Fiasco shows government has learnt nothing
The more things change the more they stay the same. While it is a cliché, it is true for the way SA’s national government has bungled the opening of schools, causing anxiety and confusion to parents, pupils, teachers and education unions. It was another own goal for a government that was initially lauded for its quick and decisive action on the Covid-19 pandemic.
There have been a few astounding misses since the start of the lockdown just over two months ago, such as the government initially paying out an emergency social grant to only nine people, despite millions applying.
But the latest mess — this time by the basic education department — was astounding in its callousness and disregard for ordinary people who merely wanted to know when their children would return to school.
Schools have been closed since the start of the lockdown and some were set to open for pupils on June 1. The date was set, the directives gazetted and schools scrambled to ensure that they were compliant on time.
Different education unions, however, raised concerns over the readiness of schools, including in a meeting on Saturday evening with basic education minister Angie Motshekga. She was due to address a media briefing the following evening.
That in itself was cutting it fairly fine and was not the best way to advertise the department’s readiness for such a huge task. But, amazingly, things got even more shambolic. About 20 minutes before the briefing was set to start it was cancelled, and only later the nation was told that pupils would return on June 8. By that time unions had already started advising their members on what to do, while there was no word from the government, and some pupils had already returned to school hostels.
Monday was not significant merely for the return of schools but also because the economy was moved one stage lower in the lockdown, meaning about 16-million workers were due back at work, according to academics from Wits University. With schools no longer opening and the announcement coming too late for parents to make alternative childcare arrangements, the department’s incompetence was another blow for the economy. On Monday Motshekga apologised for the furore.
While her apology is welcome, it is too little, too late, after parents and pupils were treated with such disrespect. The reality is that schools were closed for 10 weeks and it was still not enough time for the national department to get itself organised.
One of the main issues was simply that some schools do not have water and as a result pupils cannot do one of the most basic things: wash their hands. This is a disgraceful situation that predated the Covid-19 outbreak. The pandemic has just brought a necessary spotlight on this.
This is a government that is not shy to spend scarce national resources on vanity projects. In the midst of this, we are still debating throwing billions more rand at the white elephant that is SAA, and there is a serious discussion about spending money and effort on establishing a new bank. The country may even need to find money for a new pharmaceutical company.
The fiasco over the opening of schools should be a wake-up call. SA needs to go back to basics. And there is nothing more basic than ensuring that our children can get a decent education in a safe and healthy environment. If we can’t do that, another R21bn on SAA should be out of the question.
As the source of the uncertainty, the department of basic education has failed millions of children who need an education to ensure that they are more employable. The government needs a strong dose of reality and, by extension, there should be consequences for those who failed to do their jobs.
BUT THE LATEST MESS WAS ASTOUNDING IN ITS CALLOUSNESS AND DISREGARD FOR ORDINARY PEOPLE
Converting debt into equity is a serious decision. Equity investment requires insight into and understanding of the future earnings and growth prospects of the entity into which you are about to place capital at risk.
Debt risk assessment is a lot simpler, primarily focusing on issues of solvency and liquidity. Can the entity service and repay your loan? The coupon on debt is usually fixed, regular and compulsory, unless the entity is facing bankruptcy, in which case the equity is worthless anyway.
Converting debt into equity is essentially the product of two simultaneous transactions, that is subscribing for shares (investor decision) and deciding to use the subscription proceeds to repay debt (entity decision). A conversion simply involves the same parties in both transactions.
However, as a whollyowned state entity Eskom presents special challenges. I can’t wait to find out what percentage of Eskom the Government Employees
Pension Fund (GEPF) will own after subscribing for R90bn worth of shares. I presume that all transactions will take place at fair market value. Are we about to find out what the real market value of Eskom is?
If, just for instance, Eskom is worth nothing before the conversion (not an impossible hypothesis given its overwhelming debt burden; its outdated, inefficient, not green, incomplete and insufficient capacity; SA’s grim GDP growth outlook; and the reluctance of municipalities to pay for power), then after the capital injection it will only be worth R90bn, and all the shares will be owned by the GEPF. The state would have sold 100% of Eskom to GEPF pensioners.
The current valuation of Eskom would have to exceed R90bn (before GEPF’s money comes in) for the state to retain control. Whatever the percentages, the ownership of Eskom will change and the rules of governance will have to change with it.
Will the rights of the new, non-state shareholder be respected in decisions like board and executive management appointments, and the approval of the forward strategy and business plan? They will have to be.
From the GEPF’s point of view there are some critical issues to focus the minds of those responsible for making investment decisions on behalf of the underlying employees and pensioners, investing as they will be in an unlisted, illiquid, failing business (at least for now).
The primary mandate for pension fund managers, I would argue, is not to maximise the return on assets or take speculative risk, but rather to ensure that it can meet the obligations arising out of its liabilities. Pension fund liability growth is driven by such factors as mortality, defined benefit rules and inflation, not by the performance of the stock markets or by the revaluation of private equity shareholdings. You can’t eat capital profits unless you can realise them.
The mixture of bonds and equities typically held in pension fund portfolios seeks to find the right blend of income certainty and capital growth opportunities. While capital appreciation is hoped for, predictable income is essential.
It should be noted that prescribed assets (investment in government or project-specific coupon-yielding bonds) is not comparable to taking a minority stake in an unlisted utility, with no market in the shares and no prospect of yield (dividends).
The GEPF will be giving up predictable, secure cash flows for what must be the hope of capital appreciation in this swap (seriously unlikely in the short term, if ever), because I would not be holding my breath for the first dividend payments.
It is beyond me to understand how an independent assessment could support such a decision.
It would be ridiculous to even contemplate this transaction actually happening if the Public Investment Corporation (PIC) chair had not recently stated, publicly, that the PIC had already discussed the proposal with the GEPF and that the two were “in principle in agreement”.
What’s more, this statement was made more or less to coincide with the announcement that the current principal executive of the GEPF would become the new CEO of the PIC. Such statements that high up in the decision hierarchy are unlikely to be overturned, regardless of public comment.
The big picture issues simply cannot be ignored either. What we have here is a hole within a state-owned enterprise (SOE) (arising from whatever causes, which may include incompetence, mismanagement and corruption) that is to be filled with money owned by employees and pensioners of the GEPF. Have you ever?
The hole, which has little or no chance of ever being filled, has been transferred from the state to the GEPF, deepening its deficit, which is reported to already be in excess of R500bn. This is an outrageous result and a dangerous precedent.
Alternative solutions include using tax revenues (unlikely, from a diminishing tax base in a declining economy, unless we finally implement structural reforms) or looking for real equity partners, either locally or internationally. Hobson’s choice, but at least the state filling its own holes abides proper principles. Perhaps a properly constructed state bank (an idea I’ve been lobbying for years) could play a role?
Eskom is too big to fail. We have to find a solution, but the money cannot be taken from pensioners.
ESKOM IS TOO BIG TO FAIL. WE HAVE TO FIND A SOLUTION, BUT THE MONEY CANNOT BE TAKEN FROM PENSIONERS