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Sovereign guarantees extended by governments to state-owned enterprises (SOEs) have a potential innovative and catalytic impact on public finances. The quality of parliamentary oversight decides, meaningfully, the extent to which such instruments of public finance management (PFM) contribute to a country’s socio-economic transformation agenda and favourable sovereign credit rating outcomes.
This paper responds to the following empirical questions: Why are corporate governance institutions ineffective in preventing persistent poor SOE financial performance? Why do governments fail to exert pressure on SOEs to improve their finances? How do historical political contexts affect economic policies that, in turn, impact SOE financial outcomes?
Figure 1 shows the sovereign guarantee exposure in South Africa from 2005 to 2019.
Figure 1. South Africa sovereign guarantee exposure between 2005 and 2019
Eskom is a monopoly SOE operating in the South African energy sector and is fully state-owned. Table 1 shows the extent of fiscal support provided to Eskom between 2004 and 2019, and Figure 2 shows the rise in government guarantees issued to Eskom following the global financial crisis (GFC) in 2008.
Table 1. Significant cumulative fiscal support to Eskom (2004 to 2019)
| Fiscal Year | Fiscal Transfers to Eskom (R’ billions) | Cumulative Fiscal Transfers to Eskom (R’ billions) | Cumulative Guarantees (Exposure)1 to Eskom (R’ billions) | Cumulative Fiscal Transfers and Guarantees (exposure) to Eskom (R’ billions) | GDP2 (R’ billions) | Cumulative Budget Support to Eskom as a Percent of GDP |
|---|
2004/05
| 0
| 0
| 0
| 0
| 0
| 0
|
2005/06
| 0
| 0
| 0
| 0
| 0
| 0
|
2006/07
| 0
| 0
| 0
| 0
| 0
| 0
|
2007/08
| 0
| 0
| 0
| 0
| 0
| 0
|
2008/09
| 10
| 10
| 0
| 10
| 2408.7
| 0.42
|
2009/10
| 30
| 40
| 46.68
| 86.68
| 2551.4
| 3.4
|
2010/11
| 20
| 60
| 67.1
| 127.1
| 2825.0
| 4.5
|
2011/12
| 0
| 60
| 77.2
| 137.2
| 3078.4
| 4.46
|
2012/13
| 0.7
| 60.7
| 103.5
| 164.2
| 3320.8
| 4.95
|
2013/14
| 0
| 60.7
| 125.1
| 185.8
| 3614.5
| 5.14
|
2014/15
| 0
| 60.7
| 150
| 210.7
| 3865.1
| 5.45
|
2015/16
| 23
| 83.7
| 174.6
| 258.3
| 4124.7
| 6.26
|
2016/17
| 0
| 83.7
| 202.8
| 286.5
| 4419.4
| 6.48
|
2017/18
| 0
| 83.7
| 250.7
| 334.4
| 4698.7
| 7.12
|
2018/19
| 0
| 83.7
| 285.6
| 369.3
| 4921.5
| 7.50
|
| 2019/20 | 49 | 132.7 | 297.45 | 430.1 | 5157.4 | 8.34 |
Note. Source: National Treasury Budget Reviews.