Why shaking Eskom up matters for the economy
ESKOM has seen a remarkable leadership shake up in the past few days. Almost the entire board has been replaced with seasoned businessmen. And a well respected acting CEO has been put in place, too.
The developments appear to reflect resolve by the country’s deputy president Cyril Ramaphosa, who was elected as president of the African National Congress in December. Sibonelo Radebe asked Jannie Rossouw to discuss what the changes at Eskom mean.
What do you make of the shake up at Eskom?
The announcement of a new board at Eskom is welcome for a number of reasons.
Firstly, the previous board and top executive layer proved to be incompetent if not downright destructive. Secondly, the power utility had sunk into dire financial difficulties on their watch. Recent reports suggested that the power utility has run out of funds and wouldn’t be able to meet its obligations unless government stepped in with another huge bailout.
This, after the government injected R23bn in equity and wrote off about R60bn over the past five years.
Over the past five years or so, Eskom has been hit by a series of corporate governance breaches of the worst kind. These included the former CEO Brian Molefe trying to secure a R30m payout for only 18 months at the helm.
And it’s become clear from the Gupta leaks that the power utility had come to play a central role in a raft of activities related to state capture. It appears to have served as a conduit to transfer government resources to well-connected and corrupt individuals and families in South Africa.
Given the damage that’s been done, the previous board at Eskom simply could not continue. It had no plan to turn the company around or stop corruption. Its only strategy was to lean on the South African government for more financial assistance.
The Eskom shake up is also significant because it’s a signal that the new president of the ANC Cyril Ramaphosa is committed to fighting corruption in both the public and private sectors.
Why does Eskom matter?
Eskom is arguably South Africa’s most important state owned enterprise. The South African economy depends on continuous and uninterrupted power supply. This puts Eskom in a different league to other embattled state owned enterprises like the national airline, South African Airways (SAA).
SAA is also dependent on government bailouts, but the South African economy will continue to function without it. Eskom, on the other hand, is a monopoly power supplier. All South Africans depend on it for power.
There seems to have been an urgency to make changes. Why?
It seems that Ramaphosa moved quickly to wrap up the Eskom shake up before he left for the World Economic Forum in Davos. It’s not difficult to understand why. South Africa has had some very bad headlines over the past few years, including downgrades by international rating agencies, and its economy is in the doldrums.
A significant portion of South Africa’s economic pressure originates from declining confidence of local and international investors in the country’s economy. This is evident from the South African business confidence index, which has plummeted. Since 2013 business confidence has been on a declining trend from above 50 to a current level below 35.
Replacing the Eskom board before the Davos meeting was a smart and necessary move. Davos is a rare occasion to showcase South Africa as an investment destination of choice for international investors. One condition for attracting international investment is a clear commitment to addressing corruption and instilling sound management in government enterprises.
What in your view is the long term solution around Eskom?
The long term solution to the problems at Eskom and other troubled state owned enterprises is a rethink of their role in the South African economy.
Some, such as South African Airways, are really unimportant and their disposal or even their closure would have little impact on the domestic economy. Disposal or closure are necessary options as these entities add an unnecessary burden on the national fiscus.
But others, like Eskom, are more strategic and matter enormously and the government should retain them.
It has also become necessary for South Africa to rethink the remuneration policies for executives of state owned enterprises. They earn salaries that aren’t commensurate with the risks they face. The consequences of failure are much more severe for executives in the private sector. Executives of state owned enterprises simply apply for bailouts when they’re in trouble.
So there’s no justification for exorbitant remuneration at state owned enterprises. And no executive at any state owned enterprise should get a bonus: how can a bonus be justified when the South African government provides the bailout in the event of financial difficulty?
The new Eskom board should urgently revise the company’s remuneration policy to restore some sanity in the level of remuneration. The board should also review business practices to ensure that Eskom remains financially viable without any financial assistance from the government.
It is also important that the South African government and the board of Eskom should make it clear to the general public and to investors that the proposed nuclear procurement project plan will not go ahead: neither the South African fiscus nor Eskom can afford such a project.
Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandCape Town – Establishing a small business is the most rewarding – and challenging – career move you could make, according to Viresh Harduth, vice president: new customer acquisition (start up and small business) at Sage Africa and the Middle East.
