South Africa’s Gordhan Says Graft Put State Firms `on Their Knees’

JOHANNESBURG (Capital Markets in Africa)- South African state companies have been brought to their knees by graft, according to Public Enterprises Minister Pravin Gordhan.

At least seven state companies are “either on their knees or touching carpet” as institutions were damaged due to so-called state capture, Gordhan said Thursday at a conference in Johannesburg. As much as 500 billion rand ($36 billion) probably left South Africa due to state capture, he said, using a local term for the use of political connections to secure appointments of allies to key state posts and win contracts.

The nation’s power utility is one of the key state companies that’s been driven to the brink of collapse, with debt of 420 billion rand after years of financial mismanagement. Finance Minister Tito Mboweni last week announced a record 69 billion-rand ($4.9 billion) bailout for Eskom Holdings SOC Ltd. to help it service its obligations. The company will also be split into three separate entities.

The government couldn’t leave Eskom as it is because the company won’t be able to access capital markets in the new financial year without the intervention, said Gordhan, whose ministry oversees the utility. The state is mindful of managing Eskom’s debt situation without triggering a credit-rating downgrade for the sovereign, he said.

Labor unions are opposed to the plan to split the company, saying it will lead to job losses.

Eskom’s restructuring will be done in as consultative a way as possible, Gordhan said.

Source: Bloomberg Business News