As 2019 winds down, we can say that economically and politically it has been an annus horribilis for Eskom and South African Airways (SAA) – and, by default, the tax-paying citizen whose money goes to the state that keeps bailing these entities out.
At a time when the public wanted straightforwardness or at least simple explanations from our leaders and those at the helm of these and other state-owned enterprises (SOEs), we were given excuses, blame apportioning, catchphrases and unconvincing ideas about how they are going to get to the root of their respective crises.
Hello! The cause of these crises is well known.
We learnt on Tuesday that SAA lost over $700 million in just two financial years. The airline is currently awaiting a reply from the state as to whether it will get funding. We know how this will end.
The latest according to Minister of Public Enterprises Pravin Gordhan, is that SAA is likely to get a R2 billion boost from the government and another 2 billion from existing lenders as it enters rescue proceedings from December 5.
And: Bye bye SAA
Meanwhile Eskom, in announcing at the end of November that it posted a R1.3 billion profit in the six months to September, revealed that it anticipates a R20 billion year-on-year loss for 2020. Its debt burden rose to R454 billion in the six-month review period. In October parliament approved a R59 billion bailout for the power utility, to the frustration of the finance minister, who has not hidden his desire to stop funding the entity.
Once again, the two will be saved, despite their continued sprint towards the edge of the cliff.
Government is as negligent of its sickly companies as it is of many of the issues that afflict South Africa. The distinction matters, for while the indebted companies are in a financial crisis and are a problem, it is government, in continuing to keep and rescue them, that is the problem.
There is nothing symbiotic about the relationship between the two entities and government. What is happening is a parasitic exchange where the two entities benefit more from being attached to the former.
Both Eskom and SAA have shown that bad behaviour gets rewarded, even more so when they appear to be in economic cardiac arrest. This allows the causes to be disregarded and keeps any necessary scrutiny from taking place by ensuring that all attention is focused on keeping them alive.
Furthermore, overlooking the dodgy behaviour of these SOEs means abandoning the tough love approach needed to set them straight, lest their cardiac conditions be triggered.
The argument for toughness after a financial rescue has been sufficiently articulated in numerous studies. However, it is the approach of British economist and journalist Walter Bagehot (1826-1877) that strikes a chord: bailouts must come with punishment to those seeking them. To use his words, government must be seen as “the lender of the last resort” to Eskom and SAA. This phrase should have been inculcated within everyone tasked with running our SOEs. It would have instilled the knowledge that seeking and accepting help from government will come with enforceable punishment and accountability for doing so.
They would understand that a bailout is not a gift, but a practical reinforcement of tough love by government. In the case of Eskom and SAA, it has to more about toughness than love.
Are we not in this crisis because of the love?
Notably politicians’ love of the idea of state-owned anythings that may appear to succeed elsewhere (we know how China is used as an example, despite contradictory evidence) and trying to make them work for South Africa? This kind of ‘love’ has resulted in the economic and political risks of government-owned companies being ignored and underestimated.
Pride comes before a fall
One of the flaws in the character of our democratic government is its reluctance to admit when certain projects, plans or approaches don’t work, or when a crisis has set in and must be addressed. This was evident in the Mbeki administration’s handling of the HIV/Aids crisis and the Zuma administration’s dismissive outlook of state capture.
If President Cyril Ramaphosa’s administration seeks to distinguish itself, this is its chance.
However, it will first have to admit how spectacularly the SOEs project has failed. This will require boldness and courage, because in part it involves admitting that his party’s approach to the use of SOEs for development was flawed. However, there are murmurings in the political corridors that various factions within the ANC-led alliance disagree about the nature of the sickness that has afflicted Eskom and SAA. And when there are divergent views on the diagnosis, it is obviously difficult to agree on the cure.
The political moment is finally ripe. It was hastened and is an unintended product of the SAA strike.
It gives the current administration the legitimacy it needs and has made it possible, at least in political terms, for it to say to the doubters in the alliance that: ‘The tough love approach has failed, debt restructuring is out of the question, some companies are beyond salvaging, it’s time to let go.’
There is no alternative. Keeping the SOEs will lead to the ruin of us all, save for a few individuals who will be sailing off on golden parachutes.