SAA funded by National Revenue Fund
By Unathi Sonwabile Henama
The catch 22 that South Africa was faced with was averted when the government approved the transfer of funds from the National Revenue Fund (NRF). The funds would alleviate a headache for the government, which has been looking for around R10 billion for Sout African Airways (SAA). The search involved engaging the Public Investment Corporation (PIC). Due to mounting public pressure, the PIC made it very clear that it would not invest in SAA. The Treasury will recapitalise SAA with around R13 billion over the next year as a means of returning the airline to profitability.
What is the National Revenue Fund?
There is a National Revenue Fund into which all money received by the national government must be paid, and the money can only be withdrawn by an Act of Parliament or as a direct charge against the National Revenue Fund when it is provided for in the Constitution or an Act of Parliament. The money was owed to Citibank.
Bailing out SAA with National Revenue Fund funds
This is not the first time that the National Revenue Fund has been used to bailout SAA. On the 01 June 2017, the state used money from the NRF to pay Standard Chartered Bank thereby avoiding a default. The South African government was correct in bailing out South African Airways, because if SAA was not bailed out, it would lead to a ratings downgrade, which would result in economic Armageddon for the suffering public in South Africa.
If the state failed in bailing out SAA, this would have triggered a call on the guaranteed exposure totalling R16,4 billion. SAA has been a wasteful problem child, and there is no time to waste time in selling a stake of the SAA to an equity partner that will bring about professionalism and efficiency to SAA.
When state-owned enterprises under-perform
If SAA is a strategic asset, then partial privatisation of around 40% of SAA would assist the state if having a strategic asset that is economically sound. The work of correcting what was wrong at SAA began with the appointment of a new board with the required expertise and experience. The appointment of SAA CEO Mr Vuyani Jarana effective 01 November 2017, will bring about stability at an executive level. There is a need to ensure that a forensic investigation is undertaken at SAA to find out what went wrong.
The continued bailing out of low-performing State-owned Enterprises (SOEs) is a worrisome, showing that there are low levels of governance and management. If SAA is a strategic asset, as the state articulates, then it must be the stellar example of excellence. It is possible that an SOE can be nursed back to health, and Telkom remains an example par excellence. Airports Company of South Africa (ACSA) and Telkom continue to perform well, even paying a dividend. SOEs must be at the forefront of driving development in South Africa. South African Airways must be at the forefront of making the tourism economy of South Africa.
How SAA’s troubles affect the tourism industry
The financial trouble that SAA is facing, has led to the reduction in routes that SAA flies, which has meant less aviation traffic for destination South Africa. The latest domestic tourism results indicate a decline in domestic tourism, which is a function of economic conditions of a country. This means that South Africa will increasingly become overly-dependent on international tourism. South Africa is a long-haul destination, far away from source markets which are dominated by countries in the West.
We in the tourism industry, are unapologetic that we want Open Skies to drive the tourism economy. The vested interest of being a shareholder and a regulator has meant that the state is conflicted in opening the skies, trying to protect the market share of SAA. This has done more to limit the growth of tourism when we need more tourism growth to drive the South African economy. Tourism is the new gold and the Department of Transportation on increasing progress in opening the skies. The loss of competitive edge against the Gulf airlines and Ethiopian Airways remains one of the legacies of today.
The National Treasury, which acts as a shareholder to SAA must give 100 percent support to the SAA board and management so that the turnaround of SAA can begin in earnest. The partial privatisation of SAA must be concluded as soon as possible. I remain an anti-prophet to the wholesale privatisation of state-owned enterprises because privatisation is not a panacea against state inefficiency. The government must be aware that the public is tired of the consistency of abysmal news about SAA and this had done much to reduce the public’s confidence in how public funds are used. The money used to bailout SAA could have been more efficiently used, but because of the reputational risk this posed to the state, this bailout had to be concluded.
Unathi Sonwabile Henama teaches tourism at the Tshwane University of Technology.
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