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Currency

South Africa's ailing state-owned firms set to invest billions in dramatic reform program

South Africa’s President Cyril Ramaphosa has announced that some of the country’s largest public companies will return billions to the economy, potentially reviving industries that are renowned for their financial troubles.

In a major speech this week, the country’s president claimed that they are expected to invest a total of 420 billion South African rand ($33.7 billion) over the next five years. He said that after “several meetings with the CEOs of some of this country’s larger state owned companies … they have given us an indication of their investment plans over the coming years.”

“They have informed us that over the next five years, they expect to invest a total of 420 billion (South African rand) into the South African economy,” he said Thursday in Cape Town.

Ramaphosa added that his government was “seeking investment that expands the industrial capacity of our economy,” as well as creating jobs to help address South Africa’s rampant unemployment.

“Investment in itself is not a guarantor of growth, nor of job creation,” he warned. “But without investment, neither of these will be possible.”

According to Ben Payton, head of Africa at risk analysis firm Verisk Maplecroft, the speech signified Ramaphosa’s most important parliamentary appearance since his State of the Nation address in February. “It came just before the president’s 100th day in office, with Ramaphosa eager to demonstrate momentum in his drive to implement badly-needed reforms,” Payton added.

In the State of the Nation speech, Ramaphosa spoke of the need to “confront the reality” that South Africa’s state-owned enterprises simply were not making enough money to cover their costs.

Ramaphosa was sworn in as South African president in February after former leader Jacob Zuma stepped down amidst political pressure. He has pushed a pro-business agenda.

Land reform and implementing a national minimum wage are among the economic issues on Ramaphosa’s agenda as South Africa, the continent’s most industrialized economy, struggles with below-average economic growth ahead of elections in 2019. Ramaphosa has tasked himself with attracting investments worth 1.2 trillion South African rand.

Major investment from public companies is not unexpected, Payton explained, given South Africa’s need to upgrade its infrastructure. “But Ramaphosa provided very little detail around SOEs’ investment plans, suggesting that the headline figure has come before a credible plan to determine its realism.”

Ramaphosa appointed two-time former finance minister and investor favorite Pravin Gordhan as chief of the Department of Public Enterprises, tasking him with cleaning up the country’s inefficient and loss-making state-owned firms.

Earlier this week, the South African cabinet approved new boards for several public companies including SA Express, an airline which saw all of its flights suspended by the aviation authority just hours afterwards on safety concerns. Gordhan described the grounding as “a classic example of the impact of corruption.”

Eskom, the state-owned utilities company which holds a monopoly over South Africa’s energy market despite its heavy indebtedness, also saw a new chief executive appointed this week.

Credit ratings agency S&P Global is to publish its rating of South Africa after the market close on Friday. It is currently a middling “BB” with a “stable” outlook. In March, S&P Global said that South Africa would only be upgraded if Ramaphosa could push through meaningful reforms. In November last year, the ratings agency downgraded South Africa’s local currency debt to “junk” status.

Source: cnbc economy
South Africa's ailing state-owned firms set to invest billions in dramatic reform program

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