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South Africa to Spend Billions on Struggling State-Owned Companies

The South African government on Wednesday has announced an additional $3.5 billion in government budget for struggling state-owned power utility Eskom and national carrier South African Airways over the next three years as the country’s weak economy faces an electricity crisis.

Tito Mboweni speaks as he delivers his budget to parliament in Cape Town, on Feb. 26. Photography: Bloomberg.

South Africa’s finance Minister Tito Mboweni also announced an additional $15 billion over the next 10 years of restructuring the energy sector. Industrial production doubled its pace of contraction in Q4, as unprecedented rolling blackouts hampered mining and manufacturing activities.

Mboweni’s national budget address was largely bleak. South Africa’s economy is expected to grow by only 0.9% this year and unemployment is the highest in a decade at 29%.

The South Africa’s economic policy has focused on controlling inflation while empowering a broader economic base; however, the country faces structural constraints that also limit economic growth, such as skills shortages, declining global competitiveness, and frequent work stoppages due to strike action.

The power crisis is having a negative impact on the economy, the minister said. The economy likely fell into technical recession in the fourth quarter of last year.

“Government will do whatever it takes to ensure a stable electricity supply. As I said, it is our number one task,” Mboweni told parliament.

His speech faced criticism from opposition parties over the continued bailout of state-owned companies.

Mboweni said the government would spend over $950 million to settle debt for SAA. The airline is currently in bankruptcy and recently cut some flights to stay afloat.

“It is the very sincere hope of many that this intervention will lead to a sustainable airline” that is not a burden for the country, Mboweni said.

A lawmaker with the opposition Democratic Alliance, Alf Lees said in a statement that, “It is outrageous that funds desperately needed to stimulate the economy and the creation of jobs are poured into the SAA vanity project.”

Mboweni also announced more money for law enforcement agencies and the national prosecuting authority. Some of the cases to be prioritized include those from the inquiry currently investigating allegations of government corruption during former president Jacob Zuma’s tenure from 2009 to 2018, he said.

South Africa’s rising country risk is putting upward pressure on interest rates, even as inflation expectations are dropping, with credit-rating companies contributing to the negative sentiment, according to the Reserve Bank.

The economy is expected to expand at a slighly faster pace this year. Household spending is seen picking up and lower interest rates will likely boost fixed investment. A rebound in exports should also support growth.

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