Question

In the BRICS summit of July 2018, which took place at the Sandton Convention Centre in Gauteng, Eskom the utility provider received a loan of $2.5 billion, (R33.5 billion) from China in an attempt to improve Eskom’s poor financial situation. Discuss in full the economic implications of this loan agreement by China to South Africa. In your discussion ensure that you refer to the advantages and disadvantages of this event for the economic well-being of South Africa

Answer 1

With China strongly bankrolling African facilities, many warnings have been issued that African nations and/or politicians courting China on that grounds, including South Africa, need to be vigilant about debt terms – and not lead to adverse generational debt problems down the line.

This generates unnecessary anxiety among pensioners, members of the GEPF and their dependents, and staff of the public sector about future hazards to their retired money and advantages. It was in the interests of all South Africans that, despite criticism from trade unions including the Public Service Association, the loan was extended to the cash-strapped power utility. Without this investment, Eskom would have been unable to service its debt, which would have resulted in a default and a breach with financial institutions of its debt covenants. This would have resulted in a cross default of all government obligations with catastrophic consequences that would have collapsed the domestic economy

Eskom's origins are running much deeper. They lie in the parastatal nature of Eskom and its use by the South African government as a means of distributing subsidies within its state mindset of growth. Because it is component of the key infrastructure of the country, it offers the government with a means through low electricity tariffs to support family income. Eskom is the biggest employer in the country and pays salaries to 48,000 staff, 20-25% more than it actually requires (compared to global colleagues). It is also used to subsidize some of the poorest municipalities in South Africa, such as Soweto, who pay no more than 10% of their energy bills without the danger of being cut off.