State-owned enterprises vs private South African companies – the winner is clear

New Minister of Finance Tito Mboweni has been tasked with fixing an economy that is in terrible shape.

South Africa has suffered recessions, and unemployment rates continue to climb as there seems to be no respite for the average South African.

Mboweni and president Cyril Ramaphosa have the unenviable task of trying to turn this around – and a big hurdle they will have to deal with are our money-draining state-owned enterprises.

Bailouts for SOEs

One of the biggest talking points that came from Mboweni after his appointment was his R5-billion bailout for SAA, as well as a R2.9-billion bailout for the SA Post Office.

This decision frustrated many South Africans due to these organisations’ reputations for incurring repeated, heavy losses.

Mboweni noted that many state-owned companies need to be reconfigured, highlighting SAA as an SOE that needs “radical measures” to be taken.

Ramaphosa has also criticised SOEs, calling them sewers of corruption.

Recently, SAA’s interim CFO Deon Fredericks said that companies who are engaged in contracts with SAA are cutting their settlement terms from 21 days to 7.

This is seemingly an attempt by these suppliers to get their money before any possible SAA financial collapse.

SAA is also struggling to pay lenders R5 billion, which is due before the end of November.

Even if this payment is made, SAA will have to find another R9.2 billion in short-term loans by the end of March 2019.

SAA faces a R3.5 billion cash shortfall in the same period, adding to its long list of woes.

“The problem with turning SAA around is that the board has to continuously focus on the funding issues rather than getting on with the operational plan,” said Fredericks.

Privatisation of public services

Democratic Alliance leader Mmusi Maimane has previously called for the privatisation of poorly-performing SOEs, arguing that privatising SOEs will introduce competition in key industries.

This sentiment has been echoed by economists such as Azar Jammine, who said SAA’s failure to generate a profit since 2011 is a reason it should be privatised.

There are, however, private businesses that already operate in competition with SOEs.

Here is how they compare to their government-run equivalents.


Airlines

SAA is South Africa’s dominant airline, leaving little room for competition due to their government backing.

Comair provides competition through its brand Kulula.com, as well as through operating British Airways’ domestic flights.

SAA suffered a net loss of R5.7 billion in its previous financial year. The national airline also owes entities R16.4 billion, R5 billion of which has been settled with your tax money by the government.

In comparison, Comair has celebrated year-on-year increases in net profits, with its 2017/18 profit coming in at over R325 million.

Airlines
Airway SOE or Private Profit/Loss
SAA SOE R5.7 billion loss
Comair Private R325 million profit

Telecommunications

Broadband Infraco is an SEO in the telecommunications sector that provides long distance network infrastructure.

The latest available report on the national government’s website is for the 2016/17 period. In this time, Broadband Infraco suffered a loss of R125 million.

In contrast, South Africa’s private telecommunications giants achieved much better results.

Both of South Africa’s dominant mobile networks – Vodacom and MTN – posted sizable profits.

Telecommunications
Network Provider SOE or Private Profit/Loss
Broadband Infraco SOE R125 million loss
Vodacom Private R15 billion profit
MTN Private R4.5 billion profit

Broadcasting

The SABC is South Africa’s state-owned broadcaster. Alongside its free-to-air television channels, it also operates in areas such as radio broadcasting.

For the 2017/18 financial year, the SABC suffered a loss of R622 million – citing advertiser cut-backs, a decline in audience numbers, and tough economic conditions.

MultiChoice is a leading private South African broadcasting company, and its flagship products are popular paid video services DStv and Showmax.

Broadcasting
Broadcaster SOE or Private Profit/Loss
SABC SOE R622 million loss
MultiChoice Private R8 billion profit

Now read: See how much money Eskom and SAA lose every second

Latest news

Partner Content

Show comments

Recommended

Share this article
State-owned enterprises vs private South African companies – the winner is clear