Departures at SOEs could drag out Ramaphosa's reforms

Analysts say job cuts should be a key component of the recovery plans of Eskom and SAA and that the stakes are high if those plans fail.

05 June 2019 | Economics

The government needs to understand that if it wants these companies to be run properly, then it needs to create an environment where the new CEOs can function. - said Pavel Mamai, Partner: ProMeritum

Alexander Winning and Olivia Kumwenda-Mtambo - President Cyril Ramaphosa's mission to fix two of South Africa's most troubled state companies, power firm Eskom and South African Airways (SAA), could take longer than planned after their chief executives quit within a week of each other.

Investors say the CEOs' resignations could slow the implementation of turnaround plans seen as critical to shoring up confidence in Africa's most industrialised economy, which has for years struggled to grow and whose last investment-grade credit rating is hanging by a thread.

Since becoming president in February 2018, Ramaphosa has pledged to woo investment, create jobs and tackle deep-rooted corruption.

The roles at Eskom and SAA are some of the most challenging in corporate South Africa, with fierce disagreements over how the companies should operate, meaning it will be difficult to find replacement leaders quickly.

Both have received government bailouts in recent years but executives say that financial support was insufficient.

Eskom

Eskom is choking under R440 billion of debt - equivalent to around 9% of South Africa's 2018 gross domestic product - and this year implemented some of the worst power cuts in several years. It said last month that CEO Phakamani Hadebe would step down in July for health reasons.

But two sources close to Hadebe told Reuters that another reason for his departure was that he felt frustrated at being excluded from important decisions affecting the utility.

Ramaphosa has appointed a raft of advisors to come up with solutions to Eskom's woes and has preferred to listen to their views rather than consult Hadebe, the sources said.

"The government needs to understand that if it wants these companies to be run properly, then it needs to create an environment where the new CEOs can function," said Pavel Mamai, partner at fund manager ProMeritum.

"The CEO changes make the task of fixing Eskom and SAA more urgent."

SAA

SAA CEO Vuyani Jarana wrote in his resignation letter last week that his plans to revive the loss-making airline were being undermined by a lack of state funding and too much bureaucracy.

Jarana, who will leave SAA at the end of August, told Reuters in a May 2018 interview that government funding was critical to fixing the airline.

Hadebe and Jarana had both been in their roles for less than two years when they resigned - a common trend at South African state firms.

"The revolving-door policy at key state-owned enterprises does little to instil investor confidence," said analyst Shaun Murison at IG Markets.

Hadebe's phone was switched off when a Reuters reporter called on Monday. An SAA spokesman said Jarana was not available for comment.

Monumental challenge

The search for replacements for Hadebe and Jarana has only just got under way.

But the new Eskom and SAA executives will face monumental challenges, which include navigating the competing interests of different sections of government and society.

Eskom and SAA report to South African public enterprises minister Pravin Gordhan, a close Ramaphosa ally respected by investors for running a tight ship while finance minister but whose management style opponents call interventionist.

Gordhan's aides told Reuters on Monday that the financial and operational crises at Eskom and SAA necessitated close attention from the minister.

They said the scale of the problems facing Eskom, which range from liquidity issues to coal quality, meant it was unrealistic to expect the CEO alone to solve them. Fiscal constraints meant the government had to opt for a "phased recapitalisation" rather than giving SAA all the money it wanted in one go, they added.

The new executives will also have to establish a close working relationship with finance minister Tito Mboweni, who this year likened giving state funds to Eskom to pouring water into a sieve and last year said SAA should be closed down. The airline has not made a profit since 2011.

Unions

A further complication comes from labour unions and sections of Ramaphosa's governing African National Congress party that vehemently oppose efforts to trim the two firms' bloated workforces.

Analysts say job cuts should be a key component of the companies' recovery plans and that the stakes are high if those plans fail. Eskom employs roughly 48 000 people, after hiring about 12 000 additional employees in the past decade. A World Bank research report published in 2016 said it was significantly overstaffed.

"If Ramaphosa does not come up with a solution to this crisis soon, there is a good chance Moody's will remove South Africa's last investment-grade credit rating," said Nigel Rendell, a director at Medley Global Advisors.

