The state needs to apportion stickers on its list of more than 700 state-owned enterprises (SOEs) indicating those which it considers to be strategic to the country’s economic development and those which are not. Under each of those tags, it must outline just why it deems the institution to be so.
This is critical as we witness the collapse of both SA Express and SAA. The damage of the government’s indecision is most evident in the saga of the two airlines, which is a harbinger of what may happen to much more critical institutions at the hands of a state that appears rather schizophrenic over what it considers strategic. That schizophrenia is reflected in the conflicted messages emanating from the ruling party. President Cyril Ramaphosa voiced concerns about slashing SAA routes, yet in last weekend’s papers Gwede Mantashe, a senior Cabinet member, calls for SAA to be sold or closed down if it is unable to make a profit.
These conflicting messages have informed the environment in which the state has grappled with the issue of not only SAA but its entire portfolio of SOEs. Under such a setting, it makes perfect sense as to why we’ve ended up throwing billions of rands of good money after bad decisions over the past decade, if not longer. In the case of SAA, it’s been R30-billion over the past 10 years for an airline whose strategic importance no one in the state or the governing party can clearly articulate.
I suppose there are arguments on both sides of the fence, but as Business Leadership SA we are certainly in the camp that believes there aren’t many merits for SAA’s strategic importance. The same can be said of SA Express.
At this critical juncture, when we are concerned about the future funding of the state with a cloud of a ratings judgment hanging over us, the government needs to be unequivocal about which institutions it believes it needs to control if it deems them to be key for inclusive growth.
Is the national flag on the tail of an expensive fleet of airplanes a tool in this ultimate pursuit or a vanity project?
This is a question that must be posed about all of the states’ assets and urgently, with some conviction to each case – outside of merely the protection of jobs. Assets that are labelled strategic must be deemed as such on the basis that they are growth enablers. There’s a lot of romanticism surrounding how the state views some of its legacy assets – assets that have long become uncompetitive and burdened with large workforces.
It’s because the enterprise has been viewed through rose-tinted glasses that these jobs are actually under even greater threat today than ever before.
There was a level of pragmatism in the thinking about some of these assets within the early years of the governing party, so it’s not a foreign concept. This sort of thinking must return and it is urgent. While the road has run out for SAA and SA Express today, we are fast running out of tarmac for other SOEs as well.
In last year’s budget speech, Finance Minister Tito Mboweni said the state should consider selling SA Express “as a case study” for privatisation. Then, in September, SA Express received R300-million to keep on flying and that was on top of the R1.2-billion it got in last year’s budget.
Mboweni’s suggestion was a pragmatic step for the struggling airline that flies to secondary local and regional routes such as Bloemfontein and Lubumbashi in the Democratic Republic of Congo. His suggestion, perhaps unsurprisingly, was largely ignored or, in factions within the governing party, dismissed with contempt.
But here we are a year later, with SA Express on the cusp of a business rescue, following in the footsteps of big brother SAA. And what our politicians must understand is that business rescue is a process that doesn’t always guarantee survival, nor that it will remain the same company it was before. The cancelled SAA routes announced last week form just a part of what will be a difficult journey.
When SAA went into business rescue in November last year, I said the state was receiving a cold, hard lesson on the costs of its continued indecision. By placing its future in the hands of joint business rescue practitioners, it was losing sovereignty over what it considers a “key” asset.
Given the shock reaction to the steps to dramatically reduce SAA’s domestic routes, it’s clearly a hard pill to swallow. The same can be expected when SA Express falls into the same position: to conserve cash, a similar course should be expected. To avoid all this, I guess the state could mobilise all its resources, including selling its stake in Telkom, to fund SAA and SA Express. Those are just some of the stark and unpopular choices the country now faces.
However the state chooses to respond to the implosion of its airlines, the government should consider whether this truly is a harbinger of things to come, as market forces continue to paint it into a corner. There’s definitely the risk of a domino effect to our SOEs.
What frustrates is that the SA Express situation, much like SAA’s, is one that could have been avoided were it not for the state’s penchant of kicking the can down the road. We’ve avoided difficult choices for political prudence for far too long, but particularly so over the past decade.
It’s long overdue, but the state must undertake a thorough audit of its more than 700 institutions and take a pragmatic approach as to whether their futures lie in public hands. Both these airlines provide a lesson of what happens if the market paints the state into a corner.
The outcomes are not pretty.
Busi Mavuso is chief executive at Business Leadership South Africa