2018-09-27 08:32

Morné Mostert

President Cyril Ramaphosa has presented what the country and the world needed to hear: expenditure will be reprioritised.

If the previous priorities were built on radical economic transformation, the new priorities of health, education, tourism, reducing the cost of business, infrastructure (including energy, ports and rail transport), agriculture, townships and rural areas, appear to be moderate economic transposition.

In a sense one might argue that nothing has remained untouched as the plan is noteworthy for covering a wide range of challenges. Infrastructure calms down most of the business community in the short term, and this can be beneficial when the wolves of rating agencies are at the door.

In this sense, infrastructure appears to be a safe bet. But it leaves two significant considerations:

Are the plans based on the future?

Reprioritisation of resources must be future-based, rather than problem-based or (and this is tough in South Africa) past-oriented. This is because today’s problems expire and new problems emerge.

An appreciation of the longer-term and the cyclicality of investment is essential. Investment in poorly selected or politically driven infrastructure projects will create a false boom in the immediate term.

The potential for real growth, even on leveraged finance, is most likely to be in the medium-term, but there is also the distinct possibility of crushing debt in the longer term once the reality of the future economic ecology makes the white elephant infrastructure projects apparent.

Naturally, infrastructure investment is not inherently flawed as a strategy, but discernment about investment targets will be key. Olympic Games and Soccer World Cup-type investments globally are classic examples of such high risk investment patterns. When projected returns fail to come to fruition, government reporting then focuses on total spend, rather than sustainable jobs created.

Where will the new money come from?

Reprioritisation is often code for the absence of new ideas. Already hushed tones of “heard this before” are whispered in the corridors. Boosting investor confidence may be the expressed target, but investors are mainly curious about growth, not about expenditure. And over-promising the ROI on rural development will not attract the discerning investor.

Given the low rate of growth in South Africa, investors will also expect certainty on the accuracy of cost estimation for projects of scale – often anathema in infrastructure development finance. The long-term investor knows that, in the extended term, South Africa might well be financing poor short-term budgeting processes driven by the political rush for re-election.

If such projects are to be owned and managed by state-owned enterprises (SOEs) as the main vehicles of delivery, investors might be even more sceptical. Public-private-partnerships (PPPs) may be more attractive, but this, as always, will have to be balanced with the political optics.

What is urgently required is a systemic appreciation of most probable real return on investment in the longer term, not compared with the absence of any investment but with alternative investment vehicle choices which will stimulate new opportunity rather than move the furniture.

The Madrid Scenarios

In 2017 the Institute for Futures Research (IFR) published the Madrid Scenarios (so-called because it was first launched at the Office of International Education in Madrid). The dimensions of this set of alternative South African Futures introduced four key drivers of national success, which will need to be addressed by the new stimulus package.

The first is cohesion and collaboration over factionalism and self-interest. It may not be politically expedient for Ramaphosa before the 2019 election, but investors will be enamoured with a call for national unity, rather than a perpetuation of the Zuma-era insistence on defensive racial factionalism. The Zuma-style divide-and-conquer approach will have to give way to explicit welcoming of new ideas and radical innovation diversity. Ramaphosa is showing positive signs on this dimension with calls for increasing the ease of business and relaxing strangling visa requirements. 

The second dimension is what the scenarios called ‘Surfing the Fourth Industrial Revolution’ over exceptionalism. An exceptionalist mind-set, characterised by deeply dysfunctional state behaviour, such as market perturbing late night announcements and constitutional scepticism, must now give way to an internationalist perspective. 

This is already evident in Ramaphosa’s behaviour, most notably with his earlier influence at Davos and his address this week at the UN high-level debate.

The third dimension is a paradigmatic one: growth over redistribution. Here Ramaphosa is ambiguous. As ANC president redistribution looms large, but as statesman he recognises the need for rapid growth. Early signs are also evident of “redistributive growth”, a compromise which may offer a way to recovery.

The fourth elements is ROI (not spend) on education. It should be noted that the stimulus package commitments of investment in school infrastructure will not ensure high quality educational achievement. 

ANC alliance partner COSATU may have to be called upon to moderate the role of unions in the education sector to ensure a move beyond defensiveness towards educational performance – the true long-term investment for South Africa.

Against the most favourable of the Madrid Scenarios, known as Ecotopia, Ramaphosa is delivering encouraging signals. He has proven himself a master of the long game – a distinguishing quality of a true statesman. Mr President, send us for the long-term.

