[News] State troubles come home to roost

Eskom and Transnet especially (the latter with numerous divisions and departments “spun off” throughout the year) present existential challenges for the economy. But with the substantive risks they pose, their shortcomings and challenges also present opportunities for businesses to build alternative processes. With a general election to be held in 2024, positive policy reform and the alleviation of the problems at both Eskom and Transnet will not be of topmost priority.

Eskom’s constant inconsistency over the past month, moving from lower to more intense stages at a rapid rate, indicates that the utility is struggling to keep track of and manage available supply. This is also exacerbated by overreliance on its Open Cycle Gas Turbines (OCGTs), which is burning through its diesel supply.

Eskom has confirmed to the Daily Maverick that between 1 April and 28 November it spent R24.3 billion of its total diesel budget on its emergency diesel-powered generation fleet, leaving around R3.6 billion until the end of its financial year on 31 March 2024.

At present, Eskom aims to keep unplanned outages below 16,000MW. Should it be able to keep to that target, its generation capacity is so constrained that loadshedding between stages 2 and 4 remains the likeliest scenario for the time being. With Unit 2 at Kusile power station back online from last Tuesday, Eskom has a bit more room with which to work.

In logistics, Transnet’s flailing rail operations show little signs of improvement. Exxaro indicated in a statement that coal shipments from Mpumalanga to the Richard’s Bay Coal Terminal (the country’s largest for this commodity) are on pace to reach 47.4 million tonnes for this year – the lowest level for at least 30 years.

During the week of 27 November, it was announced that the National Treasury would advance a R47 billion credit guarantee facility to Transnet. This facility provides Transnet with some measure of breathing room, as well as allowing it to borrow (possibly at cheaper rates). The burden of proof is squarely on Transnet to show that this round of financial assistance from the government will bear the requisite fruit, as opposed to the past, when extra finances were not necessarily used for the correct purposes.

The shortcomings of Eskom and Transnet combine to serve as a hard cap on the country’s economic growth. Without substantive growth (between 3 and 5%), the unemployment rate will likely remain stuck around the 40% mark (on the expanded definition). That economic growth has averaged almost 1% throughout 2023 points to more and more private sector energy capacity coming online. Loadshedding will remain a feature, but over time more resilience is being built up. Transmission capacity is at a premium, and has not received nearly as much attention as Eskom’s generation capacity, but investments being made in private plans will stand the country in good stead.

Plans of “social compacting” between the private sector and government are no doubt well-intentioned and (to some extent) to be admired, but businesses both large and small should not head into such agreements with “eyes wide shut”. This is to say, business need not always engage only on the state’s ideological requirements and policy prescripts, but should also demand concessions and reforms from its own side. If these expectations are not met, business should not feel any compunction about walking away if or when necessary. Exclusively operating on the state’s ideological and policy terms will only paper over the cracks in the short term, and not place South Africa in a stronger position moving forward (whether immediately following the 2024 election, or over the medium- to short-term.

The latest round of polling, conducted in October, finds the governing ANC coming in at below 50% at the voting booth. This is consistent with polls and surveys conducted by other think tanks and organisations.

Should this possibility materialise, a coalition government is likely the country’s future (indeed, the provinces of Gauteng and KwaZulu-Natal present the strongest possibilities for provincial coalition governments to form). Within such a space there is more contestation of ideas, more momentum for positive change, and hopefully more room for policy reform. 2023 has proven to be an incredibly difficult year for the economy and businesses across the country. 2024, while still bringing many uncertainties, could provide some of this much-needed momentum and room for change.

Originally posted here.