Minister of Finance Tito Mboweni's 2019 Budget review painted a bleak picture for two state-owned entities that are still reeling from years of mismanagement and state capture, namely Denel and Transnet.
The budget review said Government was committed to assisting the two companies returning to normalcy and maximising on their efforts at cash generation.
"Denel reported a net loss of R1.8bn in 2017/18. This resulted in negative operating cash flows of R717m, compared with a positive R376m in the previous year. Denel financed the shortfall by increasing its borrowing," the Budget review said.
The Budget report said Denel's cost structure is "unsustainably high", as it had faced severe liquidity problems for close to 12 years.
"Negative operating cash flows have affected the company's ability to deliver on projects and meet creditor obligations. In September 2018, Government provided Denel with a R3.4bn guarantee to address its liquidity problems and support a turnaround plan," said the Budget review.
The Budget review said that, while Transnet's net profit increased to R4.9bn in 2017/18 from R2.8bn in 2016/17 due to increases in coal export volumes, the freight rail carrier still fell short of targets.
"Transnet's procurement governance and controls have broken down, resulting in a qualified audit report for 2017/18," the review said.