South Africa’s state-owned enterprises (SOEs) remain under immense financial pressure, and despite a ‘tough love’ approach from the National Treasury, they will need additional government funding to stay afloat.

Finance Minister Enoch Godongwana continued his tough stance on bailouts for SOEs in his Medium-Term Budget Policy Statement (MTBPS) at the end of October. 

The National Treasury did not propose any additional allocations to SOEs in the statement and said it plans to limit further support for these companies. 

Godongwana said at an MTBPS press briefing that the cost of SOE bailouts had reached over R520 billion since the 2008/9 financial year, which has significantly undermined social spending on things like health, education and policing. 

The 2024 medium-term strategy identifies six key priorities, one of which is “limiting further financial support to state-owned companies”. 

This will not prevent the resolution of Eskom and the South African National Roads Agency’s (SANRAL) debt obligations.

Godongwana explained that SOEs are being shown “tough love” amid a drive to reign in state expenditures. Instead of government support, the Treasury is pushing private investment and public-private partnerships to improve these enterprises’ operational performance.

“I said, tough love. I think we’re on that path of making sure that not every SOE is going to say, ‘We want money’. By the way, they told us D-day for the post office is today, and there’s no money in the adjustment as we speak,” the minister said.

Stanlib’s economics team said this is encouraging as it shows the National Treasury is maintaining its hard-line approach towards SOEs,  insisting that they restructure before any funds are allocated.

“On the other hand, many SOEs remain in serious financial difficulty and will need government assistance sooner or later,” the team said.  

“By not making provisions for SOEs now, the minister is simply delaying the inevitable and pushing the problem down the road.”

Stanlib chief economist Kevin Lings

Stanlib’s head of redit in the fixed income team, Tarryn Sankar, said the lack of provisions for future bailouts is a lingering threat to South Africa’s finances. 

“There is definitely an elephant in the room regarding how the balance sheets of SOEs will be sustainably restructured to repay the debt they already owe,” Sankar said. 

She also explained that, in some cases, this is due to SOEs’ lack of information about their plans to save themselves. 

“Transnet is a great example of where the minister appears to be in a bit of an information gap,” she explained.

“The minister is being hamstrung by the lack of information regarding its turnaround, with Transnet’s Network Statement only being released at the end of the year.” 

This Network Statement is set to outline the rules, regulations, and prices for private use of Transnet’s rail network. 

Without information regarding how much money Transnet may make from the tariffs charged on private use of its rail network, it is difficult to determine the level of support it will need from the government. 

In a similar vein, the lack of progress regarding the collection of municipal debt owed to Eskom ensures the National Treasury cannot predict how much support the utility will need in the future. 

Stanlib has also warned that without significant restructuring of SOEs, future bailouts are guaranteed. 

Kruthum managing director Peter Attard Montalto previously said the Treasury has little choice but to act and provide more support for SOEs. 

“If you did not do these bailouts, they would come back to bite you ten times worse later regarding defaults and investors pulling out of the country,” he said.

“There is a massive moral hazard problem here – the Treasury has an implicit 100% guarantee against all SOEs, and the markets sense this. It is only really about the conditions the Treasury can apply through the bailouts.”