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President Cyril Ramaphosa has selected the Department of Public Enterprises (DPE) line in South African Airways (SAA) over the National Treasury, says Intellidex analyst Peter Attard Montalto, and now the country has to face the consequences of this decision. .
On Friday (September 18), the DPE announced that the government will change funding priorities to finalize the restructuring of SAA and the implementation of the airline’s business rescue plan. This will be done through an Adjustment Appropriation Bill, which will be presented to Parliament “soon,” he said.
“The national airline will not be liquidated,” he said. “As the restructuring process should be nearing completion in the next few weeks, lenders will be asked to finance the restructuring process and meet the commitments of the voluntary severance packages and the reduction.”
The government will decide where to find the more than R10 billion needed for the restructuring of SAA and the start of the “new” SAA, Public Enterprises Minister Pravin Gordhan told Bloomberg. He said the government’s commitment is clear and that next week’s meetings will resolve “the money issue.”
To avoid liquidation, the SAA and DPE need a lot to do well: they need cabinet approval this week for around R10.4 billion in funding; SAA bank bridge financing (guaranteed by sovereign) until the end of the year; a strategic equity partner agreement to be secured in October; and the medium-term budget to change funding priorities to rescue the airline.
According to Attard Montalto, not only does this leave a lot of room for failure on any of those points, but officials seem to have overlooked the long-term consequences of this situation.
These include:
- Growing credibility problems of the state;
- SAA is a long-term drain of the fiscus;
- Finance Minister Tito Mboweni may put an end to it;
- Future IMF / World Bank loans at risk;
- The government shoots itself in the foot over the wage bill.
First, the situation draws attention to the government’s current credibility problems, he said.
“Despite continuous guarantees from the National Treasury that it would not give more to SAA, it has lost the battle and must deliver the cash,” said the analyst. “The Treasury guarantees to the market were very specific and therefore clearly broken.”
This also makes the Treasury look bad in the eyes of rating agencies, who were assured that the South African government would not continually bail out bankrupt state companies, he said.
Continuous drainage
The bailout now also runs counter to South Africa’s Covid-19 recovery strategy, which is being talked about as the priority in the country at the moment.
While President Ramaphosa assured South Africans that the government has long-term strategies to counter the damage caused by the blockade and the Covid pandemic, he has now simultaneously approved a bailout of a state airline that will become a long-term drain. for the economy. .
“We must remember that there is already R16.4 billion for this year and the next two in the treasury for SAA to reimburse the secured creditors,” said Attard Montalto.
“Add then that SAA will need additional money for the recapitalization of subsidiaries (around R2.3 billion), around R14 billion to cover losses in the first three fiscal years in the business plan, and then you will never see yourself making a profit. So it will need a few billion every five years or so, and we can see that this is still a never ending drain. “
This has added consequences for the government’s position on the public wage bill, he said.
The government has argued that it simply cannot spend more money to pay for wage increases for public sector workers, or to comply with previous agreements on the matter. However, he is now showing that, with enough political will, it is possible to move budgets to find money to pay for something like a SAA bailout.
If this is successfully argued in court, unions could see a victory on the wage bill issue, which would generate around R32 billion in late payments and put the government in jeopardy for another R82 billion in increases. futures.
Mboweni-exit?
All these pressures, and the apparent lack of support from the top, could cause Mboweni to resign, Attard Montalto warned. Mboweni has expressed his opinion in the past that SAA should be closed.
“The minister has pledged not to fund the SAA so clearly since he took office that it is clear that there are now problems with matching. The question really arises as to why does one fight on paper after losing this battle. “
The minister previously dismissed rumors that he was resigning, saying he was “firmly here” with a lot of work to do.
The Democratic Alliance has become one of the biggest critics of Mboweni and the SAA issue, saying that it has now become clear that the minister does not have the support of the president to do what needs to be done to protect the economy.
“With less than a month to go before the Medium Term Budget Policy Statement, it will be impossible for Mboweni to talk about reducing public spending when it is clear that he no longer has the full support of President Cyril Ramaphosa and the Cabinet to achieve this goal”, Said the party.
Responding to criticism from the district attorney that he was a ‘lame duck’, the minister said that certain decisions must be made in the national interest, even if he does not agree with them.
“In politics you have to be a member of the team. You will not like all the decisions, but solve problems based on what is in the national interest, ”she said. “Dogma is useless in politics. You will lose many battles along the way, but you will not lose any war. “
Read: Not closing SAA will cost taxpayers: Outa
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