Hey, big SOE spenders
Eskom in spotlight, but others including Transnet turn in supporting acts in infrastructure investment show
Well, the good news is that the government, or at least the National Treasury, is taking infrastructure investment seriously.
The finance minister told parliament on Wednesday that the investments laid the foundation for inclusive and sustainable growth. “They address supply-side constraints and expand access to basic services,” said Enoch Godongwana without seeming to bat an eyelid.
It’s presumably what’s supposed to happen, in theory. In practice, in South Africa, things are a little different, at least to the extent that state-owned enterprises (SOEs) are involved. Then it’s more about creating supply-side constraints and reducing access to basic services.
Despite this grim reality, the Treasury has committed to spending R903bn on infrastructure investments over the medium term. And while that figure may be dwarfed by the sums pumped into the “social wage”, the Treasury wants us to know that payments for capital assets are the fastest-growing item by economic classification, growing at 14.4% annually between now and 2025/2026.
The bad news is that a large chunk of the R903bn is due to be spent by SOEs, in particular by Eskom. Fortunately the Treasury seems to be aware of the problems.
“Several major state-owned companies continue to rely on government bailouts and dominate the [government’s] guarantee portfolio.” It has set up a new framework for managing bailouts.
The proposed tougher approach to Eskom, if it is effective, could be a blueprint for other SOEs. To this end, it may or may not be significant that an annexure to the Budget Review deals with public sector infrastructure and public-private partnerships. But as the R15.8bn of contingent liabilities suggests, these partnerships do need to be closely managed.
While Eskom stole the limelight at this year’s budget, the Treasury didn’t let Transnet off the hook.
A chart in the early pages of the Budget Review captures the precipitous decline in Transnet’s performance between 2016 and 2022.
“More than a quarter of long-distance freight traffic has shifted to roads in the past five years as a result of severe deterioration in the freight rail network,” it says, rather coyly, avoiding naming Transnet.
Kumba Iron Ore CEO Mpumi
Zikalala wasn’t so coy when she announced her group’s financial
2022 results the day before the budget. Transnet’s dysfunction had a significant adverse impact on the group’s performance, she said. “Just in the fourth quarter the impact was about R6.5bn. For the year the impact was over R10bn.”
Zikalala and her long-suffering peers in the mining industry may or may not be excited to hear that “several reforms are under way to support recovery in the transport sector”.
On the less exciting front, the Economic Regulation of Transport Bill, which will establish the transport regulator, has been tabled. More encouraging is that Transnet is taking steps to improve operations in key corridors, though they’re slow and small steps.
There’s more. “Additional interventions required include steps to prevent theft and vandalism; resolving legal challenges [with Chinese firms] in relation to locomotive procurement; and granting third-party access to the rail network.”
Perhaps more encouraging is that Transnet’s operations and infrastructure management functions of Transnet Freight Rail are due to be separated by October 2023. It’s hoped this will increase competition and reduce prices.
In all, R351.1bn will be spent on transport and logistics over the medium term. That’s mainly Transnet but includes the South African National Roads Agency Ltd (Sanral), which, in 2022/2023, was one of the few public entities that reported a cash surplus. The Passenger Rail Agency of South Africa (Prasa), the Water Trading Entity and the Trans-Caledon Tunnel Authority (TCTA) were the others. “However, a significant increase in infrastructure investments by Prasa, Sanral and TCTA is projected to result in a deficit in the outer two years.”
Water and sanitation are also in line for big spending with R132.5bn targeted over the next three years, mainly by water boards.
As for the other SOE laggards, SAA is due to receive an additional in-year allocation of R1bn to assist the business rescue process. The slowly dying South African Post Office will receive R2.4bn to implement its turnaround plan.