🔒 How to fix SA: Easier to pull the plug on SAA than chop Eskom jobs, costs – FT

International investors are closely watching how the South African government deals with state entities. Until President Cyril Ramaphosa and his team fix beasts that have been eating away at the economy, including SAA and Eskom, these investors will sit on the sidelines or place their funds elsewhere. The Financial Times underscores the scale of the challenges for Ramaphosa and his team. Pulling the plug on SAA, which flies the national flag and hires several thousand people, will be much easier than cleaning up Eskom, predicts the FT’s South Africa correspondent, David Pilling. He has itemised the big problems shackling Eskom, not least of all its debt and its overloaded payroll. – Jackie Cameron

By Thulasizwe Sithole

Vested interests are dragging South Africa down, writes the Financial Times, which also comments that Cyril Ramaphosa will be loath to take on the people who helped him to the ANC presidency.

FT correspondent David Pilling tells the newspaper’s global audience that this month South African Airways will pay its nearly 6,000 staff only half of their November salary.

“Next month, without a substantial bailout it won’t be able to pay them anything at all. The partial payment follows a bruising week-long strike that grounded all of the airline’s flights. In the end, workers got a 5.9% pay increase that management said had been on offer anyway.”

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Some 900 jobs are still threatened, says Pilling, as it looks like that loss-making routes will be cut.

“Mismanaged and looted for a decade, the airline has failed to produce accounts for two years running. It has swallowed some $4bn in state aid over two decades. The government has been divided over what to do.”

Pilling says Pravin Gordhan, minister of public enterprises, would like to turn the airline around while Tito Mboweni, the finance minister, who must approve any bailout, would like to close it down.

“Nearly a year ago, the former businessman compared the chronically loss-making airline to a chicken farm that wasn’t producing any eggs. If it were his money, he said, he would not invest a single cent. The government of President Cyril Ramaphosa will decide within days what to do. Sentiment is turning,” reports the FT.

“The idea of pouring money into a flag carrier for middle-class people is beginning to look like a luxury South Africa cannot afford. The stakes are high. Of the main rating agencies, only Moody’s has South Africa’s sovereign debt above junk status. If it downgrades, South Africa will have to pay more to service a debt already hovering at around 60 per cent of gross domestic product,” continues Pilling.

“Whether the government decides to give the airline one last shot or to pull the plug, Mr Ramaphosa surely understands one thing: the airline is the easy part,” cautions the South Africa expert.

Pilling says the face-off with the unions is merely a dress rehearsal for a much tougher battle ahead: the fight over the state-owned power generator, Eskom, and the battle with its much stronger vested interests.

He describes the challenge for the new Eskom CEO, Andre de Ruyter, a packaging company executive “who has been brave — or foolish — enough to take on the role as Eskom’s chief”:

  • The company’s $30bn debt is roughly 9 per cent of GDP against merely 0.5% for SAA;
  • This year alone, the government committed to a $4.9bn bailout as Eskom struggles to keep the lights on by fixing and upgrading power stations that are on average nearly 40 years old; and
  • Of Eskom’s costs, some 21% goes to its roughly 47,000 workers, 15% on debt servicing and a whopping 55% on energy inputs, mostly bloated coal contracts.

For Pilling, because Eskom is a monopoly, “pulling the plug is not an option”.

He suggests improving the operational efficiency and says: “The government is rightly considering splitting Eskom into three: generation, transmission and distribution. Private generators could feed electricity into the grid, effectively breaking Eskom’s monopoly.”

Eskom’s debt is the most difficult problem. “Stopping the bleeding at Eskom can only be achieved through cutting the wage bill, reducing the cost of inputs or raising electricity prices. Increasing electricity prices would harm ordinary South Africans and the country’s competitiveness,” he says.

“Cutting the wage bill means an almighty battle with the unions who will defend both salaries and staff numbers, even though Eskom employs at least 15,000 too many people. Reducing the coal bill means renegotiating contracts, many with businessmen who have benefited from black empowerment schemes designed to right the injustices of apartheid.”

Pilling underscores that the “coming struggle goes to the heart of what has gone wrong in the post-apartheid era”.

“Ramaphosa will be loath to take on the vested interests that helped him to the ANC presidency. If he cannot, Eskom will drag the country down with it,” he adds.