Recent events have demonstrated progress in implementing reforms, yet business confidence remains low. This gap reflects the amount of work still required for the reform to lead to a real improvement in the operating environment.
The National Treasury, through the South African Development Bank, has announced a call for proposals to attract consultants for the unbundling of Eskom's transmission assets into an Independent Transmission System Operator (ITSO). This is a significant step, although the deal itself is complex and will require approval from Eskom's creditors. Nevertheless, similar restructurings have been successfully completed in many countries, and there is substantial international experience that can be utilized. The author expresses confidence that the Treasury will provide the necessary expertise.
The timeline set in the request for proposals is highly ambitious: the transaction must be completed within the next 18 months. The author has long called for the rapid implementation of the unbundling plan, which is part of a broader, policy-approved electricity sector restructuring program. Achieving this schedule would be extremely positive.
Alignment of Key Stakeholders
Although the plan faced resistance in some circles, the author believes that key stakeholders are now aligned on its implementation. A meeting was held last week with Eskom Chairman Mteto Nyati and Group CEO Dan Marokane to discuss positions regarding the unbundling. Both BLSA and Eskom fully support the energy reform program, as affirmed in a joint statement following their interaction.
The process can now accelerate. It is known that Eskom's creditors are willing to participate in finding viable solutions. Treasury consultants will play a crucial role in aligning these stakeholders and developing a deal that suits everyone. BLSA will also contribute to supporting all parties to achieve the desired outcome, as this is critical for building a foundation for economic growth.
Growth Drivers
Last week, information was also presented regarding the railway network application, which defines the conditions for private operators to access the national rail network. This is important for the logistics reform process and could potentially unlock billions of rand in new investment in rolling stock and rail infrastructure. The Ministry of Transport reported that it will publish the final version by the end of September, which is behind schedule, but a qualitatively functional application is better than meeting deadlines with a substandard document.
Logistics and electricity are growth drivers. They represent prerequisites for investments that will stimulate growth toward the target of over 3%, as well as subsequent job creation.
A memorandum of understanding was signed between the Indian Council for Trade and the Confederation of Indian Industry in South Africa. Improved trade relations significantly impact business prospects. The author mentioned the lack of a coordinated trade strategy for South Africa; India serves as an example of a much clearer strategy, having 14 signed free trade agreements compared to six or seven agreements and customs unions in South Africa, as well as six preferential trade agreements versus one. There were previously lengthy, intermittent negotiations with India on trade opportunities, and this agreement may support movement toward a mutually beneficial outcome.
There was also a two-year extension of the Africa Growth and Opportunity Act, which is now valid until the end of 2028. Access provided by this act is partially complicated by tariffs imposed by US President Donald Trump, but it positively affects certain product lines that South Africa exports to the United States. While the extension is welcomed, its duration is insufficient for a substantial change in investment in South Africa, which would require much greater long-term visibility.
These positive signals contrasted with business confidence data released the same week. The RMB/BER Business Confidence Index fell one point to 38 in the third quarter, indicating a general negative sentiment, with 62% of respondents expressing dissatisfaction with prevailing business conditions. This is significantly lower than the figure of 47 recorded in the first quarter.
This suggests that businesses have not yet felt the impact of reforms on the ground. The progress made last week is important—it is steps toward an operating environment where electricity is valued in competitive markets, and logistics services are available through multiple operators. However, sentiments will only change when fully functioning competitive markets for electricity and logistics emerge. When companies begin to see reduced input costs and improved service reliability, they will increase their confidence. This is the goal, and the pace cannot be slowed until it is achieved.