Eskom’s failure reason why SA loses opportunities
companies will be reluctant to spend or invest their money while sitting in the dark.
Eskom needs tough medicine. The work that Deputy President Cyril Ramaphosa has been doing in the so-called war room to try and set in motion a collective plan to stabilise Eskom is commendable. But it is merely a start.
The big problem is that Eskom, as it stands, is past its “fix-by” date. Moreover, there does not appear to be an appreciation, let alone a full acknowledgement, from Eskom and the government of the fact that power problems are structural, entrenched and cataclysmic in nature.
Very sick entity
So to expect that the utility will be stabilised in its current shape is wishful thinking. Eskom needs to be broken up into two parts – a good Eskom and bad Eskom. This is something acting chief executive Brian Molefe should be pursuing if his stint at the utility will not go down as having been a “more-of-the-same” episode.
As a leader, Molefe must see himself as someone who has been asked to do triage on what is evidently a very sick entity.
The government’s move to dole out a R23 billion cash injection for the embattled utility is merely a band aid. Eskom needs a full recapitalisation, which can only happen if the Eskom of today becomes the Eskom of tomorrow.
In other words, it is an exercise in futility to think Eskom’s problems will be solved by throwing good money after bad. To do this will create what is known as moral hazard – something that the bankers are all too familiar with. Money should go to the parts that are worth saving.
What that really means is that without a clearly defined plan to peel off the onion that is Eskom, government will be unable to get to the bottom of all that is wrong with the utility. Moreover, the never-ending game of musical chairs in Eskom’s C-suite has also served to compound the problems faced by the utility.
But to be sure, Eskom’s problems are a symptom of a much deeper problem at some of our key state-owned entities. It just always seems as if the government does not intend to make these entities work. Bailouts are not the answer. Whether it is Eskom, SAA or PetroSA, these entities now need custodians – not chief executives – to run them.
My online dictionary defines a custodian as a person who has responsibility for taking care of or protecting something. And this definition really signifies what these parastatals have lacked, and that is real leadership.
Warren Bennis, one of my enduring references on leadership thought, once said: “Failing organisations are usually over-managed and under-led.”
In this instance, Bennis may well also have been talking about South Africa’s troubled state-owned entities.
But even if some of these entities do find some sort of leadership, one can safely assume that it would consistently face interference – and more especially when there needs to be a focus on making sure that the country’s economic and developmental imperatives are made a priority.
It would be a real pity if 20 years from now the failures of entities like Eskom became the reason why South Africa lost so many opportunities that could have helped the country thrive. Ellis Mnyandu is the editor of Business Report. Follow him on Twitter: @Ellis_Mnyandu
WHILE we expect a 25 basis point hike at the July monetary policy committee meeting this Thursday on the back of the Reserve Bank’s hawkish communication, we do not recommend one.
Consumer and business confidence are suppressed, the industrial sector is at risk of mild recession and the price pressures pushing up consumer price index inflation (CPI) in the targeting period (which is 2016) are either exogenous, statistical base effects or state administered prices (and so cannot be influenced by higher interest rates).
The central bank does not need to hike interest rates to contain inflation from a demand-led point of view, as demand-led inflation pressures are modest, and are likely to remain so over 2016, indicating no need for an interest rate hike.
State administered prices (electricity and water tariff increases, property rates and taxes); exogenous price pressures (rand depreciation and drought induced costs of higher maize prices) and statistical base effects are the key reasons for the higher forecast inflation in 2016 (around 6 percent year on year).
Hiking interest rates in July will not change these exogenous effects, statistical base effects or above inflation target state administered price increases, and so will not alter the inflation outcome in 2016. Furthermore, inflation expectations for 2016 have lifted due to these exogenous effects, statistical base effects and state administered price effects. Hiking interest rates will not change inflation expectations of higher supply-side price pressures for next year, and these increases are already in the pipeline.
However, higher interest rates will quell consumer and business confidence further, negatively affecting the private sector’s will to expand fixed investment and employment, adding to the weakness of economic growth. South Africa has seen economic growth slow steadily from 3.2 percent year on year in 2011 to 1.3 percent quarter on quarter, seasonally adjusted and annualised in the first quarter. This year will battle to make the 2 percent year on year expected economic growth target, with the industrial sector likely to experience a shallow recession and the interest rate sensitive services sector becoming the main growth engine.
Not only is Eskom the biggest impediment to growing the economy, but it has also become a clear, present danger to South Africa’s national interest.
Weak economy