South Africa: how to save public companies

As South Africa tries to emerge from the economic crisis caused by the pandemic, it is questioning the fate to be reserved for public companies. Many of them have suffered significant losses this year, despite having already had financial difficulties before the crisis. Now they are asking the government to save them, but the country’s coffers are already less and less full.

Before Parliament, the Ministry of Finance painted a very bleak picture at the beginning of the month: the country’s public companies are accumulating losses, and some, such as the audiovisual group SABC or the postal service, are asking for an extension equivalent to a total of almost 500 million euros.

A situation far from new, as the state has already paid almost 10 billion euros in the last twenty years to support its companies without being able to get them back.

The national electricity company Eskom is the most symbolic case, as described by Derrick Botha, analyst at Fitch Solutions. “Eskom is undoubtedly the entity that empties public finances the most, it is not a sustainable situation. Last July, the debt amounted to almost 25 billion euros. So it is the public company that has the most debt, not to mention that the electricity supply is crucial to the country’s economy. ”

And things are not getting any better for South African Airways, which is awaiting a rescue plan, or for Denel’s arms company, which risks liquidation. According to William Gumede, associate professor at the University of the Witwatersrand, this record can be partly explained by years of mismanagement under the chairmanship of Jacob Zuma. “Most of these companies are run by people with no previous experience. Contracts are very often awarded to ANC members in gratitude for their service to the party and not for their skills. And many ANC supporters believe that public companies are special and do not need to make money, unlike private groups. ”

If the government now wants to save some of its businesses, it will balance its economy, which is already in the red. South Africa’s debt is expected to rise to 80% of GDP by the end of the financial year.

It will therefore be necessary to make difficult political choices, according to Nazmeera Moola, who is responsible for investments in the country for asset manager Ninety One. “There may be some areas where it would make sense for the state to support these companies, but in general, decisions need to be made about which entities to agree to separate from. I hope to see some privatizations. We need to go beyond trying to maintain the status quo. ”

The possibility of privatization is also defended by the Democratic Alliance, the largest opposition party. But Cosatu, the country’s powerful union center, is certainly refusing to do so at the moment.