JOHANNESBURG – Business has welcomed President Cyril Ramaphosa’s appointments in the key economic cluster, but warned yesterday that his administration needs to resolve challenges facing power utility Eskom.
Tanya Cohen from Business Unity South Africa said state-owned entities (SOEs) remained the greatest risk to public finances, with Eskom being the biggest concern.
“The resolution of the future modalities and functioning of SOEs is crucial. So is the way forward in relation to crafting South Africa’s industrial and trade policies in the wake of recent developments in the global environment,” Cohen said.
Ramaphosa retained Pravin Gordhan to the crucial Public Enterprises ministry that will oversee the restructuring of Eskom and other SOEs which are struggling to meet their debt obligations. The struggling utility’s balance sheet has become the country’s biggest nightmare and continues to pose a systemic risk to the country’s economy.
John Orford, a fund manager at Old Mutual Investment, said the State of the Nation address next month would set the tone for policy reforms that would be the key in restoring investor confidence.
“Overall we see the new Cabinet as modestly positive, supporting our view that South Africa’s prospects are gradually improving as Ramaphosa’s leadership steadily delivers better governance,” Oxford said. “This should support South African assets, including the currency. However, we still need to see more delivery; delivery of policy certainty, fiscal prudence and a robust turnaround strategy for Eskom in the near future.”
Last week Eskom was dealt a blow with the resignation of Phakamani Hadebe as chief executive after he said the job’s demands had taken their toll on his health. The group’s debt is fast approaching the R500 billion mark, with the state guaranteeing more than R220bn of that.
The Banking Association South Africa (Basa) said in a statement that there was no time left to grapple with the problems facing Eskom.
“Telkom is a sterling example of the contribution the private sector can make to turning around ailing state-owned enterprises. However, banks cannot be expected to risk the money of their customers on unsustainable companies to which the state is ideologically committed,” Basa said.
“There is no time left for patience and studying and understanding the problems at Eskom, when much of this work has already been done, and every day increases the company’s debt burden and operational inefficiencies.”
The return of Gordhan, Finance Minister Tito Mboweni, Ebrahim Patel, who will lead Trade and Industry, and Gwede Mantashe, who will take over the reconfigured mineral resources and energy ministry, to key Cabinet posts was also well received by the markets, with the rand appreciating.
The rand was bid at R14.66 against the dollar at 5pm against R14.75 it was bid at on Wednesday, before the Cabinet announcement.
FXTM research analyst Lukman Otunuga said the local currency had been thrown a lifeline as markets received Ramaphosa’s significantly resized cabinet warmly.
“This move has certainly inspired some confidence over the political landscape at a time where the economy is facing a tornado of domestic and external headwinds," he said.