The South African government is currently incurring debt at an average rate of R2.1 billion per day. This was revealed by Finance Minister Tito Mboweni in his Medium Term Budget Policy Statement (MTBPS) on 28 October. Debt-service costs are projected to increase to R353.1 billion in 2023-24. Every rand that government spends, now yields less than R1 in GDP (compared to 2009, when every R1 spent 'bought' R1.60). The debt-to-GDP ratio will breach 95% in 2025/26 - and this is being optimistic that government can curb its hunger to spend big. Debt service costs (currently at 4.8% of GDP), are projected to increase at an average annual growth rate of 16.1% over the next 3 years.
Bigger debt problems are best concretised in the form of South African Airways (SAA); government's obsession with SAA and belief that it can run an airline efficiently will only add to the growing overall debt burden.
It appears that, in the garb of 'reform', this administration and Treasury have an appetite only for cosmetic 'changes.' The government is spending beyond its means and will defer meaningful cuts to be made by future administrations and generations. This latest move by government and Treasury to provide SAA with R10.5 billion for its business rescue plan, and a further R6.5 billion to settle debt and interest, indicates a reluctance to make urgently needed radical policy changes.
To fund this latest attempt to save the failed state-owned airline, cuts will be made to departmental budgets, including education (R1 billion) and police services (R1.2 billion). Health will be cut to the tune of R694 million (wherefrom the money for National Health Insurance?); Transport, R681 million; Human settlements, R345 million; Correctional services, R308 million; National Treasury, R362 million.
Might the money given to SAA - which, if it manages to fly again relatively few people will enjoy in any case - not have been better used for feeding schemes for children in rural communities? Or, perhaps infrastructure for rural communities? President Ramaphosa has often talked about a much-vaunted ‘infrastructure drive’ - or is that only for people in urban areas? What about the improvement of water infrastructure, or assistance for suffering farmers (upon whom we all depend)? What about repairing the serious structural problems in South Africa's public healthcare and education sectors?
I've struggled to find a way SAA could succeed, especially given the climate of a global pandemic and worldwide government lockdowns. Let us presume the business rescue of SAA works, and the airline comes 'online' again - how long will it be until it can turn any kind of profit? The business rescue plan itself foresees that the airline stands a chance to only be profitable in 2024 - what concrete reason do we have to believe that government will not again step in, cut other budgets, and help SAA when it inevitably fails again?
On 29 October, Public Enterprises Minister Pravin Gordhan expressed his relief that SAA would receive more money, and said it prevented the liquidation of the airline that would have entailed great financial and human cost. Unfortunately, for as long as South Africa has an ever-growing state, we will always witness harsh trade-offs. With dwindling tax revenue and government's view that it must provide everything people might require, harsh decisions will continue to be made. And while government could refocus and provide services to those who desperately need them, it seems it will push on with SAA, to the benefit of only the very few.
The Minister's statement was also not entirely honest - any business rescue plan will require a restructuring of the business, and thus the +R10 billion will be used for, amongst other things, severance packages for staff, and to try and make the whole business more streamlined. In the end, this latest bailout is not about saving current SAA jobs.
In the same statement from his department, we receive this insight, "The minister is shocked and disappointed with the DA, other parties and some analysts' lack of insight, financial literacy and understanding of governance processes." That the Minister reacted to the critique of such blatantly ill-considered 'assistance' for SAA, indicates the fundamental perspective at play in government: We are your enlightened leaders, we control the public purse, we are privy to information and insight you can only dream of, and we will act accordingly.
According to Nick Hedley, "South Africa's economy doubled in size under Mandela and Mbeki (105% increase in 14 years). Since Zuma took over, it's grown slightly over 20% (in 12 years). Our population has grown 16% since Zuma took over, so basically zero economic growth per capita." If we go on purely concrete evidence (not to say the moral problems with a government controlling people's lives), it is clear that South Africa's policy trajectory is not working. Presidents Mandela and Mbeki realised that the engine that is the private sector requires more freedom to operate - this perspective must be embraced again. If this country is to ever experience meaningful, transformative growth, government has to realise it cannot redistribute people into prosperity, and must cease trying to control the minutiae of our lives.
The MTBPS was an opportunity for this government and National Treasury to show a realisation that they cannot fund everything under the sun, that their policies have driven the country into the fiscal abyss, with very few ways out. One of those ways - that would have signalled to international credit agencies and investors that government is serious about arresting growing debt concerns - would have been to let SAA go. Such a move would have indicated rationality, humility, owning past mistakes, and empathy for SAA employees. Empathy in the sense that their futures would no longer be beholden to political interference and bureaucracy, and they would have certainty to try and take their experience and skills elsewhere.
Continued support for failing SOEs will only reinforce internal - and most importantly, external - perception that South Africa won't be the ideal destination for serious investment any time soon. Further, it will reinforce that the government wants to continue having a large stake in the economy - at the cost of private sector activity, greater job creation, investment, and innovation. If we're going to see a material improvement in people's quality of life, and more people included in the benefits that come with growth, the country needs substantive economic growth of 5%-8%. The same policies are going to produce the same results that we have already witnessed - stagnation, growing unemployment, and a lack of investment.This article was first published on City Press on 6 November 2020
Comments on In keeping SAA, government shows where its priorities lie