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Facing mounting debt and blackouts, SA to deliver budget3 minutes read

Net debt currently stands at around 2.28 trillion rand, or 48.6% of GDP, according to the treasury.

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South African Minister of Finance Tito Mboweni delivering his Medium-Term Budget Speech on October 24, 2018 - AFP

South Africa’s Finance Minister Tito Mboweni faces a balancing act ahead of his maiden budget Wednesday to reassure investors over the country’s troubled public electricity company without alienating union allies ahead of national elections.

He is under pressure to bail out the state power utility Eskom — along with its $30 billion mountain of debt — which is at the centre of the country’s mounting economic troubles.

Mboweni will deliver his maiden budget to parliament in Cape Town at 1200 GMT.

Analysts warn of tensions that may emerge should the restructuring lead to job losses.

President Cyril Ramaphosa announced this month that the utility would be divided into three, but unions have rejected that, saying it would lead to job cuts.

Over the past few weeks the utility has implemented a nationwide programme of rolling blackouts as it failed to meet demand. 

The scale of the power outages, unseen in more than a decade, has rocked the continent’s most industrialised nation, plunging businesses, homes and traffic lights into darkness.

But the ruling African National Congress (ANC) has been warned by its coalition partner, the COSATU trade union federation, that sackings could damage their alliance ahead of national elections due on May 8.

“We remain totally opposed to any restructuring plan that will benefit the capitalist class and increase prices for the working class,” said spokesman Sizwe Pamla.

Ramaphosa indicated last week that details of the government’s rescue plan, which will be designed to stave off another damaging credit rating downgrade, would be revealed in Wednesday’s budget.

Fears are mounting that if Eskom defaults on its massive debts, lenders would be entitled to call back other loans to different parts of the state including the troubled national carrier South African Airways.

Fraud, corruption and incompetence have gripped public sector businesses and compromised their credibility while mounting debts have spooked investors.

High unemployment and debt

“It has become clear that Eskom’s coal-heavy system is now a dangerous impediment to sustainable growth in South Africa,” said Jesse Burton, a researcher at the University of Cape Town’s Energy Research Centre.

Mzukisi Qobo, an associate professor at Wits Business School, said Mboweni would likely announce steps “towards eliminating wastage in government and offer a clue on whether government intends to increase taxes”.

Several taxes including VAT as well as levies on fuel and alcohol were hiked last year in an effort to raise 36 billion rand ($2.5 billion) to plug gaps in receipts at the tax collector.

Mboweni, who replaced former finance minister Nhlanhla Nene when he was forced to resign over meetings with the scandal-tainted Gupta brothers, took office in October.

His speech is also expected to address the country’s stubborn 27 percent unemployment rate as well as the overall sluggish economy which only returned to growth in December following a recession.

Net debt currently stands at around 2.28 trillion rand ($160 billion), or 48.6 percent of GDP, according to the treasury.

Michael Sachs, an economist at Wits University, said the government was being forced to borrow more to service its debts, creating a dangerous cycle.

He called for “an executive with clear and effective policies, that makes trade-offs, confronts those trade-offs and mobilises society behind those solutions”.

“Whether we will get there after the election, I am not sure,” he added.

Ramaphosa will be hoping Mboweni’s speech treads a fine enough line to help him win a sixth term for the ANC, in power since the dawn of democracy in the country in 1994.

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Kenya seeks $1 billion World Bank loan

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In a bid to cut debt from overseas capital markets after a borrowing binge in recent years,Kenya is in advanced talks with the World Bank for “a fairly priced” loan of up to 100 billion shillings ($991.57 million), nearly half of its required external funding this fiscal year.

The World Bank, which has multiple development funding programmes with Kenya worth billions of dollars, is seen as one of the viable alternatives to commercial debt.

The Washington D.C.-based financier lent money to the Kenyan ministry of finance for the first time last year, changing past practice where it channelled cash straight to the projects, bypassing the Treasury.

The loan size will be determined by how much its funders can put together, says Julius Muia, principal secretary in the Kenyan Finance ministry.

“We are thinking something between 50-100 billion (shillings) depending on what kind of interest there will be”. The loan will be cheaper than commercial debt, in line with the government’s policy of cutting its funding costs, Muia adds.

Kenya became a middle-income country in 2014 after it rebased the economy, meaning it cannot secure funds from the World Bank at the concessional rates offered to low-income states.

The finance ministry has set a budget deficit of 6.3% of GDP for this financial year to the end of June with about 213 billion shillings expected from external sources.

The balance will be raised through Kenya’s first sovereign green bond, with the country taking advantage of next week’s UK-Africa investment summit in London to gauge investor demand for the potential issue.

“It is taking shape as we go,” Muia says.

The Treasury projects that the budget deficit will shrink to 5.7% of GDP in 2020/21. The gap, which peaked at 9.1% of GDP in 2016/17 financial year, is expected to narrow further to the desired level of 3.3% in 2023/24

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Egypt, Ethiopia, Sudan to finalize Blue Nile dam agreement

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Ministers from Egypt, Ethiopia and Sudan agreed on Wednesday, to reconvene in Washington later this month to finalise an agreement on the giant hydropower dam on the Blue Nile that sparked a diplomatic crisis between Cairo and Addis Ababa.

The ministers met in Washington this week and agreed to fill the $4 billion Grand Ethiopian Renaissance Dam in stages during the wet season, taking into account, the impact on downstream reservoirs.

Initial filling of the dam, due to begin in July, will aim for a level of 595 metres above sea level and early electricity generation, while providing appropriate mitigation measures for Egypt and Sudan during severe droughts.

Cairo fears the dam, announced in 2011 and under construction on the Blue Nile near Ethiopia’s border with Sudan, will restrict supplies of already scarce Nile waters on which its population of more than 100 million people is almost entirely dependent.

Addis Ababa denies the dam will undermine Egypt’s access to water and says the project is crucial to its economic development, as it aims to become Africa’s biggest power exporter with a projected capacity of more than 6,000 megawatts.

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Ethiopian airlines to spend $5 billion on Next-generation airport

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Ethiopian Airlines will begin construction of a new $5 billion airport later this year, according to its chief executive officer, Tewolde Gebremariam, as the rapidly-expanding carrier outgrows capacity at its current base in Addis Ababa.

Gebremariam says the construction will begin in the next six months. 

The airport, which will cover an area of 35 square km, will be built in Bishoftu, a town 39 km south east of the capital, and have the capacity to handle 100 million passengers a year.

“Because Bole Airport is not going to accommodate us; we have beautiful expansion project, the airport looks very beautiful and very large but with the growth that we are going every year in about 3 or 4 years we are going to be full,” Gebremariam says.

Bole International Airport in Addis Ababa has a passenger capacity of about 19 million passengers annually.

Gebremariam notes that the new airport’s price tag is higher than the $4 billion cost of building the yet-to-be-completed Grand Ethiopian Renaissance Dam on the Nile.

In 2018, Addis Ababa overtook Dubai as the top transit hub for long-haul passengers into Africa. In 2019 China funded the expansion of Bole Airport was, allowing it to accommodate 22 million passengers annually. Gebremariam has not said how the new airport, which will accommodate 100 million passengers ,will be funded.

The continent has been notoriously under-connected by air, and Ethiopian airlines is changing that, with flights to more than 60 African cities. The company also owns stakes in several local airlines based in other countries.

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