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Point of no return

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Point of no return

8th September 2017

By: Terence Creamer
Creamer Media Editor

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Hardly a day goes by when there isn’t a new and disturbing headline about governance, or the lack thereof, at one of South Africa’s State-owned companies (SOCs). To be sure, when historians reflect on the President Jacob Zuma era, the ‘capture for looting’ of the country’s SOCs will be a major feature, along with the dismantling of the tripartite alliance and the reprehensible manipulation of the security, intelligence and prosecutorial institutions.

In light of the GuptaLeaks revelations, it is more than fair to say that, under Zuma’s stewardship, the State’s continued shareholding in a range of SOCs has transitioned from high-minded ideology to grubby political patronage. In other words, the developmental-State project, where SOCs are viewed as agents of economic and social change, has made way for using them as vehicles of elite enrichment.

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As a consequence, there has been a weakening in the ideological justification for continued State ownership. That’s not to say the pillars have been shaved to a point where privatisation is politically appetising. However, there is now certainly more than one dreaded ‘p’ word: ‘privatisation’ and ‘patronage’. More and more questions are being raised about continued State ownership and support, especially in instances where the strategic rationale has become less obvious.

Take South African Airways (SAA), for instance. The strategic rationale for a flag carrier is being scrutinised not only in a context of growing competition and market liberalisation, but also with an eye on patronage. As a result, intense questions are already arising over the wisdom of, again, bailing out the lossmaking airline. Should increasingly scarce financial resources be given to a badly governed entity, or should commercial gravity be allowed to take its natural course?

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To answer these questions, government has to face up to the real problems: SAA continues to operate too many lossmaking routes; its fleet is inefficient; its staffing levels are large relative to passenger and freight volumes; the airline is facing intense competition; and, most importantly, SAA has been so poorly governed for so long that its strategy is muddled, its executive hamstrung and there is a growing reticence among funders to continue offering support.

Can merging SAA, South African Express and Mango solve these problems? No.

Will they be solved through a bail-out using proceeds from the sale of other noncore State assets? Not unless a credible board oversees a no-holy-cows strategy, implemented by a competent executive team without political interference. Where developmental mandates are imposed, these should be made transparent, as should the source of the subsidy. For instance, if lossmaking routes are declared strategic, government should justify these before Parliament. Otherwise, management should be empowered to make the necessary cuts. It is arguably possible to pursue a turnaround strategy in the absence of a capital injection. Of course, this would result in a far smaller entity and there will be job losses.

Could they be addressed through partial or full privatisa- tion? Only if the new owner is given similar political latitude.

What is clear is that South Africa has reached a point of no return regarding SAA. Traditional bail-out remedies are increasingly unpalatable politically and unjustifiable fiscally and socially. An entirely new approach is needed. And the same is true for all the other SOCs.

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