KINGSLEY WAKELIN: State-owned company bailouts destroying our economy

In SA, state-owned companies (SOCs) have long been positioned as pillars of the economy, tasked with providing essential services, creating jobs and driving socioeconomic development.

However, the reality of many SOCs is starkly different. Over the past two decades these entities have had a direct role in destroying our country’s service delivery programme and killing the economy. This has had a negative effect on millions of South Africans. 

SA’s SOCs include players such as Eskom, Transnet, SAA and the SA Post Office. Collectively, they are expected to play a crucial role in the country’s economic landscape. For instance, Eskom supplies about 95% of the country’s electricity, while Transnet operates the national freight logistics.

These enterprises are not merely economic agents; they are considered instruments of social policy, aimed at addressing historical inequalities and fostering inclusive growth. 

However, despite the challenges facing these enterprises there has been a sharp decline in service quality. Eskom has become synonymous with load-shedding and only recently started to stabilise electricity supply against a precarious power generation and distribution network.

As a stark reminder, in 2022 alone Eskom implemented nearly 300 days of load-shedding, costing the economy about R300bn in lost productivity during that period. Small business is still recovering.

Bailouts 

To keep these entities afloat, the government has poured billions into bailouts of SOCs. Since 2008 the cumulative financial bailouts to SOCs have exceeded R520bn. Eskom alone has received more than R496bn in bailouts since 2008, yet it continues to struggle with repaying government-guaranteed debt exceeding R350bn.

This financial strain leads to a vicious cycle — as SOCs become dependent on government support they often fail to implement necessary reforms, resulting in deteriorating service delivery.

Further worsening the situation is that the total estimated outstanding debt owed to Eskom by municipalities stands at R85bn and will exceed R100bn by the end of this financial year. 

In principle, bailouts aim to provide temporary relief, but they do not address the root causes of the financial distress faced by SOCs. Instead, if abused they create a culture of dependency that stifles innovation and accountability. 

In the case of SAA, repeated bailouts failed to restore profitability or improve operational efficiency. By the end of June SAA had reported losses to the tune of R453m. The airline reported revenue of R1.8bn, 23% less than the budgeted revenue of R2.3bn.  

Service delivery 

The accompanying table depicts how bailouts had a direct effect on service delivery. The R520.6bn in bailouts stands in direct relation to budget cuts from services delivery departments to the tune of more than R457.1bn over the same period.

In short, bailouts have resulted in the direct loss of at least R457bn worth of infrastructure and service delivery to the people of this country. 

Spending on bailouts has resulted in infrastructure development and essential goods and services provision taking a major knock in growth from baseline adjustments, which directly results in slaughtered service delivery and kills the economy.

The resources allocated to bailing out failing SOCs could have been better spent on critical areas such as safety and security, education, healthcare and infrastructure — key front-line services required for the proper functioning of our country.

The opportunities we have lost could have been used to appoint 137,943 police officers for a 20-year career in the police services, or appoint more than 145,000 nurses for a 20-year nursing career.

We could have appointed more than 93,300 teachers for a 20-year career in teaching or, even more painfully, we could have built more than 2-million RDP houses, giving millions of families their own place to call home.

Those 2-million houses could have created 2-million creditworthy citizens who could have added value to the economy and grown the far broader middle class that this country so desperately needs. 

Accountability

The lack of accountability and good corporate governance within SOCs is another pressing issue. The auditor-general’s reports have repeatedly highlighted instances of irregular expenditure. Corruption scandals such as those surrounding the Gupta family during the era of state capture and their influence over high-profile SOCs have eroded public trust and raised questions about the effectiveness of our oversight mechanisms. 

Many SOCs operate with a degree of opacity that makes it difficult for the public to hold them accountable. For example, the Post Office has faced numerous operational challenges and delays, affecting service delivery to millions.

The lack of transparency regarding financial management worsens the situation, leaving citizens frustrated with inconsistent services. 

Last week, the finance minister announced in his medium-term budget policy statement that no more bailouts are budgeted for. This signals a glimmer of hope and a trajectory change in the way the government thinks about SOCs.

As part of the government of national unity the DA, through its deputy finance minister Ashor Sarupen, has been instrumental in bringing about these changes. The shift in policy thinking is a clear signal to non-performing SOCs that their days are numbered.   

DA’s vision

There is an urgent need for reform in the way we treat our SOCs and in its vision for the future of SOCs the DA has always been clear on the reforms that have to take place. 

First and foremost, we must end the use of bailouts to prop-up non-performing SOCs, which will force the necessary reforms to be implemented and set the scene for much-needed privatisation.

Entities such as Eskom, Transnet and SAA have become wholly unsustainable drains on the national fiscus, crowding out spending on critical front-line services.   

Each SOC must be assessed on its merits and, wherever feasible and beneficial, we must move towards privatising these behemoths. Eskom is a case in point; it must be split, allowing the remaining transmission entity to become a stand-alone grid and market operator, ensuring that we end this monopoly and open the market to self-generation among consumers, businesses and competent municipalities.

Further necessary interventions include: 

• Restructuring management, enhancing operational efficiencies and fostering partnerships with the private sector.
• Urgent board reform, including board members being appointed first and foremost for their business knowledge and expertise, and not for their political connections. 
• Tighter conditions and strict performance indicators attached to any proposed government support where funding is released. 
• Moving away from traditional equity or recapitalisation to balance sheet support in the form of loans where these are converted into equity upon meeting particular conditions.

The path to economic recovery in SA is fraught with challenges, but revitalising profitable SOCs offers a beacon of hope.

By enhancing accountability, professionalising management, diversifying revenue streams, fostering innovation and embracing privatisation efforts, SA can transform its SOCs into engines of growth for the benefit of all South Africans.

• Wakelin is a DA MP and in the MPs’ standing committee on appropriations.