When Finance Minister Tito Mboweni addressed the media ahead of delivering his first Medium-Term Budget Policy Statement in October last year he didn’t beat around the proverbial bush and straight-up disputed the need for state-owned national airline SAA.
Mboweni, the colourful former governor of the SA Reserve Bank and a man with few scruples, ideologically or otherwise, argued that those taxpayers’ rands spent on the perpetually failing carrier could be better spent invested in the public transport sector.
He did the same in February, before tabling his first budget in Parliament and again last month, when he gave his second “mini-budget” speech in Cape Town. And Treasury’s policy wonks last month repeated their regular warning that poorly managed, inefficient and corrupt state-owned enterprises – along with government’s unsustainable and bloated wage bill – are the two biggest threats to South Africa’s fiscal sovereignty.
What does this mean? In simple terms it means that President Cyril Ramaphosa’s two most important ministers, Mboweni and Public Enterprises Minister Pravin Gordhan, must institute some of the most dramatic and deep reforms of the public sector since the advent of democracy. And they’re going to have to do it amid fierce political resistance, a flailing economy and a civil service ravaged by capture and corruption.
But right-sizing, or winding up SAA might prove to be a dry-run for a much bigger battle that lies ahead: that of Eskom. And although the threats by Irvin Jim, the general secretary of Numsa, the National Union of Metalworkers of SA (and the biggest union at SAA), of “the mother of all strikes” are dramatic and vocal, it’s nothing to what might happen when Eskom is put on the chopping block next.
SAA has long been defended and protected by those in politics and government as one of the country’s most important assets and a jewel in the crown of our state-owned enterprises. It helps ensure that South Africa remains sovereign and able to stay in touch with the rest of the globe, was the argument. But it has been unprofitable for years. It also became a site of capture, with the corruption of government, state and party permeating through everything the airline did.
Staring down the unions
Even though SAA’s myriad problems have always been in the public domain, successive governments still poured billions of rand into the enterprise, with poor (and often corrupt) financial management leading to unionised workers receiving annual increases wholly out of step with the company’s actual financial position.
Jim and Numsa, as well those employees affiliated to the SA Cabin Crew Association (established while Dudu Myeni, who helped run SAA into the ground, was chairperson) have been shielded from the realities of capture and corruption – and government’s worsening fiscal position.
The unions’ insistence on an 8% wage increase earlier this week reveals an inability to factor in the reality of the situation: there is no more money. SAA is bankrupt. It cannot survive operationally and if the restructuring of the company isn’t undertaken now, it will be liquidated.
Numsa’s argument that nobody listened to it while Myeni and her hangers-on further dismantled the company’s finances surely is valid and true – but then, SAA has been in a tailspin for years. And unions have been pacified with generous wage increases at the same time.
Mboweni has sternly said Treasury will not continue to provide struggling state companies with further government guarantees because it cannot afford to have more debt on its books. If those companies – including SAA – need money they can ask for a loan, or go to the banks, is the message.
Now SAA is in a race against time. It needs to find R2bn to help sustain its operations until the end of the financial year and will have to do so by going to commercial banks – who seemingly aren’t willing to pump money into a failing enterprise facing the prospect of a massive strike which could ground planes for weeks on end.
In this game of brinkmanship, it is Mboweni staring down the unions, and in the end, it could finally be the unions – and Jim – who will be responsible for the end of SAA and the biggest restructuring of government’s balance sheet in decades.
If SAA does not get funding from private banks, and Mboweni refuses a guarantee or a loan (as he should, given his public statements on the matter), SAA will be shuttered and wound up.
Government will engage with lenders to prevent cross-guarantees (e.g. loans to Eskom and other state companies by the same lenders) being called in and embark on a fire sale: breaking up SAA and selling different parts to private companies. Efforts will be made to preserve as many jobs as possible at, for example SAA Technical, but thousands will be lost.
South Africa’s debt burden will however be significantly eased, and the private sector will inevitably step in to fill the void left by SAA.
A precursor to Eskom
Could this be a precursor to events at Eskom? Because whichever way you spin it, the electricity utility needs the same shock as the one delivered to SAA this week. Only in a much higher voltage.
Both SAA and Eskom are terminal debt traps. SAA’s is big, but Eskom’s is exponentially bigger. While SAA doesn’t threaten the country’s survival, Eskom certainly does. And, like at SAA, the unions hold enormous power.
If government embarks on the same restructuring route at Eskom as it is doing at SAA, as it must, the reaction from Jim and Numsa will be much more militant than what we’re seeing now. South Africans can survive without SAA, but not Eskom. The winter of 2018, when blackouts swept the country and rumours of sabotage abounded, could be a reminder as the good old days if the process isn’t managed and contained.
The Eskom restructuring has already started. The separation of the company into three subsidiaries has quietly begun and although there aren’t any indications of retrenchments yet there are plans afoot to rationalise the company’s workforce of 46 000 employees into something leaner, more efficient and eminently more affordable.
There’s no doubt that the success of the Ramaphosa presidency rests on the shoulders of Mboweni and Gordhan. Both men are trusted lieutenants of the president, and both have deep knowledge and understanding of the precarious position of the national accounts.
Mboweni was a former labour minister who became governor of the central bank before he was sent to Treasury. Gordhan is credited with modernising the SA Revenue Service before he became finance minister (twice) and is now heading the rationalisation of state companies.
Ramaphosa will have to manage internal and alliance politics. The ANC and its partners have for too long simply ignored the realities of the country’s deteriorating situation, opting to live off the fat of capture and hubris.
Now it is up to Mboweni to push through painful interventions, and to confront the unions. And it is up to Gordhan to restructure loss-making companies. If they don’t, we might all fail.