Picture: BUSINESS DAY
Picture: BUSINESS DAY

Four months into the Cyril Ramaphosa administration and things are starting to get real. While progress on the micro reforms needed for economic growth is slow, there is one area where things are accelerating at a giddying pace and that is in the state-owned companies. The CEs who have been put in place "to save" these companies are rolling out their battle plans and they are determined to succeed.

South African Airways CEO Vuyani Jarana has been so bold as to accept a wager of R100,000 to charity with director of the Free Market Foundation Leon Louw that he will be able to turn the airline into a profitable company in three years.

To save themselves both SAA and Eskom must cut jobs. The culture of patronage and corruption and straight-forward inefficiency that has prevailed over years has resulted in payrolls that are swollen both with people and with remuneration.

Eskom with its 48,000 employees is overstaffed by a third compared with other similar utilities.

South African Airways CEO Vuyani Jarana has been so bold as to accept a wager of R100,000 to charity with director of the Free Market Foundation Leon Louw that he will be able to turn the airline into a profitable company in three years

SAA is also loaded with a staff complement that is many, many times the international norm when measured by employee per aircraft. Its pilots enjoy conditions of service that are among the best in the world.

In both cases these battles are shaping up fast. Eskom CE Phakamani Hadebe has done what was previously unthinkable and offered a 0% salary increase. At SAA, 10% of jobs at subsidiary Air Chefs are on the block. At the airline itself, off-the-record sources are saying that 1,000 to 1,500 jobs could go.

But Jarana should perhaps first have asked for the backing of the ANC before he took the wager with Louw. As things stand the ANC is more open now than it has been for a long time to private participation in state-owned companies. It is very unlikely to block, for instance, a private equity partner for SAA. But job cuts are always the bitterest pill to swallow and whether the party can stand firm and back Ramaphosa and Public Enterprises Minister Pravin Gordhan is still to be seen.

We have already been through a test of strength between the government and its employees in the past four months. The government settled with public servants in an agreement that was only marginally less expensive than the previous three-year agreement.

While the Treasury made provision for R110bn in salary and other improvements over the medium-term expenditure period, the wage settlement bust that ceiling by R30bn. What had been required to keep within the ceiling was a straight salary increase in line with the consumer price index, but the government was unable to hold the line.

What became very clear to all from the experience of the February budget is that unexpected and large adjustments — such as the R57bn to fund free higher education — inevitably bring shocking budget cuts to other departments.

The R30bn will bring a new set of trade-offs in October’s medium-term budget policy statement.

The IMF, which ended its mission to SA with a preliminary statement on Tuesday, has indicated that it believes that SA is not tapering off its debt fast enough.

It suggests that additional measures — equal to about 1% of GDP — should be taken and that more revenue-raising measures and spending cuts are required to stabilise public finances. The government and the ANC should take this as an early warning.

Reining in state-owned companies, in particular their debt, and reining in the expanding public sector wage bill are two of the top priorities that ratings agencies, investors and multilateral organisations like the IMF have singled out for attention.

They will look to progress in these two areas for a signal on whether Ramaphosa has the political will and power to proceed with other more difficult reforms.

Ramaphosa needs to be strong but also needs his party to stand behind him.

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