– Dr Morné Mostert is director of the Institute for Futures Research, a unit for strategic foresight at Stellenbosch University.

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A man has been arrested for allegedly raping a 17-year-old in a maternity ward in Mthatha – a day after she had given birth, police said on Tuesday.

Captain Dineo Koena said the 30-year-old man posed as a doctor who was visiting the teen for a post-natal check up on Tuesday morning. She had given birth on Monday.

“It is further alleged that [he] ordered her to undress so as to do [a] thorough checkup and afterwards raped her in her maternity ward,” said Koena.

Police were alerted and arrested a man at the hospital at about 12:30.

He is to appear in the Mthatha Magistrate’s Court on Wednesday.

Eastern Cape health department spokesperson Lwandile Sicwetsha said the incident did not take place at a public hospital.

Comment from the hospital was not immediately available.

The driver of the bus that crashed on the N1 south in Limpopo killing nine people on Friday has been arrested while allegedly trying to cross the border to Zimbabwe, provincial police said on Monday.

Police spokesperson Colonel Moatshe Ngoepe said the driver was allegedly caught hidden inside a goods trailer trying to illegally cross the border to Zimbabwe.

Shortly after the accident, the driver was taken to hospital with 51 other injured passengers for medical treatment.

“As the process of intensive investigations by the police was unfolding, especially on the possible cause of that accident, he then disappeared following his discharge from hospital and fled towards the Beitbridge port of entry,” said Ngoepe.

He will appear in the Polokwane Magistrate’s Court on Tuesday on nine counts of culpable homicide.

There was a possibility of additional charges at a later stage, according to Ngoepe.

Ngoepe said it was alleged that the bus was travelling from the direction of Polokwane towards the Gauteng province when the driver lost control and it overturned.

The bus was carrying 61 occupants including the driver and the crew.

“Nine out of the 61 people were certified dead at the scene, the other injured people including the driver were taken to different hospitals for medical treatment,” said Ngoepe.

The identification process of all the deceased was still unfolding, according to Ngoepe.

SAA is considering selling off assets after banks have refused to lend it any more money – and its debt ballooned to R15bn more than its assets at the end of July.

A senior SAA executive told City Press this week that the airline’s finances are in tatters and the Auditor-General has raised serious concerns about its viability.

SAA, which is technically bankrupt, will therefore not present its 2017/18 financials to Parliament by the end of this month, as required by law.

Senior SAA staff and a confidential report, presented at the company’s board strategy session 10 days ago, reveal that the airline’s management is now looking at a number of aggressive cost-cutting measures, including selling off its catering arm, Air Chefs, and outsourcing or selling SAA Cargo.

A top official at the national carrier told City Press that in the meantime, the company would look to government for more bailouts because banks have “hardened their attitudes” and are “continuing to refuse” to lend it more money, despite Treasury guarantees.

SAA has about R19.1bn worth of government guarantees.

In September last year, Treasury gave SAA a R3bn cash bailout to avoid defaulting on a Citibank loan.

The report, a turnaround strategy document which SAA chief executive Vuyani Jarana presented to the board last week, reveals that:

– On March 31, the last day of the 2017/18 financial year, SAA had R13bn in assets and R26bn worth of debt. But by July 31, the company’s assets remained at R13bn while its liabilities burgeoned to R28bn;

– The airline will record a R6bn loss by the end of the current financial year;

– SAA Technical (Saat), which has suffered significant losses to “fraud and theft”, is bleeding money, losing up to R560m a year in penalties from poor turnaround times for aircraft repairs and maintenance;

– SAA’s monthly costs, ranging between R350m and R450m, are significantly higher than its revenue and are not coming down fast enough; and

– SAA needs to reduce costs by 5.2% and increase revenue by the same amount to record a R1bn improvement by the end of the current financial year.

Although the report did not mention anyone by name, it slated the previous board, led by former chairperson Dudu Myeni, for leaving SAA with rampant corruption, low pilot productivity, a significantly weak balance sheet, liquidity problems, loss of confidence from suppliers, a lack of critical skills and fragmented IT systems.

“Unfortunately, SAA has had acting people in most senior positions. The board was also fractured and there was a lot of instability. The problem here is not even the market, but within, with people stealing and committing fraud,” another executive said.

