A SMAC in the Face #66: The Elephant in the Room

By every metric, South Africa is bleeding.  It’s as if we’ve been infected by a haemorrhagic virus like Ebola which causes every organisation in the country to bleed.  Actually, it’s a well-known virus that’s been around for 30 years – the ANC. 

Barring SARS, SARB and the Department of Finance, every department and most municipalities are dysfunctional and supplying fewer or more shoddy services every year.  Institutional memory and competence were replaced with anyone from a disadvantaged group as long as they vaguely matched the job requirements. Nor did they look too hard at the applicants’ experience, track records or qualifications.  This combined with preferential procurement created fertile ground for the virus to flourish until incompetence and corruption now dominates every facet of the public sector economy.

This SMAC will not look into the Health Department which is eyeing the private Medical Aid reserve funds or that Water and Sanitation needs up to R1 trn to sort it out or anything similar. The remit is too large.  This SMAC will restrict itself to the sorry sordid sagas of the SOEs and their toxic debt piles that are bankrupting them and hobbling the economy.

One thing elephants are known for is the large pile that they leave behind as they idly amble through the
Savannah. In the case of our State Owned Enterprises (SOEs), it is their debt piles. They are truly humungous and they stink.

They stink of the unwillingness to face and admit the truth that the ANC has massively messed up.  They further stink of the unwillingness or inability to do something about the unpalatable and unsustainable situation.  Not only are many of the SOEs bankrupt, but, for some, no one really knows how bankrupt because they are years behind with their financial statements. 

The ANC eventually grabbed the nettle with SAA which had seen its mango after Myeni had left it in deep dudu despite having received R50 billion assistance between 2004 and 2020.  It ceased operations after 86 years in 2020.  The turnaround strategy was relatively painless to the fiscus – it only cost a measly R10.5 billion.  It has since resumed operations under dramatically reduced circumstances with no Mango and a small fleet of 10 aircraft – essentially a boutique airline.

Eskom was belatedly dealt with after its debt pile became untenable even after years of above-inflation price increases and tens of billions in bailouts.  The government dealt with the problem with a fiscal sleight of hand.  By February 2023, after Eskom’s debt had risen to R423 billion (against a gross income of around R200 billion), the government announced that it would make R254 billion available over three years to pay the interest and to bring the debt down to R300 billion.  The fiscal sleight of hand came in when they proudly announced that this would be fiscally neutral as they would convert this to equity.  REALLY!  We, the people, already own 100% of Eskom. We are the only shareholders with the government being our proxy.

Some of the other stinkers are:

Transnet – R135 bn.  Luckily for them, much of the debt is with the compliant PIC and can be rolled over for now.   Meanwhile it aims to reduce railway routes by 7000 km to 22000 km which had previously been trimmed back early in the new SA.

PRASA – It does not have a toxic debt problem per se only because it receives a massive capital subsidy, peaking at R4.3 bn in 2019/20.  It also received a R8.8 bn operational subsidy in 2020/21.  Set against this, fare revenue peaked at R2.9 bn in 2015 dropping to R1.2 bn just before Covid closed out the business.  Metrorail is running at a few percent of its peak and only three intercity routes have been opened, running once per week!

SA Post Office – R12.5 bn.  There is virtually no postal service left and offices are being closed at an accelerated rate.  In the previous three financial years and the current half year, the closure numbers are 24, 146, 122 and 104 respectively.  Its remaining function is to be a SASSA grant disbursement point!

SABC – Without a deep dive, its current indebtedness it seems to be R2-3 bn.

It reminds me of Simply Red hit of 1985 – Money’s too Tight to Mention.

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