We have to ask questions of the treasury’s role in the porous state of South Africa’s state-owned companies, now that a majority stake in the long-troubled SAA has been sold. The airline and so many other state-owned entities were all set up to fail because of treasury’s ideology that public ownership is bad when there is strong evidence that a capable mission-oriented state can overcome poverty, unemployment and inequality. No wonder South Africa’s infrastructure is rapidly collapsing.
To examine where we are, it’s best we start at the beginning.
SAA began operations in February 1934, when the government took over the assets and liabilities of Union Airways. The airline was renamed and fell under the control of the South African Railways and Harbour company, established in 1916 as part of government 20th century fleet of state-owned companies that included the department of posts and telegraphs formed in 1910, the Electricity Supply Commission (Escom) in 1922, the Iron and Steel Corporation (Iscor) in the Industrial Development Corporation (IDC) formed in 1940.
The underlying motivation for the establishment of these corporations was to provide the state with the instruments to build a diversified industrial economy. In particular, the state was concerned with the security of supply of strategic inputs at competitive, if not developmental prices, in a context where the gold mining companies were economically dominant, and the country was dependent on the importation of foreign equipment and technology.
In practice, over the course of the century, the corporations were to also play a key role in racially based job segregation and Afrikaner empowerment, although this was not a simple process, particularly in the first half of the century as the corporations struggled to survive.
After the democratic election of 1994, Vishnu Padayachee and Robert van Niekerk, in their latest book Shadow of Liberation, inform the reader about how the ANC and its alliance partners in union federation Cosatu, the South African Communist Party and South African National Civic Association had a Damascene moment by ditching the post-Keynesian Reconstruction and Development Programme in favour of neoliberal policies.
Padayachee, in the working paper published by the Southern Centre for Inequality Studies in 2018, compares the American New Deal of Roosevelt and the recommendations of the South African Macroeconomic Research Group in 1993.
Both were examples, in very different eras, of progressive macroeconomic policy interventions based on state-led investment and a “crowding in” approach to development in direct contrast to a private-finance, market-led and “crowding out” neoclassical orthodoxy.
Arguably in the democratic period, the neoliberal agenda has been located and driven by the treasury. The treasury refused to provide financial support to SAA by providing government guarantees, which underpinned Vuyani Jarana’s business plan in 2019.
The treasury went on to support the disposal of a public asset by the minister of public enterprises without due process. In doing so it entered a transaction with related parties that triggered an alarm about the piecemeal distribution, or stripping, of public assets to politically linked entities and individuals with strong ties with the treasury.
When the corporatisation of the Public Investment Commission took place in 2005, the deputy minister of finance Jabu Moleketi became its chairperson and sent Brian Molefe, who was a deputy director general, as the chief executive. The new shareholder of SAA, Tshepo Mahloela, joined the Public Investment Corporation (PIC) from the Development Bank of South Africa (DBSA), which the deputy minister of finance chaired from 2010 until 2018. When Mahloele founded Harith in 2006 with the support of the PIC it could be seen as some form of deployment.
The former deputy minister of finance, who chaired the PIC during Mahloele’s time, went on to chair the DBSA and later Harith.
The treasury provided a guarantee when the DBSA approved the equity bridging facility of R3.5-billion, allowing the SAA business rescue practitioner to raise an additional R2-billion from the private sector and to complete the rescue process.
Why did the treasury not provide Jarana with the support? Was it because the treasury did not like the strategic partners who were interested in partnering with SAA including Ethiopian Airlines? Perhaps the evolution of the role of the treasury may provide some of the answers.
In 1995, SAA was a division of Transnet enjoying cheaper cost of funding through the Transnet centralised treasury at the back of government guarantees. In return, SAA provided the Transnet Group with scarce foreign currency, shielding South Africa’s balance of payments as we used it to purchase foreign equipment such as locomotives for Spoornet and straddle carriers for Portnet.
But after the publication of the Growth Employment and Redistribution strategy, the treasury focused on achieving the Washington Consensus goals that include the lower budget deficit, debt-to-GDP ratio and the privatisation of state-owned entities. All sales of state-owned assets were to be transferred to the national revenue fund at the treasury and the seller would have to justify why they were entitled to the proceeds. This was followed by a directive that the treasury would no longer provide guarantees. State-owned entities were on their own.
But, for Transnet, when it was formed in 1991, the apartheid government transferred an underfunded defined benefit fund. Without treasury capitalising Transnet or providing a guarantee for the underfunded pension fund, Transnet would have to find ways of funding its divisions.
Under Braam le Roux at Spoornet, the plan was to modernise the locomotives, basically doing what is the subject of the Zondo commission involving South China Railways. Given that several treasury bureaucrats were with some of us in the student’s movement struggle for national liberation, we believed that by investing in infrastructure and productive assets we would get an ear at the treasury. Instead, the treasury guarantee committee of Coen Kruger, Lesetja Kganyago, Ismail Momoniat and Andrew Donaldson among others would read us the riot act.
Gloria Serobe, the chief financial officer at Transnet, made solvency and the funding of the pension fund a priority. A windfall of about R2.3-billion from the restructuring of one of the pension fund assets became a subject of a war between Transnet, the treasury and the department of public enterprises. The treasury won and achieved all the Washington Consensus goals and became a global case study on the successes of austerity, while Transnet and South African rail and port infrastructure, including trade, suffered.