Political infighting in South Africa is scaring off lenders from state-owned companies and potentially weakening everything in the economy from electricity to agriculture.
Citing factional fighting among political leaders, South Africa’s largest debt manager, Futuregrowth, halted loans to state companies on Aug. 31. On Sept. 1, the Danish Jyske Bank announced that it too would no longer lend money to the national power utility over concerns about governance.
The country’s credit ratings could be at risk. Political analysts say the ongoing tension between president Jacob Zuma and finance minister Pravin Gordhan, head of the National Treasury, could lead to the arrest of Gordhan as well as threaten the independence of the Reserve Bank. That, as well as the government’s power over state companies, has rattled lenders.
“We have observed recent reports which strongly hint of conflict between branches of South Africa’s government, the possible machinations of patronage networks, and a seeming challenge to the independence of the National Treasury,” Futuregrowth said in a statement. The asset manager said it was particularly concerned by reports that president Zuma would head a committee to directly oversee state-owned companies.
The rand weakened 1.5% after the Aug. 31 Futuregrowth announcement and bond yields soared of two of the state’s largest companies, Eskom, the national power utility, and Transnet, the national rail and ports operator, according to data compiled by Bloomberg.
Futuregrowth cancelled loans of just over $123 million to six key national operators. Those companies include Eskom, Transnet, the South African National Roads Agency and the Industrial Development Corporation—itself a funder of new and expanding industries. The asset manager is also pulling loans from the Landbank, which serves farmers, and the Development Bank of South Africa, which funds infrastructure development.
“We pulled the plug on Eskom too,” the Danish bank’s Rune Hejrskov told Bloomberg. “I could easily see more lenders follow suit. We see issues on lending going forward and more governance issues.”
Transnet and Eskom said their lenders’ decision would not affect their ability to do business. Eskom CFO Anoj Singh said the utility has already secured 57% of its borrowing requirement for the 2016/2017 financial year.
“Transnet has already funded its full borrowing requirement for the 2016/2017 financial year and has a healthy liquidity position, with 22 billion rand [over $1.5 billion] available at present,” said spokesman Molatwane Likhethe, according to the African News Agency.
Last month, a cabinet briefing announced that a special presidential coordinating committee would be created to oversee state-owned companies. Analysts say this gives Zuma greater power over government funding. Zuma’s office said there was “nothing sinister” about the committee. The presidency said the committee was born out of an existing review committee that began in 2010.
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