Privatisation the only solution for SAA

15 March 2016

Release: immediate

Note to Editor: These were the remarks made by the DA Shadow Minister of Public Enterprises, Natasha Mazzone MP, at a press conference heald today in Parliament on the Privatisation of SAA. Also present was the DA's Shedow Deputy Minister of Finance, Alf Lees MP. The full document can be found here.

South Africa’s state owned enterprises (SOEs) are costing our economy billions with the largest offenders – including SAA, Eskom, SANRAL, PETROSA, SAPO and PRASA – having made a combined loss of R15.5 billion for the 2014/2015 financial year and currently holding R408.9 billion in government guarantees between them.

With the South African economy in crisis, and the threat of a ratings downgrade to junk status looming on the horizon, the ANC government cannot continue to prop up failing SOEs simply to placate COSATU.

The DA believes that the only viable solution to the problem of our ailing SOEs is to initiate a privatisation programme, guided by Treasury, to begin a process of disposing of increasingly inefficient and mismanaged state entities. 

It is time for the ANC to take a stand against its alliance partners and be bold in admitting that the current configuration isn’t working. We cannot continue to pour billions into SOEs while millions of South Africans are without opportunities to work and study.

The ANC cannot allow those on its left to hold the economy to ransom and increase the risk of a ratings downgrade.

We must initiate an urgent process of privatisation to dispose of these liabilities, and this process must start with SAA.

Over the past couple of years keeping SAA flying has proven to be costly endeavour for the South African taxpayer. The unprofitable airline has become a fiscal black-hole into which billions of Rands have been pumped with no return on investment.

This situation is simply untenable. The state cannot be the primary custodian of a national carrier that has become Chairperson Dudu Myeni’s personal fiefdom which does little more than haemorrhage public funds.

SAA has been plagued with financial problems for over a decade now with assessed losses of R18 billion to date and little sign of a turnaround in sight. As the airline faces increasing concerns over cash flow and liquidity, the airline has once again called on Treasury to bail it out. 

The financial position can be summarised as follows:

In the 2013/14 financial year, the airline incurred a loss of R2.5 billion. 

The 2014/15 financial statements are yet to be finalised, in itself a major area for concern. 

An investigation by auditors at SAA found that the airliner had made an R648m loss in the first six months of the current financial year.

Currently the South African government has provided guarantees totalling R14.4 billion.

In light of this, Finance Minister Gordhan’s suggestion of a merger between SAA and SA Express and seeking a “potential minority equity partner” falls far short of providing a lasting solution. The merger may in fact have negative effects by creating an even larger state monopoly in South Africa’s airline market that is altogether more difficult to monitor and manage.

The DA maintains that the only solution for SAA is full privatisation, a process that should be taken with haste to prevent any further negative impact on South Africa’s constrained fiscus.

The privatisation of SAA, as with other SOEs, is believed to have the following benefits:

The introduction of capital, technology and managerial expertise that the public sector lacks. 

The private sector is more resourceful than the public sector and will ensure the provision of high-quality services/goods.

The promotion of competition, which puts pressure on the private sector to be more efficient and viable.

The potential to promote wider share ownership among employees and the public. 

It will make more capital available for economic development, internal investment, job promotion and infrastructural improvements.

The DA would initiate the privatisation process by clearing out the SAA board entirely, including the removal of Dudu Myeni as chairperson. This would allow for the installation of a qualified and experienced board to oversee the privatisation process and prepare the airline for sale.

Once a new board has been appointed, the DA would initiate a full privatisation process based on international best practices and real case studies. The basic requirements for privatisation transactions are that they must be transparent, at arms-length, and guided by market and economic valuations. 

The DA believes that this process should be overseen by a Privatisation Agency, working under Treasury. Importantly, this will seek to ensure that the process is completely transparent and that no politically connected cadres or rent-seekers take advantage from this sale. 

One of the main concerns raised with the privatisation has been with regard to job losses. The DA maintains that restructuring should not occur at the expense of workers in state enterprises. 

That notwithstanding, one has to consider the cost of propping up the SAA workforce against the opportunity cost of jobs that could be created were that money spent elsewhere.

Treasury recently confirmed that it has given R14 billion to SAA in guarantees over the last 15 years which has supported a staff component of 11,491 in 2014. This means that it has cost government R1,218,344 per employee to keep these jobs. 

In contrast to this R150 billion has been allocated to the implementation of the EPWP over the next 5 years (2014/15-2018/19), which is R30 billion a year roughly. During the first year of EPWP Phase 3 (between April 2014 and March 2015) created a total of 1,103,983 work opportunities. Thus in 2014/15 an EPWP job opportunity cost the government R27,174. 

For the amount of money spent on SAA to date, the government could have created 515,198 EPWE job opportunities instead of protecting 11,491 from possible losses.

The fact of the matter is that SAA is costing South Africans a great deal more than what they are getting in return. It simply makes no sense to continue to prop us this ailing entity while 8.2 million South Africans are without jobs or have given up looking for jobs.

Statement issued by Natasha Mazzone MP, DA Shadow Minister of Public Enterprises, 15 March 2016