Cosatu-led strike over job losses is sabotaging Ramaphosa – analysts

EDINBURGH — A Cosatu-led strike is damaging to the ANC and South Africa, analysts have warned. The protest over job losses comes as the country is trying to stave off further ratings downgrades. Bloomberg has outlined how Cosatu, whose members support the ANC, is jeopardising efforts by President Cyril Ramaphosa to boost economic growth. Workers at Eskom are among the Cosatu members on strike. This is likely to compound blackout woes. As elections loom, analysts say the problems at Eskom – which have interrupted power supply to the irritation of citizens and put the lid on business activity – are damaging for the ANC. – Jackie Cameron

By Amogelang Mbatha, Renee Bonorchis and Paul Vecchiatto

(Bloomberg) – South Africa’s biggest labour group staged a nationwide protest against job losses Wednesday, the latest setback for an economy reeling from four days of rolling power cuts. The rand fell the most against the dollar among major currencies.

The double blow comes at a terrible time for President Cyril Ramaphosa, who is gearing up to contest elections in May, is seeking to lure $100bn in new investment and is trying to retain the nation’s sole investment-grade credit rating. The stayaway was called by the 1.6-million-member Congress of South African Trade Unions, which backs the ruling African National Congress.

Workers at embattled power utility Eskom Holdings SOC Ltd., which produces more than 90% of the nation’s power and has been unable to meet demand after several of its generating units tripped, are expected to be among those on strike, along with civil servants, miners and construction workers.

The rand weakened 0.9% against the dollar by 1:30pm on Wednesday in Johannesburg, the most among major and emerging-market currencies tracked by Bloomberg. That added to a decline on Monday, when Moody’s Investors Service said the plan to fix Eskom falls short.

Eskom fiasco

“The fiasco at Eskom is highly damaging for the ANC ahead of the election,” Ben Payton, head of Africa for Verisk Maplecroft, said in a note. “The power supply is almost certain to remain unreliable for the next several years at least. There is every chance that the situation will get worse before it gets better.”

The unions, which complain that the government isn’t doing enough to tackle a 27% unemployment rate, are planning a second protest in Cape Town on Feb. 19, a day before Finance Minister Tito Mboweni presents the national budget.

“The national shutdown is under way,” Cosatu spokesman Sizwe Pamla said by phone. “Workers from all sectors of the economy in the private sector and public service are on board.”

Ramaphosa, who succeeded Zuma in February last year, announced proposals last week to rescue the utility. Eskom will be split into three businesses under a state holding company and it will be given financial assistance, with details to be announced in the budget. The decision to break up the utility angered Cosatu as it fears it will lead to job losses and privatization.

The ANC has won every election since the end of apartheid in 1994, but losing the support of the unions could put its campaign to keep its majority at risk. The party’s support fell to a record low of 54% in a municipal vote in 2016.

Crisis point

While South Africa has suffered electricity shortages for more than a decade, the utility is at a crisis point and is seen as the biggest threat to the economy.

Eskom expects to report a loss of about R20bn ($1.45bn) for the year through March, has racked up R420bn of debt and isn’t generating enough cash to service that debt and cover its operating expenses. The government warned in a report to lawmakers that the utility is “technically insolvent and will cease to exist at current trajectory by April 2019.”

Eskom declining metrics

The blackouts this week, which the utility implemented to prevent the collapse of the national grid and have shuttered businesses and caused traffic snarl-ups, are the consequence of construction problems at two new plants and years of deferred maintenance.

“This is an emergency and we have to deal with it immediately,” Public Enterprises Minister Pravin Gordhan told lawmakers, denying that the government plans privatisation. “The rationale for the three entities is so that we don’t have all our eggs on one basket.”

An Eskom request that the government take over R100bn of its debt would put the nation at risk of further credit-rating downgrades if a proper turnaround plan isn’t put in place, according to Goolam Ballim, chief economist at Standard Bank Group Ltd.

Every 5% of electricity production taken off the grid can reduce gross domestic product growth by as much as 0.5 percentage points, he said.

Highlights of Public Enterprises Department’s Eskom report

  • The poor quality of maintenance at power plants is largely due to bad workmanship, with 40% of plant breakdowns attributable to human error.
  • The plants are on average about 37 years old and essential mid-life refurbishments weren’t implemented.
  • The utility faces ongoing coal shortages due to poor management and lack of investment in mines.
  • The cost of Eskom’s new Medupi and Kusile coal-fired plants has ballooned to more than R300bn, up from an original projection of R109.6bn, and they have proved unreliable since being commissioned.
  • The utility’s recovery plans include rebuilding coal stockpiles to appropriate levels, fixing Medupi and Kusile, and making a number of key appointments to critical positions.
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