South Africa seeks SOE reform as parliament probes airline sale

South Africa is considering measures to strengthen governance and improve efficiency at ailing state-owned enterprises (SOE) such as South African Airways (SAA). The latest proposals include forming a holding company to manage the SOEs and divesting from the national airline. The need for reform is evidenced by ongoing revelations from the State Capture Commission, but the overarching strategy is widely disputed among stakeholders within and without the ruling African National Congress (ANC). So too is a proposed agreement to privatise the airline. Looking forward, the political process for concluding the envisioned deal will be instructive for broader SOE restructuring. President Cyril Ramaphosa is expected to moderate the depth of reform as he seeks ANC re-election in December.

Significance – Restructuring

Public Enterprises Minister Pravin Gordhan told lawmakers on 20 May that the Ramaphosa administration is preparing a bill to form a holding company for SOEs. The model was recommended by the Presidential State-Owned Enterprise Council, which was set up in 2020 to initiate reform. Some efforts have since been made to restructure state entities with the aim of limiting political interference and addressing operational weaknesses. For example, a National Transmission Company was carved out of Eskom last December and the utility is being reorganized into three separate units. The cabinet also confirmed a deal in February regarding a 51% stake in South African Airways (SAA) to a local consortium named Takatso[1].

That divestment has drawn significant opposition in parliament this month. The Economic Freedom Fighters is against any privatisation and has threatened to challenge the government in court. Meanwhile, the Democratic Alliance has pointed to National Treasury concerns that the department was not consulted during the selection process and that the terms of the deal present an ongoing financial risk to the government. Those terms have mostly not been made public. Further, opposition parties are also questioning the background of entities in the selected consortium (see below). The process for amending or repealing the SAA Act to accommodate a new ownership structure has also not yet been initiated. Finally, some ANC leaders are averse to the divestment and the party’s National Executive Council has not approved it.

In the background, Chief Justice Raymond Zondo is preparing to release final findings from his probe into state capture during ex-president Jacob Zuma’s tenure (See: South Africa minister takes aim at judiciary after state capture probe). SAA’s past leadership has been implicated in the instalments published so far. For example, Zuma associate Dudu Myeni is described in one instalment as a major culprit in the collapse of the national airline, whose board she chaired with no background in aviation. Revelations from the Zondo-led State Capture Commission have underpinned the need for wholesale SOE reform, and Ramaphosa is now scheduled to submit an implementation plan to parliament in October.

Outlook – Party and Ramaphosa

Ramaphosa will seek re-election as ANC president when the party holds its national conference in December. This will be preceded by another conference in July where party leaders will deliberate on policies to be pursued over the next five years – including the introduction of a new SOE model. The development of any SOE legislation will depend on the outcome of these two events and Ramaphosa will likely defer concrete plans for reform until new ANC leaders have been elected. The political process for completing the SAA deal is therefore uncertain. On this note, two factors for considering the likelihood of change will be the depth of Ramaphosa’s implementation plan (due in October) in light of the Zondo report and the ANC’s response as demonstrated by the outcome of the party’s elective conference.

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[1] Takatso is composed of majority shareholder Harith General Partners and Global Aviation, which was established in 2001 and operates a two-year old airline Lift. State-owned Public Investment Corporation (PIC) holds a 30% stake in Harith General Partners.  

*Photo credit: South African Airways Boeing 747-400, Yevgeny Pashnin