Founder: Turnaround Talk
Return on investment (ROI) is one of the business fundamentals businesses need to pay attention to regarding sustainability. There needs to be a suitable return for the hours and emotional input that business owners, and board members, put into a company as a labour of love.
ROI is often one of the biggest challenges associated with the business rescue and liquidation process. It is also why shareholders fight tooth and nail to ensure the sustainability of a business over facing the prospect of BRPs and liquidators fighting to salvage value from a sinking ship.
This is precisely why many professionals criticise the performance of State Owned Entities and Government’s (seemingly) open chequebook policy when it comes to bailing them out of precarious positions. I recently read an article by the Daily Investor which takes a closer look at the extent of this policy.
Wrong footing
The Daily Investor article points out that Public Enterprises Minister Pravin Gordhan revealed that the government had provided R233.6 billion in bailouts for state-owned enterprises (SOEs) over the last five years and only received R1 million in dividends.
Gordhan responded to parliamentary questions about bailouts to state-owned enterprises and the dividends these enterprises have paid to the government.
Image By: News24
The DA’s Farhat Essack asked Gordhan how much the government had paid in bailouts to Alexkor, Denel, Eskom, SA Forestry Company Limited (Safcol), SA Airways and Transnet over five years.
He also asked the Public Enterprises Minister what total amount these state-owned enterprises paid in dividends to the government over the past five years.
The article adds that Gordhan said Eskom received R181.6 in bailouts, Denel received R9 billion, SAA received R37 billion, and Transnet received R5.8 billion. There were no bailouts for Safcol or Alexkor.
The only company which paid dividends to the government was Safcol, which declared a R1 million dividend at its 2021/22 AGM.
Simply put, the government invested R233.6 billion into the group of SOEs and received a R1 million return on it to date.
This means the government made a total return of -99.99957% on its investment, losing virtually everything it invested.
Government bailouts
The article points out that the new data followed shortly after news that the South African government has spent R331 billion on bailouts for SOEs since 2013/2014, of which Eskom accounted for 55%.
This data was revealed in a presentation to the Standing Committee on Public Accounts on SOE bailouts and government guarantees.
The Daily Investor article adds that the presentation showed that the government had spent R331 billion in bailouts of Eskom, SAA, Sanral, Sasria, the Land Bank, the SAPO, and Denel.
Image By: Daily Investor
These bailouts, called recapitalisations, were granted to implement turnaround plans, repay debt and government guarantees, improve liquidity, and for capital expenditure.
The article points out that the bailouts increased from R2.9 billion in 2014 to R65 billion in 2023, illustrating the deteriorating state of these organisations.
Despite large bailouts, SOEs like Eskom, the SAPO, and Denel are now in a much worse state than ten years ago.
Alea iacta est
When Julius Caesar crossed the Rubicon from Cisalpine Gaul, he brought civil war onto the doorstep of Rome. When asked about his actions, he supposedly uttered the famous quote alea iacta est (the die is cast), signifying his actions were irreversible. Even today, Crossing the Rubicon is a metaphor for a poor decision that cannot be undone.
While Government is facing a Rubicon moment in that it cannot take back the money it has thrown at SOEs, it can take a more biblical approach of drawing a line in the sand, signifying that SOEs will no longer take advantage of it.
But is there a business case for taking the biblical approach? This approach would seemingly be followed by the directive of ship up or ship out, meaning that these SOEs would have to get their act together or face business rescue or liquidation. While the power is shifting towards Independent Power Producers, the country is not yet at the stage where it can afford to leave Eskom to its own devices and let the house of cards collapse on it.
Government can bring in an enforcer who would ensure that improved governance within Eskom comes along with increased investment. The calls for such a person have been sounded for a long time by opposition parties, businesses and the public; the question is, why is Government ignoring these calls?
