Enhancing the criteria for financial assistance to state-owned companies

Abstract

Orientation: South African state-owned companies (SOCs) have incurred debt with financial guarantees leading to financial bailouts because of failure to repay lenders.

Research purpose: The negative financial impact on South Africa’s fiscus resulted to rising public debt mostly attributed to SOCs that remain unsustainable invigorated the exploration of such financial assistance.

Motivation for the study: The government might have to continue guaranteeing SOC debt and give financial bailouts given their solvency and liquidity positions because a considerable amount of the public budget is directed towards the financial rescue of SOCs and not the country’s economic development which is a concern for taxpayers.

Research approach/design and method: A qualitative research methodology was implemented using interviews for primary data collection and document analysis for secondary data collection.

Main findings: The greed-driven decisions that have been implemented led to the loss of billions of rands because of corruption. This makes funding to SOCs inadequate because the allocated budget is not used for its relevant intent and is thus misappropriated.

Practical/managerial implications: Financial guarantees and bailouts to SOCs need enhancing because SOCs have distressed debt which has a significant possibility of falling over to the government to intervene with a financial bailout. An enhanced criteria must be implemented to ensure that funding allocated to SOCs will be appropriated for reform.

Contribution/value-add: The provision of an enhanced criteria that disburses funding through three phases will allow public finances and resources to be executed in a way that SOCs can benefit the economy.