Tough Love for South Africa’s State-Owned Enterprises in Medium-Term Budget Policy Statement

South Africa’s State-Owned Enterprises Face Financial “Tough Love” in 2024

In the 2024 Medium-Term Budget Policy Statement (MTBPS), South Africa’s National Treasury made clear that state-owned enterprises (SOEs) will receive limited financial support going forward. This decision comes as Finance Minister Enoch Godongwana emphasized the importance of curbing state expenditure and prioritizing fiscal responsibility. Since 2008, South Africa has spent over R520 billion on SOE bailouts, significantly affecting funds available for essential services in health, education, and policing.

Why SOEs Are Receiving “Tough Love”

The need for reform in South Africa’s SOEs has been mounting. According to the Centre for Development and Enterprise (CDE), the ongoing operational and financial crises within large SOEs, exacerbated by their status as legally protected monopolies, have been a key contributor to South Africa’s low growth rates over the past decade. CDE Executive Director Ann Bernstein argued that SOEs lack the competitive pressures that would push them toward efficiency, thus adding to the country’s economic stagnation.

Godongwana stressed that SOEs must demonstrate improved operational performance to receive financial aid. The Treasury aims to attract private investment and encourage public-private partnerships as a sustainable solution to these challenges. In this “tough love” approach, SOEs like the South African National Roads Agency Limited (SANRAL) and Eskom are expected to restructure their debt obligations and limit reliance on government bailouts.

Challenges and Financial Distress for SOEs

While the MTBPS charts a new path of financial independence for SOEs, the financial health of these enterprises remains precarious. According to Treasury, despite some operational improvements—particularly at Eskom—most major SOEs continue to record net losses and struggle to meet performance targets. This lack of profitability restricts their ability to fund operations, service debt, and invest in infrastructure.

Treasury warned that SOEs with poor governance and significant refinancing risks will continue to face high borrowing costs, particularly if global interest rates decline and those with weak balance sheets struggle to raise capital. Between 2024 and 2028, SOE debt of approximately R122.6 billion is set to mature, with R37.7 billion due by 2025 alone. Of this, 15% is guaranteed by the government.

Treasury’s strategy aims to stabilize SOEs and reduce reliance on public funds while maintaining service delivery. This includes working with private-sector entities to enhance efficiency and foster competition within sectors historically dominated by state-owned monopolies.

Business Sector Reaction and Future Plans

Business Unity South Africa (BUSA) supports the decision to limit bailouts, recognizing that reforms, particularly in the logistics industry, will require both private capital and some state backing to restore Transnet’s balance sheet. BUSA CEO-designate Khulekani Mathi remarked that National Treasury’s approach is similar to the one applied to Eskom, where turnaround efforts have started showing results.

The future role of SOEs like Transnet in a reformed industry is expected to become clearer once an assessment of its balance sheet is completed. Mathi suggested that with a well-defined financial roadmap, Transnet and similar entities could achieve greater efficiency and financial stability.

The 2024 MTBPS marks a significant shift in South Africa’s approach to managing SOEs. By promoting private investment and fiscal discipline, the government is pushing SOEs to improve efficiency, reduce dependence on state funding, and contribute positively to the nation’s economy. While the road ahead is challenging, this approach may offer a sustainable path for SOEs to stabilize and support the broader South African economy.