Public-private partnership will not save SAA

One of the obstinate problems in the South African economy is the failure of state-owned entities (SOEs) for reasons we are all familiar with, including public ownership inefficiency and financial drain.

This is a weakness is derived from political interference, lack of agency and poor management.

South African Airways (SAA) provides a useful example of a situation where management inefficiencies have led to untenable financial loss that requires regular bailouts.

However, SOEs cannot shoulder the blame alone. While internal factors can explain their failure, particularly in the case of SAA, government involvement in an industry it had no knowledge of must be shouldered by policymakers and the ideologies of the ANC and its alliance partners.

The idea that in a transitional economy SOEs are there to be used to achieve nationalistic goals has engendered a ‘not meant to make profit anyway’ attitude that has justified levels of relaxed and less-than-effective performance, monitoring and accountability that would not be tolerated in the private sector.

Corrupt deals stage-managed by the ruling elite

These arising-from-within issues have made most SOEs in SA unable to self-sustain because state ownership so often correlates with waste of resources, politicisation and corrupt deals stage-managed by the ruling elite.

Furthermore, behaviour, governance and performance in the private and public sectors are different – not because of the environment they operate in (SAA operates in the same space as private airlines) but because of lenient monitoring within entities that are under state ownership.

Privatisation is often put forward as a way to fix poor performance in SOEs, as is the case with SAA.

In an opinion piece published by Moneyweb on October 3, Fedgroup CFO Sheldon Friedericksen suggests that public-private partnerships (PPPs) can work if done right, specifically when it comes to the funding of entities like SAA.

The issue of trust

His argument is optimistically grounded on the notion that trust is the missing key – and that, once found, will unlock new levels in the PPP relationship that can revive the economy.

I may be too jaded to have such optimism, possibly from witnessing how full government ownership originally intended to deliver socio-political benefits became a golden-egg-laying goose benefitting only a few.

The farmer, initially so delighted by his unexpected and seemingly never-ending windfall, grew impatient because the goose gave him just one golden egg each day. It occurred to him that he could harvest all the eggs at once by cutting the goose open. And so he killed it.

He destroyed that which was profitable.

Similarly, a PPP will not save SAA because of the strong and ubiquitous arm of politics. Just as the farmer couldn’t help himself, neither will our politicians.


Source: Moneyweb