"Eskom is the biggest issue hanging over financial markets, and there won't be a happy ending unless there is a significant capital injection from somewhere." – Nampa/Reuters

Similar News

 

Nam's trade deficit shrinks

3 days ago - 13 June 2019 | Economics

Namibia recorded a trade deficit of N$2.95 billion in the first quarter of 2019, a drop of about N$6.3 billion or nearly 68.3% compared to...

Inflation ebbs in May

3 days ago - 13 June 2019 | Economics

Annual overall inflation in May came in at 4.1%, down from 4.5% the previous month.In May 2018, annual overall inflation was 3.8%.Figures released by the...

BoN keeps repo unchanged

4 days ago - 12 June 2019 | Economics

The Bank of Namibia (BoN) this morning kept its repo rate unchanged at 6.75%.This means the prime interest rates of local commercial banks will remain...

'Be worried'

1 week ago - 10 June 2019 | Economics

Landless People's Movement (LPM) leader Bernadus Swartbooi has accused the government of moving N$10 billion from the Government Institutions Pension Fund (GIPF) to the Bank...

Another recession year expected in Namibia

1 week ago - 05 June 2019 | Economics

Namibia is likely to remain in recession in 2019 – the third consecutive year of negative economic growth, the International Monetary Fund (IMF) says.The IMF...

Driving the fiscal borrowing agenda

1 week ago - 05 June 2019 | Economics

Jo-Maré Duddy – Government has ensured that it will be able to raise about N$7 billion from the domestic market in 2019/20 by compelling local...

Departures at SOEs could drag out Ramaphosa's reforms

1 week ago - 05 June 2019 | Economics

Alexander Winning and Olivia Kumwenda-Mtambo - President Cyril Ramaphosa's mission to fix two of South Africa's most troubled state companies, power firm Eskom and South...

Timber shortage tightens screws on Zim carpenters

1 week ago - 05 June 2019 | Economics

Marko Phiri - Since timber was added to a list of commodities running short in Zimbabwe's crisis-hit economy late last year, carpenter Josh Mbuyazwe has...

In pursuit of 'zero waste', Senegalese tackle trash

1 week ago - 05 June 2019 | Economics

Vincent Bado - Once an idyllic stretch of white beach enticing fishermen and tourists alike, decades of factory and household waste have turned Senegal's Hann...

Corruption has cost us - !Gawaxab

1 week ago - 04 June 2019 | Economics

CATHERINE SASMAN President Hage Geingob’s instruction to the 22-member High Level Panel on the Economy (HLPE) to help bring in an investment...

Latest News

Amutjaa too strong for Weyulu...

4 hours ago | Sports

Tielman van LillAC Boxing Academy, in association with Kinda Promotions and 12 Round Boxing Academy, hosted a professional boxing development tournament on Saturday at the...

Buried alive

4 hours ago | Crime

Two Ohangwena men - 29-year-old Kashima Junias Hauwanga and 36-year-old Jacob Hangula - died after the well they were digging collapsed, burying them alive.The Ohangwena...

Pastor accused of raping daughter...

4 hours ago | Justice

Following a marathon court session, a 55-year-old Okahandja pastor who is accused of raping his own daughter over a period of 13 years, has been...

Where will the buck stop?

4 hours ago | Columns

Amid the outpouring of anger and grief linked to the senseless killing of taxi driver Talent Fambaune last week during Operation Kalahari Desert lies a...

NPC bemoans lack of funds

4 hours ago | Sports

NAMPA Namibians should not be shocked if they no longer see para-athletes winning medals, the elite athletes are reaching their prime and there is little...

Poised to surprise

4 hours ago | Sports

The past few months have been hectic but rewarding period for Namibian football. The news that Namibia qualified for the flagship Afcon tournament...

Critics gun for Geingob

4 hours ago | Crime

Political detractors and critics of President Hage Geingob have called on him to explain - as the army's commander-in-chief (CIC) and the current SADC chair...

PM cracks the whip on...

4 hours ago | Business

Prime Minister Saara Kuugongelwa-Amadhila says the state ownership of public enterprises should not be a justification for their perpetual dependency on national treasury. She said...

Titans announce winter tour of...

4 hours ago | Sports

The Multiply Titans will embark on a maiden tour of Namibia later this month for a two-match exhibition T20 tournament, presented by Windhoek Beer in...

Load More