Sona 2020 Preview

Peddling hope between a rock and a hard place 

By Marianne Merten 11 February 2020
Caption
South African President Cyril Ramaphosa. (Photo: Jeffrey Abrahams / Gallo Images via Getty Images)

In a low growth, low tax revenue, high unemployment economy, further dampened by governing ANC policy flip-flops, delivering a State of the Nation Address (Sona) is daunting. It’s unclear if on Thursday night President Cyril Ramaphosa will do more than spin hope.

Cosatu’s recent, if controversial, push to make government workers’ pensions and social savings available to slash Eskom’s R450-billion debt (Reporter’s Notebook: Cosatu’s proposal for PIC-funded R250bn bailout and Eskom’s municipal debt take centre stage ) may well be mentioned in President Cyril Ramaphosa’s State of the Nation Address (Sona), if for no other reason than in support of social compacting.

Social compacts between labour, business and government have been a theme throughout Ramaphosa’s speeches over the past two years or so, although more elusive in reality beyond the optics of an investment conference.

Yet social compacts, and the municipal district development model are the mainstay of the current five-year Medium-Term Strategic Framework (MTSF), the overarching plan of government to coordinate, implement and account for its actions, plans and programmes to 2024.

State-owned enterprises (SOEs) should definitely get a mention in Thursday’s Sona.

But it gets tricky beyond saying SOEs are receiving attention. Unless it’s announced, the grapevine has it right: the Unemployment Insurance Fund (UIF), which is running a healthy surplus, could also be tapped to finance struggling SOEs.

Eskom’s rolling power outages have, again, become a daily norm at an estimated cost of R2-billion a day to South Africa’s already battered economy that’s unlikely to hit even 1% growth.

The Post Office appears in turmoil again, potentially undermining social grant payments, while Denel is struggling to get out of its difficulties. The Passenger Rail Agency of South Africa (Prasa) with its dire audit isn’t exactly keeping trains rolling safely and on time.

SAA best illustrates how Ramaphosa’s hands are tied – by the factional battles in the governing ANC he leads, by the tripartite alliance politicking and by lack of government balls to stay the course of its decisions.

On 5 December 2019, the government announced that SAA was in business rescue. Since June 2017, the national flag carrier had received at least R15.7-billion in taxpayer-funded bailouts without being able to climb out of its financial and governance turmoil.

“This is the optimal mechanism to restore confidence in SAA and to safeguard the good assets of SAA and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner,” said Public Enterprises Minister Pravin Gordhan.

“Our desire is that the restructured airline will mark the beginning of a new era in South African aviation and must be able to bring in millions more tourists into SA, help create more jobs in tourism and related sectors of the economy…” 

The ANC National Executive Committee (NEC) lekgotla of January 2020 seemed to be on the same page.

“SAA should be retained as a national airline, which will require substantial restructuring. Cabinet should take the operational decisions needed to achieve that aim,” said the official ANC statement of 22 January 2020. It added later: “We must avoid political interference in operational matters, other than interventions in the case of mismanagement and possible company failure.”

There was a twist. The government guaranteed the R2-billion SAA raised from commercial banks, but did not come to the table with a further R2-billion that the December statement had indicated would be made. Another plan was made.

On 28 January 2020, the Development Bank of Southern Africa (DBSA), another SOE, stepped up with R3.5-billion. DBSA board chairperson Enoch Godongwana, wearing his hat as ANC economic transformation chief at the ANC NEC lekgotla briefing, had hinted at a solution which would be announced later at the appropriate forum.

But on 6 February 2020, furore erupted when the business rescue practitioners announced that by month-end all domestic routes except between Johannesburg and Cape Town would be scrapped, as well as several regional flights and all but a handful of international flights such as the Johannesburg to Frankfurt and London to Heathrow routes.

And there would be job cuts.

“It is our intention to restructure the business in a manner that we can retain as many jobs as possible. This will help provide a platform to a viable and sustainable future. However, a reduction in the number of employees will unfortunately be necessary,” the business practitioners said.

Cosatu let rip, rejecting any job cuts. The National Union of Metalworkers of South Africa (Numsa) and the South African Cabin Crew Association said their lawyers were looking at options. The South African Communist Party (SACP) followed suit in protest over job cuts.

