Ramaphosa Pledges Tough Love for Ailing South African Firms

Alastair Reed

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President Cyril Ramaphosa said he’s ready to make tough decisions about the future of South Africa’s struggling state-owned companies, after placing the national airline into bankruptcy protection last week.

“Business rescue is not the preferred option for fixing our state-owned enterprises, nor would it be necessarily advisable in other circumstances,” Ramaphosa wrote in his weekly open letter to the country. “But the resolve we have shown in putting South African Airways into business rescue cuts across all key state-owned enterprises. We are taking all necessary measures to turn them around.”

The main task facing the government is to reduce the financial dependence the companies have on the state, and as a result, any further financial support will come with “strict conditions” designed to promote sustainability and self-sufficiency, Ramaphosa said.

“We are clear that the state will retain ownership of all those state-owned entities that are strategic,” the president said. Where necessary, South Africa will seek strategic equity partners to help raise capital, source skills and technology, and improve efficiency, he said.

SAA has posted losses since 2012 as it grappled with the high operating costs of an aging, inefficient jet fleet and a bloated workforce, on top of high taxes, political interference and corruption scandals. State-owned power utility Eskom Holdings SOC Ltd. has to rely on state bailouts to continue operating, while the government-controlled national broadcaster is also among firms battling to survive.

“Despite the depth of the current challenges, none of our state-owned entities is lost,” Ramaphosa said. “They can all be saved. But it will take extraordinary effort and, in some cases, tough decisions.”

Besides SAA, the government has taken a hard line on addressing financial and operational problems at the Passenger Rail Agency of South Africa, with Transport Minister Fikile Mbalula announcing Monday that it had been placed under administration. The agency, which transports about 2.3 million commuters daily, has wracked up billions of rands in irregular expenditure, obtained qualified audit reports and had years of management upheaval.

“The urgency of addressing Prasa’s turn-around cannot be overemphasized, and tangible results that people can see must be realized in the shortest possible time,” Mbalula said in an emailed statement. Bongisizwe Mpondo, an entrepreneur with extensive experience in helping turn around public institutions, will run the agency for the next 12 months, whereupon a new permanent board will be appointed, he said.

(Updates with rail agency placed into administration in last two paragraphs.)

--With assistance from Mike Cohen.

To contact the reporter on this story: Alastair Reed in Edinburgh at areed12@bloomberg.net

To contact the editors responsible for this story: Gordon Bell at gbell16@bloomberg.net, Paul Richardson, Hilton Shone

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