ROCKY HIGHWAY TO IMF
The latest changes in the leadership of state-owned companies Denel, SAA and Eskom are only the starting point in a long, complex and necessary exercise to rebuild strategic state institutions that were destroyed for private profit. The project’s measure of success must not only be whether it restores these assets of the people to good operational health, but whether it helps SA avoid the need for International Monetary Fund (IMF) loans.
These companies, together with the Passenger Rail Agency of SA (Prasa), the SABC, Petrosa and others, have all been looted to the point of bankruptcy by those tasked with managing them over the past 10 years. To keep them going, government has been forced to throw billions of rand in borrowed money at them, which has only benefited the corrupt politicians and leaders of the organisations while providing little pay-off for the country.
The result is that all of us are paying more tax, direct and indirect. SA is also paying more to borrow from the capital markets, with debt-servicing costs in the 2019 budget jumping to R180bn/year. This excludes interest and capital repayments charged directly to the balance sheets of the respective companies by their own lenders. For example, Eskom’s annual cost of debt will amount to a not-insignificant R42bn/year in the reporting period to March.
Needless to say, none of these companies is in a position to sustain itself and independently deliver on the strategic objectives of delivering essential services. Government needs to find at least R100bn cash to keep them going, with half that going to Eskom alone.
But in addition to this, government has already reported a R50bn cash shortfall to fund its core business of delivering services to the people, including paying for essential services such education, health care and social grants.
So where is the money to be found to bail out SAA, Eskom, Denel and all the state-owned companies? Should the people of SA be again saddled with this unnecessary cost? How can these entities be turned into vibrant, sustainable corporate enterprises that can be assets instead of liabilities?
None of these questions even needs to be asked. No rocket science is required. Nothing trumps that old, plain, boring way of doing business: simply hire professionals and let them get on with it.
Denel has the most firepower for success
The R100bn that is required to bail them out could be both the carrot and the stick SA needs. The only sustainable way is to put the companies through the rigorous discipline needed when you have investors with money to lose. Of the R100bn bailout money, Denel needs about R3bn. Of these entities, the investment case for the arms maker is most compelling. Denel would be the easiest to fix, both financially and operationally.
Offering shares in Denel to the public would easily solve its financial problems while introducing an effective supervisory mechanism. Government would maintain its controlling stake, as it has with Telkom, which has been paying dividends and profits for the past six years as a result.
The job of saving Eskom, SAA, Petrosa and the SABC from themselves will be a lot harder. But it is entirely possible. An effective policing and prosecutorial service needs to be a key ingredient in this task. The investigation into corruption by the Special Investigating Unit announced by President Cyril Ramaphosa last week is a good start.
Under the leadership of ministers Nhlanhla Nene and Pravin Gordhan, SA stands the best chance of saving these critical institutions. Failure is not an option as it would put us on a rocky highway to the IMF.
The R100bn required to bail out these state-owned companies could be both the carrot and the stick SA needs