SOE Bailouts will Cost Consumers

Here’s how the government bailouts of SOEs will affect consumers

Durban – The bailouts from government to various state-owned enterprises (SOEs) will have a significant effect on consumers, according to Debt Rescue’s Neil Roets.

The funds required from government for such bailouts are enormous.

Eskom has been granted an additional bailout of R59billion, but without this bailout the South African economy “will come to a grinding halt,” Roets warned. He was commenting on the back of a statement by Finance Minister Tito Mboweni, who revealed three more state-owned entities would be receiving bailouts.

According to Mboweni, Denel, SAA and the SABC were next in line to receive bailouts after Eskom.

He said once the 2019 Appropriations Bill was passed, the government would have to make allocations to support the bailouts.

Mboweni said chief restructuring officers would work with the management of each entity to get them back on track.

Roets said all of this has direct and indirect knock-on effects on the South African economy and consumers.

“Our government is having to take measures to literally keep the lights on, but at a cost that it cannot afford. The impact of this is that further debt might have to be incurred by the government, at very high costs, leaving the government with no option but to reprioritise how it spends the funds it has,” he said.

Roets said there would be less money available for items such as basic service delivery and infrastructure development.

“This has an effect on the investment potential of the country to outside investors, when our growth stagnates. This will lead to the possibility of even higher unemployment, as well as the cost of goods increasing even further. The burden on South African consumers just keeps increasing, and they’ve already made multiple changes to their budgets to try to keep their heads above water.

“Any impact on the exchange rate affects the cost of imported goods as well as the cost of fuel, and any impact on items such as electricity has a direct impact on consumer living expenses,” he said. With almost 40% of all credit- active consumers being over-indebted, Roets said consumers were having to decide whether to pay debt or put food on the table. Consumers were turning to further debt to keep up with their living expenses and the debt they already had.

In these difficult times it was very important for consumers to understand their personal financial circumstances, with the help of a budget, he said.

“This is the best way to see how money is being spent and where changes can be made to expenses, if possible. It’s also how consumers will know if they can’t afford the debt they have, and that they need to seek the help of a debt counsellor, who can assist in having their debt restructured,” Roets said.

He added that this was done by extending the repayment terms and reducing the monthly instalments, to ensure that the consumer could afford the necessary living expenses, while at the same time obtaining protection from legal action.

Energy expert Ted Blom said the bailouts for Eskom were a disaster for residents.

“The 49bn set for this financial year equates to around a 40% tariff increase if it were to be rather funded by tariffs.

“From what I can ascertain, Eskom is looking for another two increases of at least 60% each. From my perspective, the only reason for the extra bailouts is ongoing corruption and mismanagement. If these bailouts are to be funded by the taxpayer – and there are no alternatives other than overseas grants – this will kill the “golden goose” and spiral the economy into a big recession too ghastly to contemplate,” Blom said.

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