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Eskom and SAA: The SOE project has failed

Tough love doesn’t work – let them go!
Government is reluctant to admit when things don’t work, but the woes of the SOEs cannot continue to be carried over into the next year, and the next. Image: Shutterstock

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.

Read: SAA in line for R4bn boost as it enters rescue process – Gordhan

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.

Read: SAA lost over R10.4bn in past 2 years – documents

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.

Toughness

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. 

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Just imagine what a country SA could have been today if we sold off all SOE’s long ago and used all those 100’s of billions productively instead of on bailouts. Such shortightedness. It’s painfull to watch.

To the sale price add what was stolen via these SOE’s.

Just imagine if these SOE’s were PROPERLY managed???

called paradise.

Yes but it is extremely difficult if not impossible to believe that all this wasted money was due to incompetence. There were clearly malicious actors at work, milking these SOEs like giant cows for all they were worth. They were essentially giant money laundering operations for criminal gain.

Yes, the fools in the ANC still think they can make it work.
If it wasn’t so sad it would have been hilarious.

Government does not work with their own money, so for them it does not really matter if a project or SOE is financially working. Most of these SOE’s are really large entities, which really need top class business people to manage them. The same applies for municipalities, their finances is too large for the average Joe to run. We keep ignoring the fact that success comes from competence and hard work.

Too little to late for President Cyril Ramaphosa, he can talk the talk but can’t walk the walk.

Eskom used to work. Its bonds traded at a premium to SA government bonds. But then it was run by different people under different rules. These people were appointed on merit, not party loyalty.

A lot of people need to answer for allowing (Knowingly) ALL these SOE’s to trade while not going concerns.

Is it not illegal?

Maybe Solidarity can now also force the rest into business rescue.

The African national corruption is too sick and has too many fingers stuck in the cookie jar for anything to change . The only solution is drastic surgery and cut ties with government. This government has clearly demonstrated that it is incapable of managing anything , it had destroyed every government department and every SOE and now is in assault against the country…. indeed it is almost there !! Junk status is around the corner !!

The ANC project has failed, but the world could not care less.

Yep … we are .75% of global GDP.

The ANC government admitted at Davos this year that nearly all the 700 SOE’s are near bankrupt or bankrupt.

Two SOE’s down – another few hundred to go.

I would not say that by simply having an SOE is a project destined to failure. Many if not most other countries have similar institutions (like electricty generation & distribution) running fairly OK. Many have gas, etc.

The problem within SA is of another nature (many times discussed by MW commentators).

There is much talk of money being “wasted” on SOE’s but what we need to get our heads around is that nothing was wasted, this was the strategy of the ANC all along. Their strategy has been a 100% success. We desperately need some competent international forensic auditors to work on a pro bono basis to start figuring out exactly where all the missing billions are – they haven’t just disappeared. The money has been stolen from taxpayers and handed to criminal cadres in the name of “radical transformation”. Enough is enough now.

Dear Moneyweb ….

Has Dear Dudu, former South African Airways chairperson and one of the instigators of this disaster finally appeared in court?

https://www.fin24.com/Economy/South-Africa/court-hears-dudu-myeni-cannot-afford-petrol-accommodation-to-attend-case-20191008

If she still cannot find the funds, may I suggest that Moneyweb start a fund to get her there by Greyhound bus and accommodation at the nearest budget hotel?

I’ll kick in the first R100.00

And these clowns still want to give NHI a go ! We have to stop the birth of this child ……..whatever it takes !

You can change the management of SOE’s for as many times as you want, it will keep on failing. Bailouts will be forever, untill no money is left. South Africa = The land of EXCUSES.

End of comments.

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