Bailout-gobbling SOEs now spy a Covid-19 meal ticket

Ideas

Bailout-gobbling SOEs now spy a Covid-19 meal ticket

SAA and the like merrily hoover up cash meant to fight a pandemic as they skip sorely needed reforms

Columnist
SOEs have very little to show for all their taxpayer-funded bailouts.
What a waste SOEs have very little to show for all their taxpayer-funded bailouts.
Image: 123RF/James Steidl

Many failing state-owned enterprises (SOEs) see the Covid-19 crisis as an opportunity to secure free bailouts, without having to undergo the desperately necessary organisational restructuring – from overhauling incompetent boards and managements, to reducing costs and modernising business models.

The danger is that SOEs have sucked dry SA’s Covid-19 economic recovery resources, without any returns in terms of quality service or products, efficiencies and honest governance. Influential leaders of the ANC are now arguing that the Covid-19 crisis, which has seen many private companies collapsing, is a new dawn for SA’s ailing SOEs.

They say that because private companies are faltering; this is the moment for SOEs to take SA into the post-Covid-19 economic future. The lockdown has collapsed many formal and informal private businesses. Rightfully, those businesses that remain going concerns should be encouraged to try at all costs to retain jobs, even if it means reducing salaries or work time.

However, many failing SOEs now appear to want to ride on the very good sentiment to retain jobs where possible, to seek bailouts to stay in existence without doing the necessary organisational reforms.

The problem is that most of those who argue for SOEs to be rebooted – whether to retain jobs or to deliver services – say very little about the appalling inefficiencies, patronage and corruption in these entities, which have sucked out more than R1-trillion in taxpayers’ money alone over the past decade, for very little services or products in return beyond retaining many cushioned jobs.

The ANC, in its economic reform discussion document launched last week (called “Reconstruction, Growth and Transformation: Building A New, Inclusive Economy”), called for the establishment of a number of new SOEs, without analysing and providing constructive remedies to the failures of current ones. Neither does the document say anything about the fact that a number of current SOEs have failed to do the very jobs they propose new proposed SOEs should do.

Even now, SOEs that are supposed to deliver urgent Covid-19 relief have done a terrible job, being plagued by red tape, corruption and a lack of urgency.

The Unemployment Insurance Fund, which pays out unemployment grants, has been criticised by business, civil society and beneficiaries for the slow pace at which payments have been processed. The administration of the South African Social Security Agency (Sassa), which processes the R350 Covid-19 emergency social grant for the unemployed, has been in a shambles, causing long delays in the processing of payments and countless rejections.

The political will was already lacking before Covid-19 to bring new management and boards to SOEs, update their business models and tackle their procurement corruption.

Before Covid-19 the government had pushed for some SOEs to be closed down, others to be downsized or merged, and the remainder to be cleaned up. It now appears such reforms are on the back burner. The political will was already lacking before Covid-19 to bring new management and boards to SOEs, update their business models and tackle their procurement corruption – the Covid-19 financial crisis has now evaporated even the token political will do so.

Last week the National Treasury granted the Land Bank R3bn in emergency equity funding. Denel, the state defence firm, says it may not survive the next few months unless it’s allowed to use previous bailout money to generate revenue rather than repay debts.

The SABC told parliament’s communications portfolio committee that its predicted R1.5bn shortfall in the 2020/21 financial year was “a very conservative number” and that the organisation planned to submit a request to the government to “review” its budget – meaning, in simple terms, asking for a bailout.

The Post Office is expecting a loss of more than R1bn for the past financial year.

In May the Central Energy Fund (CEF), in a presentation to parliament’s portfolio committee on mineral resources and energy, said that to restructure PetroSA would need R15bn. Several previous turnaround strategies at the CEF had failed dismally.

The Treasury, in a written statement to parliament’s two finance committees at the beginning of this month, said there would be no bailouts for SAA, SA Express and state-owned Alexkor, and proposed that these companies should be closed. 

A business rescue plan for SAA is estimated at R40bn, if it also secures working capital, and pays debtors and retrenchment costs. It is very likely, given pressure from the ANC and trade unions, that the government will bail out SAA, SAA Express and Alexkor, even though the Treasury has said it would be opposed to bailouts. The ANC has already stated that SA needs a national state-owned airline.

ANC secretary-general Ace Magashule said before the Covid-19 outbreak: “We have not shifted from the position that we will do all in our power to retain the SAA as a state-owned enterprise. Even though [SAA] is under business rescue, the main shareholder is still government and government does have a say.”

In May, Public Investment Corporation (PIC) chairperson Reuel Khoza said the organisation had tabled a proposal to help bail out Eskom. Eskom has R450bn in debt. It would involve the PIC, the Government Employees Pension Fund and the UIF clubbing together to pay at least R200bn of that. Very few of the SOEs that have been bailed out have any turnaround strategies; if they do, written in most cases by management consultants, they are not based in reality, they are not worth the paper they written on, and invariably fail when implemented.

The Land Bank, Denel, the SABC and the Post Office have not come up with any kind of credible turnaround strategy. There is disagreement between the government, trade unions and employees over the business rescue practitioners’ turnaround plan for SAA, which involves a R10bn bailout, wide-scale retrenchments, and asset and route sales.

The CEF said the turnaround plan for PetroSA had not been put together. SAA has had several failed turnaround plans over the past 15 years. Even in the case of Eskom, which has received the largest taxpayer-funded bailouts, its “road map” for restructuring has still not been implemented.

Nevertheless, it is clear that Covid-19 will see SOEs, even those slated for closure, rescued, with scarce public resources. Many SOEs will again not show any turnaround plans, and if they do, are unlikely to implement them, like before Covid-19. SOEs should have turnaround plans which at the minimum include recruiting the best talent in the country, changing their business model, getting rid of non-core assets and non-performing staff, tackling procurement corruption and seeking strategic equity partners where possible.

The bailouts of failing SOEs, without any conditions, or without enforcing of these conditions, as has been the case before, will add to SA’s post-Covid-19 economic blues.

William Gumede is associate professor, School of Governance, University of the Witwatersrand; and author of South Africa in BRICS (Tafelberg).

You have reached the end of the Edition.