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SAA Bailout: We're Shooting Ourselves In The Foot Says Mike Schussler

A R2.2 billion bailout for SAA is bad news for taxpayers, social expenditure and the credibility of National Treasury, says economist Mike Schussler.

02/07/2017 10:59 SAST | Updated 02/07/2017 10:59 SAST
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SAA is at least consistent in its inability to honour turnaround commitments without resorting to bailouts, says Schussler.

A R2.207-billion bailout granted to South African Airways means taxpayers will "have to stand in more and more" as government vastly exceeds its budget, economist Mike Schussler told HuffPost SA on Sunday.

"They [SAA] said the previous bailout and the one before that would be the last. This is now the third one," he said.

National Treasury on Saturday said government would transfer funds from the National Revenue Fund (NRF) to SAA for it to settle its debt with Standard Chartered bank to avoid a default.

"A default by the airline would have triggered a call on the guarantee [of R5-billion granted in September last year by former finance minister Pravin Gordhan], leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA's guaranteed debt," it said.

The bailout follows an announcement to Parliament this week by Treasury's Director General Dondo Mogajane that the loan would be repaid by the June 30 deadline, according to Fin24.

'Believability and credibility on the line'
Schussler told HuffPostSA that the believability and credibility of SAA is on the line along with that of many state-owned companies. He said there remains no real turnaround strategy for SAA nor professional management.

SAA is at least consistent in its inability to honour turnaround commitments without resorting to bailouts, he said.

"Ratings agencies (again) will notice," he said. "It also means less money to spend on grants, education, health and other social issues".

'SA's financial system coming under scrutiny'
One of the country's "bright stars", National Treasury, is coming under increasing pressure, he said. "The strength and credibility of Treasury has long been revered" but current political and financial decisions are tantamount to "shooting ourselves in the foot", he said.

Schussler said South Africa has the fifth most pension funds asset ratio to GDP in the world which means "we have savings which have helped" cushion multiple economic blows. If it weren't for this, the rand would be much lower and we would be relying much more on foreign investors to buy government bonds, he said. The current trajectory, he said, may have dire consequences for the country's economic health.

"Finance Minister Minister [Malusi] Gigaba has said we may need to go to the International Monetary Fund (IMF) to ask for loans. He realises the consequences of a bailout to SAA and possibly anticipates another downgrade," Schussler said.

Gigaba earlier this month warned South Africa's fiscal targets were at risk. At the beginning of the ANC's National Policy Conference on Friday, Gigaba told business leaders hours before President Jacob Zuma's address that the country may need outside financial assistance to "kickstart growth".

Questioned by Reuters if he meant visiting the International Monetary Fund in specific, Gigaba smiled and said "any".

'Ironic that ANC calls for stability of SOEs then announces bailout'
The Democratic Alliance's shadow deputy minister of finance Alf Lees on Saturday lambasted the decision to offer a bailout for SAA.

"Only three days ago when I asked National Treasury whether they were ready to meet the guarantee obligations both SAA and National Treasury reassured the parliamentary Standing Committee on Finance that the plans were in place to meet the R 9,0 billion SAA loan payments by 30 June 2017. This was clearly not the case," he said in a press statement.

Lees said it is "deeply ironic" that a bailout for the national carrier was announced in the middle of the ANC's National Policy Conference which is "heavily focused on economic policy including stabilising zombie state-owned enterprises such as SAA".

"Standard Chartered Bank evidently has no faith in the leadership, management and strategy of South African Airways," he said.

According to BusinessDay, Saturday's announcement followed Standard Chartered's rejection of a request by the national carrier to extend its loan facility. It reported that Standard Chartered was "put off by recent political developments and by policy uncertainty flagged by ratings agencies".

National Treasury, in its statement on Saturday concluded, "Government will do everything in its power to ensure that the airline's turnaround strategy is implemented. The airline remains a strategic asset and in its role as the flag carrier it serves as an economic enabler with direct and indirect benefits across a wide range of economic activity."

The Public Finance Management Act now requires the Minister of Finance to report to parliament within 14 days to explain the bailout, and the changes must be reflected in an adjustment budget within 3 months.

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