State power company 'killing South Africa’s economy’

6 Mar 20

Power cuts and poor performance by the state-owned power company Eskom are “killing the economy” of South Africa, an economist has told PFF after the country entered its second recession in two years.

 

Mark Ellyne, professor at the University of Cape Town, said state-owned enterprises have been a consistent drag on the struggling economy, which shrank by 0.8% and 1.4% in the third and fourth quarters of 2019 respectively, according to new official figures.

Eskom has repeatedly struggled to maintain a consistent electricity supply across the country in the past few years, with blackouts and load shedding – deliberately shutting down parts of the network to avoid the national system failing – having become common.

“You can’t grow GDP without a lot of electricity,” said Ellyne.

“Blackouts, load shedding – this is killing the economy. When there are power cuts, you just can’t grow.

“I read recently that Eskom was down for 400 hours last year – even if not all of those were working hours, it’s still more than two weeks.”

The government has given Eskom billions of rand to help service its huge debt and to try to stop the power cuts, but it is far from the only state-owned enterprise in South Africa that is struggling.

“The state-owned enterprise sector is making big losses, and those losses are being covered by the budget, which is already running a huge deficit,” Ellyne said.

“So when we see big chunks of money given to these companies, especially to South African Airways, which is only really used by rich people and politicians, it’s just astounding.”

Ellyne said there appeared to be a “battle” in the ruling African National Congress party over how to deal with these companies – whether to bail them out and keep them publicly owned, privatise them or reform them in other ways.

He said: “If they keep them at all costs, which one wing of the party wants, I think they will have to pay a high cost for it.”


“Ramaphosa can either save South Africa or he can save the ANC, but he can’t do both”


The popularity of the ANC has tanked in recent years, owing to rampant corruption in South African society, but current president (and ANC leader) Cyril Ramaphosa has pledged to tackle the problem.

“I hope South Africa is recovering [from its problems around state capture and corruption],” said Ellyne.

“There are estimates that at least 500bn rand has been siphoned out of the economy in the past decade. Some people think it could be double or even triple that.”

web_cyrilramaphosa_governmentza.jpg

Cyril Ramaphosa

South African president Cyril Ramaphosa

Overpaying for contracts as a result of state capture and corruption has led to a sizable fiscal deficit in recent years, along with bailouts of state-owned enterprises and big spending in areas such as the public sector wage bill.

In the latest draft of the next budget, that deficit is projected to be 6.8% of GDP.

And now the government has “run out of ammunition” to stimulate the economy through the public sector, said Ellyne.

Ramaphosa’s mettle will be tested in the coming weeks as his government fights against the country’s unions for its budget to pass, with hopes to reduce the public wage bill by 160bn rand over the next three years.

His programme of reforms on this, state-owned enterprises and corruption will define his presidency, but he faces challenges – not least from within his own party – in order to push this programme through and try to turn the country’s ailing economy around.

“Ramaphosa can either save South Africa or he can save the ANC, but he can’t do both,” Ellyne said.

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