Troubled parastatals look to Africa for growth

Malusi Gigaba's department of public enterprises has set its eyes on the burgeoning markets in the rest of Africa in a bid to grow profits for the country's ailing parastatals.

With South African Airways still reeling from the mass board resignation this past week, the department is pushing ahead with new plans for its parastatals despite the worrying audits that have long dogged state owned enterprises (SEOs) under the department's watch.

Speculation is rife that SAA is going to post poor results for the 2011/12 financial year, while critics have questioned the profits posted in previous years. SAA Express has its challenges too: Gigaba had to fire the entire board in August after they failed to present audited financial statements to the minister as they are obliged to do.

Broadband Infraco, which is meant to lower communication costs by making infrastructure available to competing private sector players, received a qualified audit in February last year due to irregular expenditure of R151-million, and fruitless and wasteful expenditure of R1.9-million.

But Gigaba said the department had to push forward with new strategies to make the parastatals profitable. "It's not a chicken and egg issue – the two will reinforce each other. It is quite clear that financial challenges have to be addressed but we have to start somewhere. This is part of sorting out their house and putting it in order. What they are doing here is pretty much aligned with addressing their balance sheet," Gigaba told the M&G in Accra, Ghana.

The minister was in the West African city with his team and a number of parastatal heads to find a market for their services. "Ghana has serious infrastructure challenges and at the same time we have serious areas of interest in Ghana," said Gigaba.

The country has experienced phenomenal growth in the past few years, boosted by the discovery of oil and a rapid expansion in the ICT sector.

Ghana's economy grew as much as 16% in a single quarter last year, while the rest of the world battled recession. The peaceful transition in the middle of the year when President John Atta Mills died unexpectedly cemented its place as a model and stable African democracy.

However, the country's infrastructure has lagged behind, affecting its ability to capitalise on the rapid growth. Its railways have been unable to carry all its mining produce to the ports, which in turn are heavily congested. And the hydropower energy sector has battled to keep up with new demand, relying on expensive oil-based generation to fill the gaps.

The big prize for South Africa would be stepping into a neat gap in the market: a transportation hub in West Africa. This would include a thriving port which would stop major shipping lines from going through Spain or Morocco to get to West Africa, as well as a an aviation routing hub.

With Accra being the closest city to the literal centre of the world, it is far better positioned than South Africa to traffic growing travel between the BRIC countries and the West. Gigaba envisions SA Express as a feeder airline to the region.

But besides sorting out its messy finances, South Africa's parastatals will have to compete with far stronger economies in meeting the demand. "I wouldn't want to be presumptuous," says Gigaba. "I see it more as a business opportunity."

While Gigaba's team may have dreams of supplying the country with its energy, rail and ICT needs, India and China are also in the picture.

The Chinese have had a decades-long relationship with the country including heavy investments. But Gigaba's team says that can't stop them from trying. "We can't be lax, we have to compete with India and China," said his spokersperson, Mayihlome Tshwete.

And try they must, as flights to Europe come at an increasing loss as the zone battles its own financial woes, while African flights offer increasing profit. While there are some African flights on SAA and SA Express's route, Gigaba wants to see far more and having Ghana as a West African partner is integral to that plan.

However, the airlines must tread carefully as previous ventures into the rest of the continent have cost them dearly. SA Express suffered a R35-million impairment thanks to its short-lived investment in Congo Express, Business Day reported

Both SAA Express and SAA, which are independently operated, are under enormous pressure to show a major turn-around. The drama surrounding the SAA board walk-out has not helped the public perception that the airlines are riddled with problems and a drain on the public purse.

It is doubtful whether they could ever be viable companies given that SA is at the furthest tip of Africa, making travel more expensive. This, coupled with ever-escalating fuel prices and an industry with net profit margins of around 0.5%, make for tenuous business model, critics have argued.

Other parastatals on the trip, which runs from September 30 to October 3, includes Denel, SAA Express, Transnet and Broadband Infraco. The South African delegation will meet with various Ghananian government departments and tour some of Ghana's own SOEs.

The Mail & Guardian's trip to Ghana was paid for by the department of public enterprises. 


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