Amid the political noise of the ANC elective contests towards its December national conference, and the general state of disruption in South Africa’s politics, it’s difficult to keep eyes on what matters – the national coffers. Regardless of who wins the ANC party presidency that traditionally has led to the Union Buildings, what matters is the state of the national purse. Details will emerge in October’s Medium-Term Budget Policy Statement. But government’s wiggle room is constrained not only of a multibillion-rand bailout for SAA and other state-owned entities (SOEs), but potentially also another year of dipping tax revenue. By MARIANNE MERTEN.
For SAA and the finance ministry, 2017 is a re-run of 2015. Two years ago the national carrier was unable to submit its annual financial statements to Parliament as required because it could not complete the financials because it could not balance the books. This came despite the bailout of R6.5-billion it had received in January 2015, which had raised the total government guarantees to R14.4-billion.
Two previous finance ministers, Nhlanhla Nene and Pravin Gordhan, had to ask National Assembly Speaker Baleka Mbete for several extensions to SAA’s submissions of its financials. This only happened after a further R4.7-billion bailout in September 2016, which enabled SAA to file both its 2015 and 2016 financial annual statements then.
It’s déjà vu in 2017. By 30 September SAA has to repay R6.8-billion for loans taken against government guarantees now totalling R19.1-billion, or renegotiate a repayment schedule. It doesn’t have the money and would have to renegotiate repayments, as SAA acknowledged to Parliament’s watchdog on public spending, the Standing Committee on Public Accounts (Scopa), in August.
It’s a replay of the situation at the end of June. Then Finance Minister Malusi Gigaba had to step in with R2.2-billion to cover repayments due to Standard Chartered Bank. SAA had failed to renegotiate this repayment despite telling Parliament’s finance committee just days before the deadline of its confidence that there would be a renegotiated payment plan.
This bailout was formally announced on 1 July, when National Treasury said the R2.2-billion was released as “recapitalisation” under that section of the Public Finance Management Act, allowing the finance minister to authorise funds “to defray expenditure of an exceptional nature which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future parliamentary appropriation of funds”.
That a similar situation is expected at the end of September casts a further shadow over government’s governance that increasingly turns to ministerial executive action, rather than legislative approval through a special appropriation Bill as was done when government sold its Vodacom shares to raise R23-billion for Eskom.
According to Cabinet memorandum 17 of 2017, seen by Daily Maverick, lenders like Citibank are unwilling to renegotiate repayments falling due on 30 September 2017. “Furthermore, SAA is not in a financial position to repay Citibank nor any of the other lenders whose debt falls due…” it said, adding later that R750-million was also needed to pay SAA suppliers. And if the R6.8-billion was not repaid, the memo stated, another R7.8-billion that SAA borrowed against government guarantees would become due immediately.
The memo proposes the option of selling off government’s 39.76% stake in Telkom shares to raise R10-billion, but also pointed out this would mean losing the around R800-million government receives annually in dividends.
With Parliament on Friday going into recess for constituency work until early October, it leaves the national legislature just three weeks to clean up the bailouts before the Medium-Term Budget Policy Statement on 25 October. For this to happen, Cabinet would have to have decided how to get out of the SAA muddle.
According to City Press, financial institutions are reluctant to roll over loans until SAA board chairperson Dudu Myeni is gone. However, Myeni, who is also chairperson of the Jacob Zuma Foundation, reportedly told the board she would stay on “until uBaba (Zuma) goes” when his term as South Africa’s president ends after the 2019 elections.
Myeni joined the SAA board in 2009, and has been chairperson since 2012. In 2016 she remained in place even as the whole board was reconstituted in yet another effort to resolve years of financial and governance turbulence. In the political contestation over SAA, Myeni, said to be close to Zuma, seems to hold sway. After clashes with Public Enterprises Minister Lynne Brown, the national carrier was moved to the finance portfolio. However, relationships with both Nene and Gordhan were also rocky, and it remains to be seen how Gigaba will fare.
