While the fiscal picture remains uncertain ahead of the emergency budget planned on 24 June, two proposals made headlines this week. First, Public Investment Corporation (PIC) Chair Reuel Khoza said on 28 May that the institution had submitted a proposal to convert close to ZAR 100bn (USD 5.7bn) of Eskom bonds into equity. Secondly, ANC Treasurer-General Paul Mashatile touted plans for a ZAR 350bn (USD 20.1bn) infrastructure fund to boost South Africa’s post-Covid-19 recovery. Both proposals are highly uncertain for now.
Despite ambitious plans to split Eskom into three and to resolve its debt problems, reform momentum has faltered and looks even more uncertain amid the pandemic. Government acknowledges that Eskom needs to roughly halve its crippling ZAR 450bn (USD 26bn) debt burden. Khoza indicated that the Government Employees Pension Fund (GEPF), which the PIC administers, was “in principle in agreement” and said the plan could help to reduce Eskom’s debt servicing costs substantially. However, Abel Sithole, GEPF executive and newly appointed PIC CEO, later countered that the GEPF board had not specifically supported or approved such a proposal. While political pressure has been mounting on the PIC to invest in loss-making parastatals like Eskom, there is clear concern that this could undermine its investment mandate.
In January, the Congress of South African Trade Unions (COSATU) pushed proposals that the PIC provide financial support to Eskom, but trade unions not aligned with the ANC will strongly oppose such plans. Even in COSATU’s case, its stance seems largely predicated on the government being the ultimate guarantor of their members’ pensions. A social compact discussed at the National Economic Development and Labour Council (Nedlac), envisaged that all parties commit to mobilizing funds, including private savings, for Eskom, but the proposal did not propose a financing vehicle and has not been finalized. Recent Nedlac engagement has primarily revolved around the lockdown exit.
President Cyril Ramaphosa first touted infrastructure investment as an important plank of South Africa’s economic recovery in his 21 April ZAR 500bn stimulus announcement. Mashatile indicated that the program would focus on “network industries such as rail and ports, energy, broadband connectivity, water, sanitation and human settlements.” This is a reference to National Treasury’s economic growth plan, which is probably the single most pragmatic reform plan that currently exists, among myriad ANC and government plans tabled but rarely implemented over the years. Yet buy-in within the ANC and the wider cabinet has been ambiguous at best.
It would be premature to read much into Mashatile’s comments. Ramaphosa first touted an infrastructure fund shortly after he took office in 2018, but there has been little progress and financing constraints are clearly more crippling than ever. Some commercial banks now appear to be pushing for progress. Even if it were financeable, the legacy of a decade of infrastructure spending – particularly the disastrously delayed and over-budget Medupi and Kusile coal powerplants – under ex-president Jacob Zuma also dampen confidence in the quality of any fresh infrastructure drive.
Clearly, the ANC and the government are scrambling for plans – any plans – to present an upside amid the ever-gloomier economic outlook. After all, South Africa’s economy is not only hard hit by the pandemic, it is also badly positioned for a recovery given structural constraints (including electricity shortages).