Finance minister Enoch Godongwana has blamed state-owned logistics firm Transnet for the loss of 5% of GDP, or R411bn, in 2022.
The minister used his medium-term budget policy statement (MTBPS) to level strong criticism at the company. He said the National Treasury was working with the department of public enterprises to ensure that Transnet meets its immediate debt obligations.
“No modern economy can thrive and grow new industries if rail lines are beset by delays, and ports are unable to efficiently handle incoming and outgoing cargo. Transnet’s performance in this regard has been underwhelming and its operations have been strained by a worsening financial state,” he said.
Godongwana laid most of the blame for low growth and a fall in revenue collection by Sars of more than R56bn in 2023/24 on failures at Transnet.
Volumes have declined considerably, and coal exports are at a 30-year low, costing bulk commodity miners R50bn in lost earnings.
Group CEO Portia Derby and the CEO of its freight rail division, Siza Mzimela, resigned after stakeholders across the board complained to the government about the company’s poor performance and the two executives’ failure to turn the situation around.
Michelle Philips is acting group CEO and the board has unveiled an ambitious recovery plan that forecasts an increase in revenue from R78bn to R91bn and the reversal of a R5.7bn net loss into a R5.1bn profit in the next two years. Transnet has a R130bn debt pile and has breached debt covenants, meaning it is unable to borrow more from the market.
Transnet has asked the Treasury for a R47bn cash injection and absorption of R61bn of its debt over the next two years, similar to the debt relief package offered to Eskom.
However, Godongwana was adamant that SOEs will have to prove that they are reforming and sticking to turnaround plans before any money can be advanced to them. He said the government had learnt a lesson from 15 years of bailing out Eskom with little to show.
“We have not factored Transnet for a bailout as part of the budget process, to my knowledge. They came to us a couple of weeks ago with an invoice for it. We make the point which I want to emphasise.
“What is the lesson we learnt? On the basis of trust, you give money and you don’t realise the return on investment. This time around we won’t give funding until we have an assurance that whatever support we give, for example, we give to Transnet and the sector.”
He said government was not interested in just fixing state-owned entities, but investing in reforms of the sectors in which they operate. He said this would attract private sector investment and clear the path for growth.
The Treasury is engaging Transnet on its turnaround plan and the freight logistics road map which outlines reforms that are paving the way for private players to operate on the rail network and port terminals.
At the same briefing, deputy minister of finance David Masondo said supply-side constraints in electricity, logistics and water undermined growth, so these state-dominated sectors needed to be liberalised.
“Our message in this 2023 MTBPS is that we really want to support the economy, stabilise public finance as well as support the social wage. In supporting the economy, we want to support the network industries, electricity and logistics,” said Masondo.
“We seek to crowd the private sector into those network industries that were dominated by the state for years. But that means as you liberalise, you will also need funding to support the infrastructure.”
He said while Transnet requires R50bn for freight rail infrastructure, the fiscus does not have the money.
“Transnet is also responsible for the declined revenue, so they also must come to the party. We will have to reduce our spending and improve our efficiency as far as expenditure is concerned and adopt tax measures to increase revenue into the state and thus increase our deficit. We want to stabilise public debt because it is crowding out public and private sector investment,” Masondo added.
The midterm budget painted a grim picture of the deteriorating state of the public purse.
With tax revenue declining, the budget deficit has widened and debt has grown. The government is now forced to borrow about R553bn a year over the next three years to meet spending commitments.
Debt rises to R4.8-trillion by March next year, and further escalates to R5.2-trillion in 2025 before exceeding the R6-trillion mark the following year — 77% of GDP.
“Over the next three years, debt service costs as a share of revenue will increase from 20.7% in 2023/24 to 22.1% in 2026/27.
“The cost, or interest, of this debt for the next year alone amounts to about R389bn. Over the medium-term expenditure framework, interest costs rise to R1.3-trillion,” Godongwana said.
The Treasury has also revised growth downwards, to 0.8%, with modest GDP growth of 1.4% expected by 2026.
Tax revenue collection was also projected to shrink by R56bn less than February projections as the economy continues to underperform due to rolling blackouts and rail and ports weaknesses. As a result, the Treasury will be cutting budget allocations to government departments by R85bn over the next two years.
In the current financial year, conditional grants to municipalities, which they use to fund bulk infrastructure projects, have been immediately reduced by R3.4bn.
At the same time, provincial direct conditional grants have also been slashed by R6.2bn.
However, Godongwana has managed to allocate R23bn to “labour-intensive departments” such as health, the security services and education, to help them implement the 2023 public sector wage agreement.
The agreement will see the salaries of civil servants rising by 7.5% in the 2023/24 financial year.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.