/ 16 December 2017

​Gigaba: Eskom is still biggest risk to the economy

Resolution: Finance Minister Malusi Gigaba said governance at the power utility had to improve
Resolution: Finance Minister Malusi Gigaba said governance at the power utility had to improve

The threat posed by Eskom to the economy was the biggest concern for speakers at a breakfast meeting of the ANC’s Progressive Business Forum on Saturday.

Speaking at the briefing, held on the sidelines of the ruling party’s 54th national conference at Nasrec, Minister of Finance Malusi Gigaba said Eskom posed the largest risk to the fiscus. “If people are complaining about South African Airways [which has been in financial straits for years], Eskom is the biggest risk, and [a] potentially heavier risk and drain on the fiscus than SAA could ever be. One hundred fold.”

Colin Coleman, managing partner and director at investment banking firm Goldman Sachs, told the audience that Eskom was clearly “the biggest issue in the state-owned entities realm to fix”.

The finance minister said he anticipated further problems at Eskom following the tariff decision taken by the National Energy Regulator of South Africa. On Friday the regulator granted the utility a tariff increase of just 5.23%. Eskom had applied for an increase of 19.9%.

“I support the decision,” said Gigaba. “There is no way we can give them a 20% increase in an environment of low demand and slow growth.”

He said Eskom was not financially sustainable at the moment and care needed to be given to this fact as well as to the governance of the entity.

But problems with governance appear likely to continue. The new board, recently announced by Public Enterprises Minister Lynne Brown, disappointed in that only two new appointments were made. And suspended executive Matshela Koko may soon be back in his job after the utility’s disciplinary hearing failed to prove any wrongdoing against him.

Government can manage Eskom better than it has done, Gigaba admitted.

The finance minister also alluded to speculation that South Africa was close to seeking a bailout from the International Monetary Fund. He stressed that a sustainable fiscal framework is important for the country’s autonomy so that it would not be dictated to by international lenders. “We must defend our fiscal sovereignty,” he said.

Richard Wainwright, incoming Investec chief executive, warned: “If Eskom defaults, South African banks will not be able to bail it out.”

Gigaba said: “We all know what we have to do at Eskom,” noting it was imperative to restore confidence. The minister said treasury planned to introduce a new government guarantee framework next year so that guarantees could not be used as a “perverse incentive”.

Coleman said by getting the basics right, with proper collaboration and performance, South Africa could achieve the 5% targeted in the national development plan. “Everyone will feel better over a growing cake than fighting over a pie that is shrinking,” Coleman

At the briefing, Gigaba emphasised that radical economic transformation is relevant as a stepping stone toward inclusive growth. “Growth without transformation is unjust …transformation without growth is self-defeating.”

He noted that “business confidence is the cheapest form of economic stimulus” and so there was a need to resolve policy uncertainty.

Gigaba said the state needs to fully investigate allegations of state capture and corruption so that citizens can trust government. Similarly, the Steinhoff saga must receive as much scrutiny as instances of public corruption and action must be decisive to restore confidence.

Also speaking at the breakfast briefing, ANC treasurer general Zweli Mkhize said the elections taking place at the ANC national conference were not the be-all and end-all. “As those elected, the most important thing is what they will be doing.” It was important, he said, to find ways to transform the economy and accelerate growth.

Gigaba said whoever is elected, he was confident the country and the movement would be in good hands.

“I would like to encourage the incoming leadership to speedily implement resolutions adopted at the conference,” he said.

“Our people are hungry for change … all eyes are on the ANC. The country is looking to us for leadership, we dare not disappoint them.”