Author(s): Philip Aiyepola
South African state-owned enterprises have experienced persistent financial distress. However, the relationship between debt accumulation and capital asset acquisition has remained insufficiently quantified. In this study, the extent to which long-term borrowing has driven capital investment in major South African state-owned enterprises was empirically examined using a dataset comprising ten state-owned enterprises over the period 2007–2023. A fixed-effects panel regression model with firm-clustered standard errors was employed to evaluate the association between non-current liabilities and changes in property, plant, and equipment, while model robustness was assessed through Hausman tests and variance inflation factor diagnostics. A strong and statistically significant positive relationship was identified between non-current liabilities and asset acquisition (β=0.566, p<0.001). Firm-specific effects were found to account for a substantial proportion of the observed variation, whereas conventional leverage measures and macroeconomic control variables exhibited limited explanatory power. The results further suggest that the prevailing debt-dependent model has necessitated approximately ZAR 521 billion in government bailouts over the past 15 years. A counterfactual assessment of the 2018–2023 period revealed that accumulated depreciation charges of approximately ZAR 277 billion would have been sufficient to finance more than ZAR 100 billion in asset additions. These findings demonstrate that although long-term borrowing has served as the principal mechanism for financing infrastructure expansion, continued reliance on debt poses substantial financial sustainability risks. Therefore, the establishment of a legislatively mandated depreciation reserve mechanism, supported by a dedicated state-owned enterprise infrastructure bank, is proposed as an alternative framework. By providing the first empirical quantification of the debt–asset relationship in South African state-owned enterprises, this study contributes new evidence to the literature on public enterprise finance and offers policy-relevant insights for reducing fiscal dependence while promoting long-term financial sustainability.