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State-owned enterprises (SOEs) continue to be a drag on the national fiscus and rely on government bailouts, says Finance Minister Enoch Godongwana.
Delivering the 2023 budget speech in Cape Town on Wednesday, Godongwana stated that the performance of SOEs, development finance institutions and social security funds "remain inconsistent, but broadly negative".
The minister said government was working on a new framework for managing bailouts, which would be published in March for consultation and then be submitted to Cabinet.
Although the Land Bank remains in default, development finance institutions and the Government Employees’ Pension Fund (GEPF) remain solvent, the minister said.
Referring to bailouts, Godongwana said that public entities were required to operate as sustainable profit-generating businesses that borrow on the strength of their balance sheets.
The finance minister added:
He emphasised that the State Capture Commission had laid bare how various SOEs were key sites of corruption and fraud, and said that the commission’s recommendations were being prioritised, which included "removing boards of directors, replacing executive teams, freezing transactions and seizing assets owned by those accused of corruption, and closing the bank accounts of beneficiaries of state capture".
As a result of state capture, contingent liabilities arising from SOEs have risen from R84.4 billion in 2008/09 to R478.5 billion in 2022/23.
The minister stated that further allocations were proposed in the current financial year for SAA and the SA Post Office.
Although SOEs had repaid maturing debt in the year, new debt funding, in a time when rising interest rates debt was raised at a higher cost, had raised the total liabilities of SOEs to R862 billion from R850 billion in 2020/21.
At a pre-budget briefing, the minister emphasised the importance of Eskom and Transnet in driving growth in the country.
Godongwana said:
The minister stated that "capital expenditure remains below target" and that many SOEs "remain unable to adequately fund their operations and debt obligations, and are even less able to optimally invest in infrastructure, which may, in turn, undermine broader economic performance".
He added:
The recapitalisation of Denel was also considered by the public enterprises portfolio committee to be important to safeguard the strategic and sovereign defence capabilities of the state and repurpose the advanced manufacturing capabilities of Denel to enhance the capacity of the state in responding to the escalating challenges of safety and security, health and broader industrialisation initiatives.
READ: Denel Dynamics institutes disciplinary action against CEO
Yet, the state arms manufacturer remains financially distressed and unable to fulfil its financial obligations and has not submitted annual financial statements for the year.
Although funds were allocated to it through the Special Appropriation Act (2022) with set conditions relating to the implementation of its turnaround, it has received the first amount of R204.7 million. It has not yet met the conditions for the R3.4 billion.
The national carrier, SAA, exited business rescue in April 2021 and restarted domestic and regional operations. Although it has not submitted financial statements for the financial year, government has reduced its exposure to SAA and, according to Godongwana, "it is expected that the airline will no longer require government guarantees by the end of 2022/23".
To exit business rescue, a settlement agreement was reached between the rescue practitioners and the airline’s creditors providing for a gradual payment of historical debts, and "an additional R1 billion will be allocated during 2022/23 to assist with these outstanding obligations" with additional funding to be considered subject to strict conditions to allow the strategic equity partnership deal to be finalised.
Godongwana mentioned:
The minister concluded: "Government continues to monitor the financial health of public entities and manage associated risks. A new framework for managing bailouts to state-owned companies will support continued reform efforts."
