SAA bailout raises hackles at South African Treasury

SAA, which last made a profit almost a decade ago and has been reliant on state bailouts to survive.
Image: Guillem Sartorio/Bloomberg

South African National Treasury officials are reluctantly complying with orders to find funds to bail out the state airline, fearing they may erode the nation’s fiscal credibility, according to two people familiar with the matter.

The National Treasury is trying to re-prioritise funds in the medium-term expenditure framework due next month to fill the funding hole at South African Airways, said the people, who asked not to be identified because the information hasn’t been made public. The money will have to come from other government departments and programs, and may undermine efforts to revive an economy that’s been battered by the coronavirus pandemic, they said.

SAA, which last made a profit almost a decade ago and has been reliant on state bailouts to survive, has been in administration since December. Finance Minister Tito Mboweni has long argued that the government can’t continue funding the national carrier, putting him at odds with the top leadership of the ruling African National Congress and Public Enterprises Minister Pravin Gordhan, who insist it must keep flying.

Mboweni lost the battle, with SAA’s administrators assuring its creditors last week that the cabinet had committed to providing more than R10 billion ($591 million) needed to effect a reorganisation of the carrier and avoid its liquidation. Mboweni won’t resign over the decision, one of the people said.

Government departments have already had to make deep budget cuts after a lockdown aimed at curbing the spread of the coronavirus caused the economy to grind to a near-halt, eroding tax revenue.

The Treasury referred queries on SAA to the Department of Public Enterprises. Gordhan said in a text message last week that the government is “scraping all the barrels” to come up with the funding for SAA, and more clarity will be provided this week. The matter may be discussed at a cabinet meeting on Wednesday.

Bailing out SAA using state funds sends a worrying signal to investors and multilateral lenders that have helped fund South Africa’s coronavirus response, said Peter Attard Montalto, the head of capital markets research at Intellidex.

Whilst R10.4 billion may not be huge, it is only the start of what is needed in the coming years for the airline,” he said in a note to clients. “The government has set itself on a slippery slope.”

The main opposition Democratic Alliance urged the cabinet to liquidate SAA if it couldn’t find investors to take over the carrier and provide the funding it needed.

“It is astounding that there can be any consideration of budget cuts, which will inevitably impact on front-line services such as health, education and policing, when South Africa had to go cap in hand to the IMF to borrow money” to deal with the Covid-19 fallout, said Alf Lees, the party’s finance spokesman.

© 2020 Bloomberg


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More anc smoke, mirrors and disengenuos BS!

All this is done by Pravin Gupta so the political ANC elite an families can fly around in comfort while the poor keep voting for them.

So I guess that’s ok then?? The poorest of the poor says its ok.

I think fiscal credibility has long since exited the room. Treasury need to tell the Cadres the truth – you’ve stolen all the money, it’s gone, finito, end of….,

If the ANC state is able or willing to spend (an initial R10bn) on SAA….then it tells me govt is in better shape than we thought…’cause govt has more funding they make the public to believe.

If the state was really broke, SAA would not be feasible.

Treasury has crossed the line in the sand that was drawn by international lenders. If Mboweni is too weak to refuse yet another bailout for SAA, then he is also too weak to refuse the wage increases for government employees. This proves that he will be unable to implement his promised austerity measures. He is too weak to refuse further funding for bankrupt municipalities. He is too weak to stop the funding of corruption at all levels of government. Mboweni has lost control over the keys to the safe. The Magashule faction, with the assistance of Pravin Gordhan, simply pushed Mboweni aside. The man has lost all credibility. The lame-duck president, forever in search of “unity”, threw Mboweni under the bus. How can he not resign, when it is so blatantly obvious that his profile as a sensible person was used as a smokescreen to fool international lenders?

The SAA bailout proves that there is no cure for the economy. Communism has won this crucial skirmish, and our economy and currency have lost the war. We will reflect on this moment in 5 years, and say that this was the incident that marked the moment when all financial discipline was abandoned. This marks the beginning of the financial implosion and the hyperinflationary death spiral.

Sensei, what a great comment. If Tito can’t hold the line on SAA, the smallest of all the issues he’s facing, he’ll never do it on the big ones

So bye bye austerity, the rand, the infrastructure program and fiscal responsibility

Hello money printing, and tapping your pension, because there are just two ways out of the short term crisis. The IMF and QE.

And I’m pretty sure we will do QE before the IMF.

And the long term consequences of QE in South Africa will pattern Zimbabwe. It won’t take long for the currency to collapse.

Navigator, Thank you. Those countries whose currencies are held as reserves by other countries can get away with QE because a large part of the devaluation is absorbed by those countries that hold the reserves. In South Africa, we will have to absorb the whole devaluation effect of QE. The combination of loose fiscal policy, in combination with an accommodative monetary policy, leads to a rapid weakening in the currency.

The team at the SARB are highly respected and rightly so. The brave and capable Governor is fiercely independent. My concern is that the ANC stupidity, incompetence and ignorance of economic matters will, at some stage, spill over onto the balance sheet of the banks. This is when the SARB is forced to act, and devaluation is the only tool in their toolbox.

South Africa is the most socialist country on earth that is not caught in a hyperinflationary trap yet. We are standing in line behind Zimbabwe, Venezuela, and Argentina. The financial equity and economic capacity that was built under the previous regime lasted until now. This capacity in, what was, the “biggest economy in Africa”, and shrank to become “the most developed economy in Africa” acted as a shock-absorber or cushion for the populist ANC policies. From now on, the effect of myopic and populist ANC policies will reflect directly in the purchasing power of the currency and in the cost of living for the poor.

Under one condition they change the SA flag logo to the other ruling party logo more green and yellow as in banana republic colours. I’ve last count of the losses and loans but I’m sure there is a million good reasons for not spending more billions on this once proud national icon, but still petty-cash compared to ESKOM debt.
But then again we already talking Trillions in total, then one day we will have new ZAR where the last 000 or 000 000 are removed. Don’t need to travel far or back in time for perfect examples.
TIA (This Is Africa)

End of comments.





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