Privatisation is back on the South African government’s agenda for the first time in more than a decade. A stake in South African Airways may be one of the first on the block.
Bloomberg
Privatisation is back on the South African government’s agenda for the first time in more than a decade as it runs out of options to bail out cash-strapped state companies.
A stake in South African Airways, the loss-making national carrier, may be one of the first on the block, with Etihad Airways PJSC given the option of buying a minority interest.
Finance Minister Nhlanhla Nene announced plans in October to raise at least 20bn rand ($1.74bn) by selling “non- strategic” assets to help power utility Eskom Holdings SOC plug a 225bn-rand cash-flow gap.
As recently as 2009, the ruling African National Congress was discussing the option of nationalising mines. Strikes and power shortages that have curbed growth and tax revenue and left the nation’s credit rating on the brink of junk status have spurred a change in thinking.
“The policy shift is significant,” Azar Jammine, chief economist of Johannesburg-based advisory service Econometrix, said by phone yesterday. “It illustrates the tremendous dilemma the government is facing in terms of where to get the money to run the state companies, which are in such disarray.”
South Africa’s last major asset sale was in March 2003, when it sold 25% of telecommunications company Telkom South Africa for 3.9bn rand.
The government disposed of 20% of SAA to Swissair in 1999 and bought it back in 2002 when the European carrier went bankrupt.
The sale of a minority stake in SAA to Abu Dhabi-based Etihad wouldn’t constitute a big policy shift by the ANC, according to party spokesman Zizi Kodwa.
“When you implement policies, you can’t be dogmatic,” he said by phone from Johannesburg. “They must be informed by the conditions that exist at a particular time. There is nothing wrong if you take partners from outside to come and build capacity.”
Asset sales could help Nene meet his target of lowering the budget deficit to 2.5% of gross domestic product over the next three years, from 4.1% this fiscal year, because they would take the burden off the government to support struggling state companies.
Debt-service costs are the government’s fastest-rising expenditure item, consuming a projected 10% of the national budget this fiscal year, up from 9.6% last year.
The Congress of South African Trade Unions, the country’s biggest labour group and an ANC ally, says the government is moving in the wrong direction.
“We haven’t discussed the SAA issue specifically but we will oppose any privatisation moves,” Patrick Craven, the federation’s spokesman, said by phone from Johannesburg. “It certainly needs to be more efficiently run but we reject the argument that that can only happen if there is privatization.”
SAA is “technically bankrupt” and surviving off state- guaranteed loans, Public Enterprises Minister Lynne Brown said in October. The carrier delayed the publication of earnings for the 12 months ending March 2014. It made a 991mn-rand operating loss the previous year.
SAA presented a 90-day rescue strategy to the government that includes 1.3bn rand in annual savings and a review of some long-haul routes, acting Chief Executive Officer Nico Bezuidenhout said yesterday.
“Etihad as a carrier is well known to take minority stakes in various entities and that option would be available to Etihad,” he told reporters in Johannesburg. A deal could result in closer commercial ties between the carriers, he said. Etihad didn’t respond to e-mails seeking comment.
The government will probably announce in the February budget which assets it will sell to fund Eskom. One option under consideration is to dispose of its 13.9% stake in mobile- phone company Vodacom Group worth about 26bn rand, according to four people with knowledge of the possible sale who asked not to be identified as the discussions are private. The state also owns about 40% of Telkom.
The Industrial Development Corp, a state-owned lender, may also dispose of shares in publicly traded companies, with the proceeds being used to support Eskom, Nene said.
Selling stakes in state entities would make them more efficient and reduce their reliance on taxpayer funding, according to Econometrix’s Jammine.
“The government itself is running out of cash,” he said. The most obvious solution is to privatise.’’