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Feb 8, 2019 | 22:11 GMT

2 mins read

South Africa: The President's New Plan for Public Utilities Could Cost Him Politically

(Stratfor)
The Big Picture

Despite its challenges, South Africa is a business powerhouse. The country's leaders have struggled to end decades of corruption and mismanagement in the government and at state-owned enterprises, but the far reach of its multinational companies and lucrative opportunities in its domestic sector have made South Africa an important center of investment. In the years ahead, South Africa's success or failure at reining in debilitating corruption and inefficiency will have an outsized impact on its ability to project power.

What Happened

South African President Cyril Ramaphosa has announced that his government would split Eskom, the country's state-owned electricity utility, into three separate entities under a single holding company. The entities would manage power generation and electricity distribution and transmission operations separately. In announcing the restructuring plan on Feb. 7, the president also said the government would step in to help the company manage its ballooning debts. He did not offer details of how it would do so, although it was suggested that they would be shared in an upcoming budget speech.

Why It Matters

The president's plan is designed to make individual business units of Eskom, which has struggled to balance its books in recent years, more efficient and enable it to raise funding. By combating corruption and increasing efficiency, he intends to send a clear message that South Africa is open for business. These efforts, however, could come with a political toll. Eskom's inefficiencies have long been used to inflate salaries and create unnecessary positions for political purposes. Because of this, Ramaphosa will need to strike a difficult balance to increase efficiency without upsetting his country's labor market.

Ramaphosa and his administration will likely struggle to overcome opposition from the country's unions.

What Happens Next

Ramaphosa has made it his mission in office to improve his country's economy by successfully courting foreign investment through measures such as splitting up Eskom. However, Ramaphosa and his administration will likely struggle to overcome opposition from the country's unions. The Congress of South African Trade Unions and the National Union of Mineworkers — both key supporters of Ramaphosa and his ruling African National Congress party — have already warned that they would not tolerate job losses or the utility's eventual privatization. As Ramaphosa and the ANC prepare for elections, which are scheduled to take place before the fall of 2019, they will be loath to cross labor unions that have traditionally backed them.

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