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Tue May 31 12:03:36 SAST 2016

Privatise Eskom, SAA? Who would buy them?: Economist

Carin Smith | 28 February, 2016 14:27
Firestrucks spray water on a South African Airway's Airbus A330-200. File photo.
Image by: Gallo Images/foto24/Yunus Mohame

Although nothing was said directly in the 2016 Budget about the privatisation of state-owned enterprises (SOEs), "something is coming", according to economist JP Landman.

At the same time, he said common sense seems to indicate that no one could really be interested in buying heavily indebted SOEs like South African Airways (SAA) or Eskom.

SAA cannot become a liability, Finance Minister Pravin Gordhan said in a post-budget briefing.

SAA needs about R2bn to R3bn a year to survive, Gordhan also said in a reply to questions in Parliament, Business Day reported on Friday. Budget 2016 does not provide for further capital injections or state guarantees for the airline.

In January the National Energy Regulator of South Africa (Nersa) started its public hearings as part of Eskom’s application to recover an additional R22.8bn through an electricity tariff increase.

As for a possible ratings downgrade, Landman said on a fiscal level the "credible budget" should prevent that from happening. However, lack of economic growth could tip SA up, making him less optimistic.

The problem is that taxes need to come down to encourage economic growth. Lower taxes, however, would mean a drop in government income which would lead to an increased deficit, which in turn would not sit well with ratings agencies.

"SA is in a tight spot," said Landman at a post-budget event hosted by Deloitte.

He believes this could be opening the door for privatisation of SOEs.

"If one compares expenditure over the past three years with the respective budgets, you cannot say that Treasury is not containing expenditure," said Landman.

The big challenge, though, is how to get the economy growing. The global state of what Landman calls "secular stagnation" makes this even more challenging. This is a period of negligible or no economic growth, a greater propensity to save than invest, and deficient demand in the economy.

"We need extraordinary measures," emphasised Landman. "The pressure is on companies for 'structural' transformation by improving productivity, and for this innovation would be needed."

As for Budget 2016 in general, he regards it as a balanced one, but added that the most important thing would be to see if government can actually now implement it.

Source: News24

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