Many SOEs rely on the public purse despite operational gains.
Turning around the financial performance of state-owned enterprises (SOEs) is central to improving South Africa’s economic performance, says National Treasury in its 2026 Budget Review.
“At Eskom, this requires strengthening energy security and reducing fiscal pressure on the state, while Transnet needs to stabilise the performance of rail and ports and expand export capacity.”
Major state-owned companies collectively made losses of R172 billion in the past five years despite being mandated to operate as sustainable, profit-generating businesses that can borrow based on the strength of their balance sheets. Many rely on the public purse for financial support despite operational gains.
Minister of Finance Enoch Godongwana says government is shifting the composition of spending towards growth-enhancing public infrastructure – over the medium term, public sector spending on infrastructure will exceed R1 trillion and R577.4 billion of this will be spent by SOEs and other public entities.
Return on equity improving
The review states that in the most recent financial year, the finances of major SOEs improved, with return on equity shifting from -15.6% in 2023/24 to 3.7% in 2024/25.
“Profitability was supported by efforts to improve efficiency, strengthen revenue generation and optimise balance sheets.
“However, this relied heavily on government support, particularly at Eskom and Transnet.”
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The review says Eskom posted its first profit since 2016/17, while Transnet improved its performance but continued to fall short of its operational and financial targets.
Development finance institutions such as the Development Bank of Southern Africa (DBSA) and the Industrial Development Corporation (IDC) showed mixed performance but did not require additional government assistance.
The review notes that apart from the Road Accident Fund (RAF), which continues to be deep in deficit, social security funds and the Government Employees Pension Fund remain sustainable over the medium term.
Total assets of state-owned companies grew by 8% between 2023/24 and 2024/25 but the review notes that this was mainly due to higher capital spending, although Eskom’s assets were also boosted by its improved cash position.
Total liabilities of state-owned companies decreased by 2.7% from 2023/24 to 2024/25, primarily due to the repayment of maturing debt obligations.
But the review says that while net cash generated from operations has improved somewhat, SOEs still do not generate adequate cash to meet their financial commitments and capital needs.
Capital expenditure improved only marginally in 2024/25, it adds.
Major SOEs plan to borrow R60.6 billion in 2024/25 but large borrowers – including Eskom, Sanral, South African Airways (SAA) and Transnet – did not report their borrowing outcomes.
The review says actual borrowing for those that did report totalled R6.2 billion in 2024/25, all of which was raised from domestic sources, with short term loans making up 33.3% of the total.
Borrowing in 2025/26 is expected to amount to R47 billion, with Transnet and Eskom expected to be the biggest borrowers over the medium term.
Denel
The review says state-owned defence company Denel faces stagnant revenues, a cost base that requires further restructuring, and constrained funding – and the Auditor-General did not express an opinion on its financial results because of insufficient audit evidence.
The company continues to implement its turnaround plan, which aims to restore operational capacity and financial sustainability.
“To date, progress reported under the stabilisation phase of the plan includes the appointment of a permanent executive team, production ramp-up at the aeronautics subsidiary and securing of new contracts to improve the revenue outlook.”
Of the R3.4 billion that government allocated to Denel to implement the turnaround plan in 2022, R156 million remains ring-fenced for strategic repairs and maintenance, working capital and capital projects.
Eskom
The review notes that Eskom returned to profitability in 2024/25 after nearly a decade of sustained losses, and improved its generation performance in line with its generation recovery plan.
Load shedding days declined from 325 in the prior year to 32 days, reflecting improvements in system reliability and underlying operational performance.
However, municipal debt remains a critical risk to its financial sustainability.
Total municipal arrears escalated to R94.6 billion from R74.4 billion the prior financial year, driven by persistently low payment levels.
Eskom is working with government on alternative interventions to address this, including Distribution Agency Agreements and prepaid supply models.
The utility’s net profit for the year was R16 billion as revenue increased by R45.1 billion to R340.9 billion in 2024/25, driven mainly by a 12.7% standard tariff adjustment and a 3.5% increase in sales volumes.
Its net debt-to-equity ratio – an indicator of financial risk showing how much of the company capital structure is funded by debt relative to equity – improved from 1.99 in 2023/24 to 1.45 in 2024/25, while debt decreased from R412.2 billion to R372.7 billion.
“While liquidity ratios strengthened, indicating an improved ability for Eskom to honour short-term financial obligations when they fall due, liquidity pressures require ongoing monitoring.”
Road Accident Fund
The review says the RAF’s long-term provisions are expected to rise – from R370.3 billion in 2024/25 to R387.4 billion in 2025/26 and R426.2 billion by 2028/29 – and account for a large share of total liabilities, placing sustained upward pressure on expenditure.
Spending is expected to increase at an average annual rate of 5.6% from R42.3 billion in 2025/26 to R49.8 billion in 2028/29.
The lower average spending growth reflects revised expenditure assumptions, primarily due to lower-than-expected contractor costs associated with the Pretoria office relocation, implementation delays and a smaller expansion of the office footprint.
The RAF is funded through a levy on the fuel price, which was increased in the Budget by 7c a litre to R2.25 per litre from 1 April 2026 in line with expected inflation.
The levy has not been increased for at least the past two years.
This article was republished from Moneyweb. Read the original here.
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