The freedom of being your own boss comes with a number of trade-offs, including mountains of admin, more responsibility, and a lot more to lose – especially in the early years, he cautions.
“Small and medium businesses (SMEs) represent 40% of all South African businesses and will account for 90% of all new jobs by 2030. Clearly, small businesses have a crucial role to play in economic development and job creation,” says Harduth.
“Yet 70% to 80% of small businesses in South Africa fail within the first five years, for reasons including funding constraints, not having a clear business plan, and poor inventory and cash flow management.”
In his view, many entrepreneurs are caught off guard by the demands of running a business. Often, they don’t realise that they need to be a “jack of all trades” – at least in the beginning – until they can scale to a point where they can hire more people or outsource certain business functions.
Initially, entrepreneurship is demanding of your time and relentless on your skills and resources.
Harduth offers a few survival tips:
Build a safety net
Before you start your new business venture, build up your savings to carry you through the first tough months and to cover any unexpected expenses.
The last thing you want is to be racking up bank debt in the first few months of operation.
Work from home or from shared office spaces to save on rent and other operating costs. Benefits of shared working spaces include fast connectivity, opportunities to bounce ideas off of other entrepreneurs, professional looking meeting rooms, and coffee on tap – you’ll need all the caffeine you can get in those early months.
Keep a tight hold on the purse strings and only spend money on equipment, team members, and supplies if absolutely necessary.
Keep an eye on your numbers
Cash flow management is arguably the most important consideration for any new business owner. Having sight of exactly what is coming into and what is leaving your business account will help to identify where you can streamline operations and save money.
Conduct a break-even analysis – a calculation of the sales targets you would need to meet to cover fixed and variable costs – and identify areas where you can cut costs.
Automate as much as possible
You’re not only a new business owner. You’re an accountant, a marketer, a strategist, HR manager and an administrator. That’s a lot to have on one plate.
“It’s hard work building an empire. But if you gear all these administrative and financial tasks towards delivering the best product or service you can, and matching that with excellent customer service, then you already have a firm foundation,” he concludes.
Trump ‘willing to be questioned under oath’ in Russia probe
Washington – US President Donald Trump said on Wednesday he would “love” to be questioned under oath by Russia collusion prosecutor Robert Mueller, saying it could happen in the coming weeks.
Trump confirmed that his lawyers are in discussion with Mueller, who is leading the investigation into collusion between the US president’s campaign and Russia in the 2016 election, and also into allegations that Trump tried to obstruct his probe.
“I would love to do it,” Trump told reporters in the White House when asked about testifying.
“I would like to do it as soon as possible… subject to my lawyers and all of that.”
“I would do it under oath, absolutely,” he added.
Asked when an interview could happen, Trump replied that he didn’t know exactly.
“Yesterday, they were talking about two or three weeks,” he said.
But White House lawyer Ty Cobb later seemed to walk back Trump’s remarks, saying the president just meant that he was willing to meet, The New York Times reported.
“He’s ready to meet with them, but he’ll be guided by the advice of his personal counsel,” the newspaper quoted Cobb as saying.
Special counsel Mueller is believed to be focusing on whether Trump illegally interfered with the Russia investigation, particularly when he fired FBI director James Comey in 2017.
His investigators have been edging steadily closer to the White House, interviewing Attorney General Jeff Sessions last week.
But the form of an interview with the president needs to be negotiated – whether it is face-to-face, or in writing, or a mix – and Trump told reporters he would listen to his lawyers’ advice on how to proceed.
Trump has repeatedly denied any wrongdoing and has said Mueller would come up empty-handed.
“There has been no collusion whatsoever. There is no obstruction whatsoever,” he said on Wednesday.
Asked if he thought Mueller would be fair, he replied: “We are going to find out… I hope so.”
Mueller, the former FBI director named in May 2017 to lead the Russia investigation, has already issued indictments for four people from the campaign.
He has secured guilty pleas from two – former national security advisor Michael Flynn, and former foreign policy advisor George Papadopoulos – both for making false statements.
Both are believed to have agreed to co-operate in the Mueller investigation.