KwaZulu-Natal Premier Sihle Zikalala on SAfm described the flight cancellations as tantamount to “economic sabotage”. And Ramaphosa, just about to step on the plane to Addis Ababa to take over as the head of the African Union, went on public record to note his disagreement.

On Friday 7 February 2020, Gordhan announced that government would step in, in what effectively amounted to political interference – the business rescue process to return SAA to sustainability seemingly could not quite do what was needed.

“Government will be making representations to the business rescue practitioners in order to balance the necessity for trimming unprofitable routes with the need to ensure the future sustainability of both the airline and South Africa’s aviation industry,” said Gordhan.

The response by the business rescue practitioners was telling, saying the decisions to cut routes and limit job cuts as best as possible were taken in the best interest of SAA.

“They are intended to make the airline commercially and operationally sustainable, free from the requirement of future funding from the government post the implementation of the restructure,” said the business rescue practitioners.

“The actions are aimed at improving SAA’s balance sheet, which is intended to create a platform for a strong and sustainable airline and so ensure that the company is more attractive for potential strategic equity partners.”

Then, in a further twist, this time in the ANC factional politicking, the governing party’s national chairperson, Gwede Mantashe, also mineral resources and energy minister, said SAA should be ditched if it could not keep itself in the air. The comments, widely reported in City Press (Mantashe to SAA: Make profit or close ) and Sunday Times (Sell ‘elitist’ SAA – Gwede Mantashe ) follow longstanding commentary on the elitist character of airline transportation, compared to buses and trains, by Finance Minister Tito Mboweni, repeatedly publicly questioning the sustainability of SOEs, including during the 2019 Budget speech.

This illustrates that when the harsh reality of turning SOEs like SAA is realised, politicking and political brinkmanship usually centred on sectoral interests stall the process.

This governance paralysis is underscored by ANC factional jockeying stepping up ahead of the governing party’s mid-term assessment by the National General Council (NGC) in June 2020. Who would make an unpopular decision and risk sharp criticism at the NGC, with potential ousting moves to unfold before the ANC’s next elective conference in 2022? Few would dare.

Ramaphosa is tied up in knots in both party and country presidency because he wants to take the ANC along the path of reform, finely balanced factions notwithstanding.

In government, taking the bitter pill could be avoided until now, given the accessibility of further taxpayer-funded bailouts. But in 2020 those bailouts are increasingly unfeasible given the lower than estimated tax revenue, with higher unemployment, lower salary increases that shrink consumers’ pockets, and drooping business returns.

With local government elections in 2021, the district development model touted as the mechanism to break deadlocks in local service delivery is set to get a mention. And that may just provide an upbeat moment, even if just as a hook to the perennial Sona feel-good moment, the traditional recount of achievements. Government’s motto over the years has remained largely unchanged: we have achieved much, more needs to be done.

Ramaphosa, who came into the Union Buildings on a swell of goodwill and hope dubbed Ramaphoria, may just return to that call in the search for positive optics.

South Africa assuming the chair of the African Union is one such positive move, in line with the ANC’s approach of “a better Africa, a better world”. 

Invoking Madiba is another. Tuesday 11 February 2020, two days before Sona, is the 30th anniversary of Nelson Mandela’s release from prison, and the historic address to tens of thousands gathered on Cape Town’s Grande Parade. And as in 2018, at just past 3pm, Ramaphosa is set to deliver a public address.

The weekly missive “From the Desk of the President” has hinted how to deal with the “new challenges” 26 years into democratic South Africa:

“Our history tells us that we can overcome even the most intractable of problems only when we work together. The release of Madiba, like the end of apartheid itself, was achieved through united and sustained action. It was achieved by putting aside differences to pursue a common goal.”

And so peddling unity and hope may well be the underlying message of Ramaphosa’s Sona2020.

But hope is not a strategy, as Webster University Business School Dean Benjamin Ola Akande wrote in an open letter (“Hope Is Not A Strategy”) to then-president Barack Obama on 23 January 2009.

“Yet, the fact remains that hope will not reduce housing foreclosures. Hope does not stop a recession. Hope cannot create jobs. Hope will not prevent catastrophic failures of banks. Hope is not a strategy.”

And while that letter was written at a different time and in a different geography, its key message is relevant in the deeply troubled South Africa of today.

Hope is not a strategy. DM

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