One of the great challenges Zimbabwe has always faced is its inability to convert its vast natural resources into secondary products. This is caused in the main, by Zimbabwe’s lack of sufficient energy supply. It takes high amount of voltage to smelter Iron ore and gold and other resources and it’s the kind energy Zimbabwe just does not have.
This speaks to the economic implications of lacking sufficient energy supply. Zimbabwe literally extracts precious raw material from the ground, exports them elsewhere for further processing and then buys them back as finished products. With that kind of economic engagement with its own resources, there is absolutely no way Zimbabwe could ever meaningfully benefit from its vast natural resources, unless they have sufficient energy.
South Africa expansion of secondary and tertiary sector, particularly chemicals sector, has meant a huge need of raw material inputs into the secondary economy, and the more focus on beneficiation has meant a need to process our natural resources much further before we can export them. This has been enforced through various means, including legislation (taxing raw material exports), ease of doing business, and making mining profitable for mining companies to move from extraction into processing. The biggest contributor however to our emerging secondary mining market has been our cheap and sufficient energy.
Our recent electricity challenges therefore pose a huge challenge to beneficiation and our manufacturing sector. We risk losing an entire market to other more energy secure countries. This means we will not only lose industry, jobs and taxes but we will be forced, like Zimbabwe, to buy back finished goods that don’t only come from our own natural resources but that we could have made ourselves.
The loses in the economy of these daily and devastating power cuts is unspeakable. Not only is business more affected, expensive home appliances are burning because of this on and off Power supply. There will most likely be an increase in criminal activities both in our streets and online. Inevitably, the confidence in government, which Ramaphosa has worked so hard to restore, will slowly ebb with each day of power cuts.
What is to be done?
Firstly, Ramaphosa has made wonderful changes in our country without making any drastic moves. He has collected all the low hanging fruits at Eskom, removing the Tsotsi led board along with executives who enabled the looting, allowing the Zondo Commission to go deeper into the rot, announcing the unbundling programme and lastly, through Minister Mboweni, giving R23 billion per year for the next 3 years for Eskom to cover some of its financial obligation.
Well, clearly this did not work. Eskom’s problems are deep and they are many. Without aggressive and decisive steps to turn this entity around, we are going to lose more than just home appliances. Eskom has a R419 billion debt and an annual R40 billion debt serving cost. It’s not clear how a R23 billion injection from government is intended to do, pay for catering services? The only solution here is that Government must take the entire Eskom debt into government books and give the new board and executive a clean slate to work with. There are many reasons why government should do this.
Firstly, it is in 1998 that then Eskom executives approached government, the shareholder, to ask them to invest in new power plants. It was already clear at that time, with an economy growing at 3% and a massive backlog of putting more people and industry into the grid, that Eskom would soon not cope. Due to different priorities at the time this plea by Eskom was not heeded.
11 years later, Eskom borrowed R300 billion to build two new power plants, Medupi and Kusile. This means R300billion of the R419 billion Eskom debt comes from loans to build these two new power plants. So what was supposed to be shareholder/ governments new capital injection into Eskom to build new power plants ended up being a debt made by the very company. Eskom waited too long for government to do the right thing and invest in new power plants and eventually went into the market to borrow money for the new power plants.
This is almost equivalent to saying Denel should have gone into the market to borrow money for the arms deal/ acquisition and such a debt should be reflecting in Denels books, instead of arms acquision being a national government imperative as it was. Government must take this Eskom debt because it was not supposed to be a debt in the first place. Government failed Eskom and must own up to it. One way to do this is to take over Eskom debt.
Tito Mboweni was therefore wrong in his Budget speech to say ‘Eskom made this debt and Eskom must pay the debt’. He was the banker to the government then and he can’t escape blame for not investing in new power plants. The immediate reaction to government taking over this debt will obviously be that government debt to GDP ratio will get closer to or even to pass the 60% mark which will have devastating consequence to the markets. This is absolute nonsense of course and whoever came up with this thumb sucked 60% was playing a psychological game with the country intending to whip everyone into some invisible line. Having a psychological barrier is not a bad thing but we have bigger problems.
Here are the facts that are never reported. Japan has a debt to GDP of 198.6%, America 104.17%, and in our fellow BRICS countries, Brazil 80%, India is 68.70%. China is similar to us at 51% and its only Russia which has a much lower debt to GDP of 20% and clearly that’s due to sanctions. Their vast oil reserves don’t hurt. The idea that we can let Eskom continue to give us the devastating Black outs because we fear to cross our own self-made psychological barriers of debt to GDP ratio is clearly foolish. We owe ourselves to be smarter than that. Energy security is our singular biggest concern right now and that is the only real and psychological barrier we need to cross… For good.
Once Eskom is at debt zero, the real work must begin. Eskom needs to cost their maintenance backlog, and government needs to pay for it. Eskom needs to cost how much does it need to get all is its plants to full capacity and government must pay for it. This is no time to shirk from hard choices. It is time to solve this problem once and for all.
The same ANC government that redirected funds meant for maintenance and for getting the new plants to full capacity for nefarious purposes, is the same ANC government that must make sacrifices to fix it. The electricity outages, which we must all endure, are not fair to the people. We trust the new board and new executive but we can’t keep giving good people a poison chalice. Electricity is the lifeblood of the economy; we dare not pussyfoot around it trying to indulge commercial and personal interests of cliques and influential groupings.That time is over!!!
Yonela Diko is a Media Consultant & Political Strategist.