Under immense pressure, Treasury plans to turn the ailing SA Inc ship around

10 Sep 2023

Significantly boosting both Eskom and Transnet’s performance would go a long way to improve the dire state of SA’s economy and public finances, which are getting worse by the day.

South Africa’s public finances are under immense pressure and the National Treasury believes that a turnaround in the country’s perilous financial position will come from the government’s efforts to end Eskom blackouts and fix the logistical crisis. However, these efforts are being implemented at a glacial pace considering that Stage 6 Eskom blackouts have returned, and Transnet’s operational performance continues to deteriorate at an alarming rate.

This not only has a negative impact on the economy but also on public finances, which have taken a turn for the worse since Finance Minister Enoch Godongwana unveiled the Budget in February.

Recent data suggests South Africa is heading for a larger-than-expected budget deficit this year, as government revenue from tax collection is declining while its expenditure rises.

To prevent a total collapse in public finances, the Treasury has asked departments and provinces to cut their spending by at least R25-billion.

Ahead of the mini budget on 1 November, the Treasury has instructed departments and provinces to freeze the hiring of new employees and advertising for new procurement contracts for all infrastructure projects, and recommended drastic cuts in spending on travel, catering, conferences and workshops.

In an interview with Daily Maverick, Godongwana said he was facing lower tax revenue this year, mainly because of Eskom blackouts and inefficiencies with Transnet’s rail network taking a bite out of the profits of corporations, which in turn would pay lower taxes to the government.

“If we can lower the intensity of load shedding and get Transnet to function, it will have a … positive impact on the fiscal position and improve the profits of corporations,” Godongwana said.

Early figures indicate that, in the second quarter of 2023, corporate income tax collections were down 22.5% compared with a year ago. Because of this, it is expected that the government will face a revenue shortfall of between R30-billion and R60-billion this year.

In the February Budget, the government was aiming to achieve a positive primary budget balance — so that revenue exceeded non-interest expenditure — this year. But in the year to date, South Africa’s budget position is the inverse, with a deficit of R47-billion, as revenue collection is estimated to be at R406-billion, whereas government expenditure is at R453-billion.

A focus on reforms at Eskom and Transnet

Godongwana and the Treasury are now looking at various partnership initiatives between the Presidency, state officials and the private sector to implement structural reforms. The reforms include improving the performance of Eskom power stations and getting trains operated by Transnet to move so that South Africa’s exports are not held to ransom.

Western Cape Premier Alan Winde said the Treasury’s looming budget cuts will “fundamentally compromise” his province’s ability to deliver critical frontline services in health, education and criminal justice. The solution to South Africa’s fiscal challenges, he said, was to introduce urgent structural reforms to grow the economy and government tax revenue.

Eskom blackouts so far this year have already surpassed those of 2022. Transnet continues to transport fewer goods via rail because its trains either do not run or are delayed, and its systems are mismanaged. Ports run by Transnet are equally in a mess.

The business sector and officials from the Presidency are working to fix Transnet operations through the National Logistics Crisis Committee (NLCC), an initiative that seeks to mobilise resources for the state-owned enterprise, track progress with implementing logistics reforms and lessen its monopoly in the logistics sector.

Some of the reforms introduced include allowing private sector operators to be involved in Transnet’s rail network so they can independently run trains (the heavy-haul ones that pull the coal and iron ore wagons), allowing them to run port terminals and invest in port infrastructure, and mobilising resources for Transnet to prevent cable theft.

At Transnet’s results presentation on 1 September, CEO Portia Derby said some of the reform measures from the NLCC were starting to show positive results.

“We are seeing revenue recovery, improvement of train operations and turnaround times, rapid enhancement of rolling stock and reduction of cable theft incidents on train operations,” Derby said.

On the energy side, there are similar engagements between government departments, the Presidency and business, with a focus on pushing regulatory changes so that new generation capacity can be brought in, mostly from renewable energy sources, and tracking the performance of Eskom power stations.

All three units at the Kusile coal-fired power station in Mpumalanga, which have been offline for 10 months, are due to be returned online in November. Unit 1 at Koeberg nuclear power station in Cape Town is due to return to service in November after going offline to replace the steam generators. The return of units at Kusile and Koeberg could add up to 2,800MW to the grid — equal to nearly three stages of blackouts.

A big risk to the progress regarding the implementation of structural reforms is that the Treasury and broader government are often not on the same page, said Michael Sachs from Wits University’s Public Economy Project and a former head of the Treasury’s budget office. This creates a conflict, especially in the government’s policy direction and how the Treasury makes provision for the implementation of policies in its budgeting process. “This contradiction is intensifying,” Sachs said. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.

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A focus on reforms at Eskom and Transnet