South Africa could be pouring billions down the drain through poorly thought-out initiatives that lack sustainable plans, warns Business Leadership South Africa (BLSA) CEO, Busi Mavuso.
Mavuso has raised red flags over two high-profile projects currently dominating government discussions: a proposed R3 billion bailout for steel producer ArcelorMittal South Africa (AMSA) and the creation of a R100 billion transformation fund.
While these initiatives may offer short-term relief, Mavuso cautions that without clear reforms, long-term plans, and, in the case of the transformation fund, a well-defined problem to address, these billions are likely to be wasted.
The struggling steel giant AMSA reported a loss of R1.1 billion in 2024, exacerbating its need to wind down its longs business, a key component in the supply chain for many other industries.
The potential fallout threatens not only 3,500 direct jobs but also tens of thousands more all along the supply chain.
Although the government, through the Industrial Development Corporation, has already provided support for AMSA’s working capital, the company says it needs an additional R3 billion to turn things around.
The latest proposal involves using the Temporary Employer/Employee Relief Scheme (TERS), which was initially created to support workers during COVID-19 lockdowns, to fund salaries for 2,982 AMSA employees for the next 12 months at a cost of R417 million.
Mavuso said this would be fine, but only if there was a clear and sustainable endpoint.
“There doesn’t appear to be one,” she said.
She added that the government must avoid using public money for jobs that are not sustainable because they do not fundamentally add value.
The CEO said that if the government just delivered the promised structural reforms needed to drive growth in the country, AMSA would likely see considerable demand for its output, negating the need for public funds to be piled into a business that is not sustainable.
“A restructured logistics system, for example, would trigger major investment in rail infrastructure through public-private partnerships,” she said.
“Firms are failing daily while they wait for the structural reforms needed to drive the economy. AMSA is a highly visible example but there are countless others,” Mavuso warned.
The second initiative that has triggered concern is the proposed R100 billion transformation fund by the Department of Trade, Industry and Competition (DTIC).
According to a concept document published last week, the fund aims to promote economic transformation, improve access to funding for majority black-owned and controlled enterprises, empower and support these businesses, and mobilize financial resources from both public and private sectors using B-BBEE legislation.
However, Mavuso argues that the document does not clearly define a problem this fund is actually expected to resolve.
She said that an estimated 70% of all new businesses fail in South Africa for many reasons, including a lack of skills, access to markets, and access to funds, and various initiatives, including BEE legislation, have tried and failed to address this.
“There are many companies that have failed to get traction despite significant funding,” she said.
“It would be much easier to see the logic of the fund if the concept paper carefully diagnosed the problems and presented a clear institutional solution.”
Mavuso warned that the DTIC’s document says almost nothing about the institutional design of the fund required to achieve its aims or how it will resource it and ensure its success.
Without aim, direction and structure, it is unclear where the billions of rands in funding will even go to, or for what ultimate purpose.
“Again, when money is being directed toward solving a problem, we need to ensure that it will result in a sustainable solution,” she said.
