be a statement that makes clear government’s intention to pursue a prudent fiscal policy that stabilises the debt-to-GDP ratio over the long term,” he said.

“While we do not expect the new public service wage agreement to harm the expenditure ceiling, it is important that government protects the composition of spending ensuring that resources are directed towards service delivery.

“Government remains committed to the compensation ceilings presented for the 2018 Medium Term Expenditure Framework. Several options are under consideration to address the additional cost of the new wage agreement, as announced by the Department of Public Service and Administration.

“These include the updated employee-initiated severance package and early retirement to encourage qualifying public servants to exit the public service.”

Read: Legal action looms over South Africa’s land seizure plans

Must Read

Partner Content

Show comments

Trending Now

Follow Us

No amount of fresh capital will save South African SOEs – it’s time for a change in business models: Nene