BY ED CROPLEY

President Cyril Ramaphosa is running out of time to salvage South Africa. A flatlining economy and soaring debt-servicing costs are squeezing public spending. The obvious option is to shrink bloated state firms like power utility Eskom. That will provoke trade union protests and strikes, which may dent the economy. A failure to press ahead will be worse in the long run.

South African government bond yields are relatively stable, at around 8.4% for 10-year debt, but Pretoria’s debt pile is growing. The government expects it to hit 80% of GDP in 2023 from the current 69%, including borrowing by Eskom. That will push up debt-servicing costs. In 2020, South Africa will spend more on interest payments than healthcare for the first time in the post-apartheid era.

Ramaphosa’s fiscal wiggle room would be bigger if he could turn around troubled state-owned companies. His first test is South African Airways. True, the debts of the perennially loss-making airline are only $1.5 billion, less than 1% of total public debt. They also pale against Eskom’s $30 billion debt pile. But unlike Eskom, which supplies 90% of South Africa’s power, SAA can go bust without taking down the $360 billion economy.

Unions have opposed cuts to the airline’s 5,000-strong workforce. Yielding ground would weaken Ramaphosa for the more important fight over Eskom, which is teetering on the brink of bankruptcy and struggling to keep the lights on. The government is willing to take a chunk of the utility’s debt onto its books. But it also wants to split the company into three to improve efficiency, possibly as a stepping stone to privatisation. Eskom bosses also reckon they need to axe 16,000 jobs, a third of the workforce. That would trigger sustained and violent protest.

Blackouts due to sabotage or strikes would hurt the economy. But caving in to unions would carry even greater long-term costs. Without a profitable Eskom to invest in a stable power supply, billions of dollars in investment pledges will lapse and the economy will further atrophy. Ramaphosa’s leadership of striking mine workers in the 1980s played a central role in collapsing the apartheid economy and ending white-minority rule. His battle with unions in 2020 will decide the country’s next chapter.

First published Nov. 29, 2019

IMAGE: REUTERS/Siphiwe Sibeko