There was widespread expectation Myeni would depart SAA at the end of August, or the expiry of her additional year. as chairperson on the reconstituted board announced by National Treasury in early September 2016. According to the King Corporate Governance guidelines, a board member should serve no more than two three-year terms.
But it’s a little more complicated than that: chairpersons of SOEs, unless they resign, stay on to the annual general meeting (AGM), which approves the annual financial statements. Of course, herein lies the conundrum for the national airline, to put it simply: without the multibillion-rand bailout at the end of September, SAA would be unable to finalise its financials and there could be no AGM as financial statements are a key agenda item.
The SAA AGM has already been postponed once. It is now scheduled for the first two weeks of October, according to Gigaba’s spokesman Mayihlome Tshwete. Asked about Myeni’s tenure as SAA chairperson, Tshwete said: “We have repeatedly answered that… There is an intention to have a new SAA chairperson come that AGM.”
It appears there is a push to resolve the SAA financial and governance turbulence before the 2017 mid-term budget statement. If that happens, it would be one issue wrapped, leaving outstanding a request for financial guarantees from the SABC, expected to record losses of R1.1-billion, and the South African Post Office which even as it has reduced losses is still over R900-million in the red, and solutions to the financial pressures at Eskom, which has clocked up government guarantees of R350-billion.
It’s a bleak picture for a government which has put SOEs front and centre of its priorities of tackling poverty, inequality and unemployment. And the news from tax collector the South African Revenue Service (SARS) is not rosy.
At Monday’s Tax Indaba in Sandton, SARS Commissioner Tom Moyane apologised for technical glitches in 2017, promising improved and better services. In an eNCA broadcast, Moyane said: “We are surely apologetic about these glitches.”
This comes amid widespread public estimation by economists that the 2017 collection of tax, the mainstay of government revenues, would fall short by up to R50-billion. It would be at least the second year in a row. The Budget 2017 review document made it clear that tax collection had dropped by R30.4-billion below target.
When Moyane in March appeared before Parliament’s finance committee, he fingered “the apparent bias and mischievous attitude by some to cast aspersions on the character of the institution, to perpetuate a negative narrative of an organisation that is falling apart”. And reminding MPs that because SARS collected around 90% of all government revenues, any damage to the institution would cause “unprecedented” damage. At the time relations between Moyane and Gordhan, then still finance minister, were frosty to say the least. The gap of politicking has closed with Gigaba now in charge of finance.
SARS has declined to comment on speculation of a multibillion-rand collection shortfall in 2017, saying that as a rule it did not comment ahead of the mid-term budget statement. “At present SARS is preparing our statistical analyses based on year-to-date performance and developments to the economy, which as per standard practice, will be debated, analysed and compared in the Revenue Analysis Working Committee…(that) comprises of SARS, the South African Reserve Bank and the National Treasury, and provides a final position which will be communicated by the minister in his (mid-term budget statement),” said SARS spokesperson Sandile Memela.
Speaking at Monday’s Tax Indaba, Gigaba said government needed “to do its part in showing that the taxpayers’ money is used wisely, that efforts are taken to reduce wasteful expenditure and that taxpayers are treated fairly”.
And while the recent announcement of 2.5% growth in the gross domestic product (GDP) in the past quarter was positive, the predicted 1.3% economic growth for 2017 remained at risk. “Our current level of growth, which is outpaced by the rate of growth of the population, is clearly insufficient and unsustainable. We simply have to take drastic measures and do better to get the economy growing faster, bigger, sustainably and inclusively…” Gigaba said in a prepared speech.
But it’s the season for showing face amid the contestation ahead of the ANC national elective conference – and political smoke and mirrors rules. And so Gigaba, accompanied by several Gauteng politicians, went to a township school for a photo opportunity to announce the date for the Medium-Term Budget Policy Statement that had long ago been fixed in the parliamentary calendar.
Amid all this political noise, the old saying holds true as never before: Follow the money. DM
Photo: South African Finance Minister Malusi Gigaba attends the second day of the World Economic Forum on Africa 2017 meeting in Durban, South Africa, 04 May 2017. EPA/STRINGER
"Man is by nature a political animal" ~ Aristotle