President Cyril Ramaphosa has published his latest open letter to South Africa, highlighting the issues currently facing the country’s state-owned enterprises.
Ramaphosa said that despite severe financial difficulties and operational problems, the country’s SOEs have great assets, a large and diverse cohort of skilled people and solid track records.
These companies have the potential to contribute to the growth of our economy and the creation of jobs, he said.
“Although many of these companies are deeply in debt, they remain valuable state assets with immense capacity. We will not allow any of these strategic entities to fail. Rather, we need to take all necessary steps – even drastic ones – to restore them to health,” he said.
Ramaphosa said this is why he supported the decision to place South African Airways into business rescue.
“There was no other viable and financially workable option for a credible future for the airline,” he said.
“The financial crisis had become so grave that the only way to secure its survival was to take this extraordinary measure. With the support of lenders, government, management and workers, SAA will continue to operate while the airline undergoes the restructuring needed to make it a viable company.”
SAA last made a profit in 2011, and successive plans aimed at turning the airline around have failed.
Documents sent to lawmakers and seen by Reuters showed that SAA lost more than R10.4 billion in the past two financial years.
The airline has not publicly published its financial reports for the 2017/18 and 2018/19 financial years, however a copy of its financial report for the year ending in March 2018 showed a R5.4 billion loss, with the company’s liabilities exceeding its assets by around R13 billion.
A separate document showed that SAA had made a loss of more than R5 billion in the year ending March 2019.
Both documents were sent to lawmakers on parliament’s Standing Committee on Public Accounts, Reuters reported.
Preliminary analysis done by Bain Consulting last year showed SAA will need to cover liabilities of between R35 billion ($2.4 billion) and R48 billion if it is liquidated, while it would only be able to realize R5 billion to R6 billion rand from selling its assets.
The National Treasury will have to settle R15.3 billion in bank debt and creditor guarantees prior to the airline being shut to avoid possible cross-defaults on other Treasury-backed loans, it said.
In a Sunday Times column, Gordhan said that government is not prepared to let SAA fail in an ‘uncontrolled fashion’ and that business rescue is the optimal route for the embattled airline.
Gordhan said that the liquidation of SAA would have led to thousands losing their jobs, leaving social, economic and financial damage in its wake.
Eskom is in a much deeper hole as it announced at the start of December that its long‐term debt has increased to R454 billion.
In the first half of the year, Eskom received a R13.5 billion bailout from National Treasury, with a R35.5 billion bailout waiting in the wings for the second half of the year. This bailout clouds the bigger picture of Eskom’s finances – as well as the fact it has over R450 billion in debt.
Ramaphosa said that a vital part of the turnaround effort is to reduce the dependence of SOEs on bailouts and guarantees from government.
“For too long, the South African taxpayer has been funding inefficiency and mismanagement in SOEs. This is coming to an end,” he said.
“It is for this reason that these companies have been working to reduce their costs and increase revenue, to improve efficiency and to cut down on wastage.”
Ramaphosa added that government plans to retain ownership of all those state-owned enterprises that are strategic.
This is so that these entities are able to perform the crucial economic and developmental functions that the market would not on its own be able to perform, he said.
“Where necessary, and where appropriate, we will seek strategic equity partners to assist with raising capital, injecting skills and technology, and improving efficiency. This must be done transparently and in a manner that strengthens – rather than weakens – the ability of the state to meet the development needs of the people.”
“Despite the depth of current challenges, none of our SOEs is lost. They can all be saved. But it will take extraordinary effort and, in some cases, tough decisions,” he said.