“But SAA is absolutely fixable and Jarana is moving things in the right direction.”

Selling assets

Although no decision has been made to sell some of SAA’s business units, the report shows that the matter was discussed at the board meeting. Jarana, who has led SAA for almost a year, asked board members whether the SAA Group needed all the businesses “given the relative sizes and impact on financials”.

A senior SAA official said: “We continue to review our portfolio and we continue to engage with the shareholder. There is no holy cow and everything is under consideration. There is no pressure to sell anything, but does SAA really need Air Chefs?

“We are not in the business of selling food and it is not our core business. We just need ready-made food at the cheapest cost available, without having to worry about management and staffing issues.”

Regarding SAA Cargo, the document said while the division generated more than R2.1bn last year and made a R387m profit, it had major problems – including antiquated warehousing facilities, rigid pricing models and extensive dependency on aircraft that ferry passengers and cargo at the same time.

Jarana asked the board to consider a full cargo division or to outsource the business completely.

The document shows that Jarana is inclined towards outsourcing the cargo division to a private third party.

Banks won’t finance SAA

A senior SAA executive said government will have to continue funding the airline until 2021, when its balance sheet becomes self-sustainable.

“Banks have walked away from us despite our guarantees from Treasury. It is true that they don’t want to fund us. They will only fund us once they see a path to debt reduction,” he said.

“If you are a shareholder of a company and you are unable to source funds from banks, what do you do? You have to step in and rescue the situation, to the extent that you believe the turnaround strategy is worth the paper it is written on.”

The report shows that the airline will need R21.7bn between now and 2021, when it is expected to return to profitability. The R21.7bn is made up of government bailouts amounting to R12.5bn, and loans of R9.2bn.

In addition, it shows that in the current financial year, Jarana’s executive management is projecting a 5.2% loss which, according to projections, will be reduced to 1.9% in the 2019/20 fiscal year before returning to profitability, with a projected 1% profit, in 2021.

In September last year, City Press reported that Nedbank told a meeting – attended by Treasury’s director-general, Dondo Mogajane, and SAA’s former chief financial officer, Phumeza Nhantsi – that the bank would not lend money to SAA as long as Myeni was still on the board.

Nedbank was not the first bank to withdraw support for SAA. In July last year, Standard Chartered revoked its R2.207bn loan, and a month later, Citibank pulled the plug on a R1.8bn loan.

However, another SAA executive said Treasury and the department of public enterprises were in discussion with the banks to try to convince them to change their minds not only regarding the funding of SAA, but of other state-owned entities as well.

“But when it comes to SAA, a funding plan must be created. You cannot just rely on debt for such a big company. The problem with SAA is that it doesn’t sell as a brand. A brand must sell.”

The document shows that Jarana’s corporate plan was beginning to bear fruit. The plan, approved early this year, has as its focus revenue stimulation, flight schedule reorientation, organisational design, supply chain transformation and the overhauling of Saat’s logistics and operations. The report shows that during the first quarter of this year, SAA’s revenue improved.

Jarana refused to comment about the plan. However, another official said this had been brought about by the realisation of a “dramatic shift to low-cost airlines, and the executive management decided to shift four aircraft from SAA to Mango”.

In April, SAA also reduced the number of flights to London’s Heathrow from two each day to one. SAA also introduced new aircraft on this route which caused SAA to post a profit on the route for the first time in more than a decade.

A revamp of the airline’s flight schedule will involve rescheduling flights to Germany, Hong Kong, Perth and Buenos Aires to improve connectivity for passengers, capture more traffic and extract more flying hours on each aircraft, the document shows.

SAA, another executive said, was also looking at establishing new routes from West Africa to the US and London, and from Johannesburg to the Asia-Pacific region.

“We need to grow and we want to use the same aircraft to fly more,” he said. We are focusing on route profitability. The plan is to grow and become a commercially viable airline. The corporate plan has identified a number of risks and mitigation strategies.”

He blamed government for SAA’s woes, saying: “Airlines need stability. Most of the chief executives of most of the big airlines have been there for more than a decade. The mind of the shareholder is reflected on the board.”

SAA spokesperson Tlali Tlali said the airline was unable to comment because it had not seen the strategy document. “We will soon address the media on the progress we have made, milestones, and the path that lies ahead in transforming SAA … We are confident that the airline is moving in the right trajectory and we are making steady progress.”