Economic recovery: SAA and power generation decisions show government is serious

Last week’s announcements of the sale of SAA and the increase of the electricity generating licensing threshold to 100MW were highly positive. They are the kind of dramatic interventions needed to get our economy moving.

In different ways they signalled government’s willingness to break from orthodoxy and shift the structure of our economy. They showed that government is serious about holding up its side of the bargain in the agreed economic recovery plan to get South Africa growing again.

As I argue today on Fin24, the embedded generation decision means companies now have a realistic prospect of ending the chronic electricity insecurity they have faced because of load shedding. They will be able to build their own generating capacity and wheel the supply across the grid to consume it elsewhere. This makes a huge difference to investment – not only the R100 billion we expect will be invested directly in new generating plants, but also the other investment in new mines and factories that becomes possible because companies will have more reliable energy.

Read: Is this Ramaphosa’s most decisive economic decision since taking office?

The decision on SAA is also very important. SAA has been perhaps the clearest casualty of state capture, literally run into the ground. Stuck in business rescue, the only possible way out was to sell a controlling stake in the airline.

The consortium that has proposed buying the stake includes private equity interests as well as highly experienced airline experts. While there are several conditions that must be met for the deal to conclude, including a due diligence by the buyers, the deal may well lead us to the kind of airline industry that we need to support growth in the country.

Read: Government sells majority of SAA to private entities

Despite years of chronic indecision on SAA, we have an airline policy vision set out in the Civil Aviation Policy white paper that was gazetted in 2017 that is very clear. It envisages a competitive airline industry in which all participants are treated equally, where “economic decisions should be resolved by the market” and “all participants in the air transport market should be treated equally before the law”. The decision on SAA is simply a logical application of this policy. Even before SAA’s latest troubles the airline had received billions in public subsidies, violating these key principles of the policy. It was not tenable to continue this way.

With SAA as a privately controlled airline, it can look to remake itself as a competitive operator. Government will continue to hold a 49% stake, but it should see this as an opportunity to participate in the upside, rather than an opportunity to meddle in its affairs. Telkom provides an example: before government gave up its controlling interest the telecommunications provider was losing money. Since then, it has become a profitable operator, paying taxes as well as dividends to government. SAA could one day do the same.

There are, of course, strategic objectives that airlines can serve including promoting tourism and business links between countries. But, as the policy white paper says, it should deliver these objectives through open, transparent processes that all airlines can participate in. If government wants to subsidise a route, for example, it should hold a bidding process in which airlines can compete to offer the best value for money to government. It should not be tempted to use SAA, forcing it into uncommercial operations. This is how government obtains the best value for money.

On both SAA and embedded generation, I have long argued that we need to shift mindsets about the role the state plays. There was no future for SAA unless skilled private sector operators were able to take control of the airline and run it on commercial principles.

So, I applaud last week’s decisions. They will be very positive for business sentiment and help build trust in the private sector that government is intent on delivering.

The challenge will be to bed these down and maintain momentum. The embedded generation decision needs to be gazetted. The president said this would happen within 60 days – beating that deadline would add further momentum. There will also need to be efficient registration processes set up for new embedded generators. On SAA, the deal needs to be finalised and all the conditions met.

Further structural reforms like the auctioning of spectrum and digital migration of TV signals, boosting infrastructure investment, providing water security, among others, now come into focus as next steps. BLSA has long been a willing partner to government in providing input and support, as well as feedback from the business sector as government develops these policy changes. I look forward to continuing this work, encouraged by what was achieved last week.

The urgent need for these and other structural reforms was highlighted by SA’s first-quarter GDP figures, which reflect sluggish growth. And recent unemployment data should serve as yet another reminder of this.

Read: GDP for first quarter up 1%

On Wednesday we will mark 45 years since the June 1976 Soweto protests that would prove to be one of the most important dates in our struggle against apartheid, I write in my Business Day column. Yet the official unemployment rate in the 15-34 age bracket sits at 46,3%. Since social partners agreed with government on an economic recovery plan nine months ago, we can point to some positive developments but we need to increase the momentum. We owe it to the youth of ‘76 to ensure youth unemployment receives urgent attention.

Busi Mavuso is CEO Business Leadership South Africa.