SAA ‘hopefully just the start’

The decision to put South African Airways into business rescue should be seen as setting a precedent in the way that government addresses South Africa’s bloated wage bill, both in the government and in state-owned enterprises, says Steven Nathan, Chief Executive Officer of 10X Investments.

We know that this bloated wage bill is the number one cause of the country’s deteriorating fiscal position and increasing debt burden, which has led to sovereign debt downgrades and risks of a further, and final, loss of an investment-grade rating.

The fact that government has (for the first time that I am aware of) said “No, enough is enough!” is very significant. It appears to be the first time government is drawing a line in the sand, saying we will not continue supporting unsustainable, unproductive and unviable financial enterprises.

While these enterprises might remain in some form and still possibly be commercially unviable, the amount of taxpayers’ money that is being allocated to these poorly run and poorly performing businesses is going to be reduced.

That is a strong, positive message being sent to the South African taxpayer and South Africans at large, who want better opportunities for economic growth, employment and improved living standards

When you have poor allocation of capital, poor allocation of government resources, poor allocation of taxpayers hard-earned money, all you do is benefit a few and punish many. Hopefully, this is just the first stage and we will start to see the wage bill being reduced soon.

Unfortunately, some job losses seem inevitable. However, it should be a relatively small number of people who will lose their jobs for a big benefit for many millions of South Africans over the long run.

Steven Nathan
Founder, Chief Executive (BCom, BAcc, CA (SA), CFA)

As the former Managing Director of Deutsche Bank in Johannesburg and London, Steven spent more than 10 years in equity research and corporate finance. He was consistently the top-rated Banks and Life Insurance analyst in South Africa, and was also voted best overall analyst in SA and EMEA (Emerging Europe, Middle East and Africa). During his time as Head of Research, the Deutsche Bank team was consistently rated no.1.

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