Inflexible unionists beware: It’s SAA today, Eskom tomorrow

For the longest time, the assumption has always been that state-owned enterprises are simply “too big to fail” and by implication the shareholder would always step in with some mystical pot of gold.

The decision to move the airline into business rescue, the long-term ramifications of which we will one day come to learn, was to draw a line in this long-drawn-out saga of rescuing our more significant enterprises that have become a sovereign risk.

This is a reality that has been brought forward in no small part by the rigidity of labour unions that quite simply pushed the airline over the edge.

SAA has received around R50 billion worth of bailouts over the past 20 years.

As part of dealing with the immediate cash challenges facing the airline, an under-pressure board announced early last month that it would have to retrench some 944 jobs, or 18% of its workforce. While unions may not admit it, these plans certainly fed into the rationale for embarking on a week-long pay strike, costing R50 million a day.

It brought an already creaking airline to its knees.

Now in what the sixth administration has called the “New Dawn” there have been calls for all sectors of society, namely business, civil society and the unions, to join forces in turning around the fortunes of South Africa Inc in a non-partisan manner.

Can labour claim that it has played its part in this effort if you consider how it pushed SAA to the precipice and then over the cliff in recent weeks? Now I would imagine that they’d argue and, with a fair enough point, that labour is not to blame for the mismanagement of state-owned entities and the incoherent policy choices of the past decade.

But there have been the wholesale changes in the board make-up of virtually every state-owned utility. The management and the political principals that led these institutions are no longer at the helm. Unions remain hellbent on battling yesterday’s wars with a rigidity that threatens to cripple all attempts to correct our fiscal path.

It’s an unwillingness to compromise that has characterised the union movement over the past few years of economic decline, which has seen labour lose much of its muscle in the private sector as businesses both big and small have had no other alternative but to resort to retrenchments.

Union strength has shifted to the public sector, where in all estimates they have done well for workers over the past decade. The quarterly employment survey shows that, since 2010, the average remuneration in the public sector has risen an annual average of 8%, compared with 7.2% in the rest of the economy.

The gap between public and private sector remuneration growth has widened even further in more recent years.

Gross earnings per employee places the government sector among the top three earnings sectors, outstripped only by air transport and the electricity, gas, steam and water supply sectors. Salaries in the private sector are far lower than in the public sector.

This is a path the state can simply ill-afford. This sense of realism is something that we can only hope that union movements accept and the rigidity with which they address matters of their concern is addressed.

It has sent SAA spiralling towards a business rescue position that in the end may prove not beneficial for the vast majority of union members at the airline that received a supposed victory in an increase in pay just last month. By South Africa’s very recent history with the process of business rescue, it is labour that ends up bearing the greatest cost.

This week, government has set a precedent in how it has reacted to the SAA question.

If the turnaround of Eskom doesn’t come to pass and costs keep the institution’s head under water in the months to come, a similar option is now on the table. The utility’s more than 40,000 employees across its more than 20 coal-fired power stations may very well find themselves in a similar position as SAA staff, which now face an even more uncertain future.

There has to be that most difficult conversation with labour and some rather urgent reforms are needed to help stabilise organisations such as Eskom and SAA and to also steer the country towards a faster path to growth.

South Africa’s rigid labour markets remain a key deterrent to investment as they prevent capital from achieving optimal returns.

Proponents of stringent labour laws may defend their cause by highlighting the need to protect workers, but the structural rigidities, especially within the labour market, ultimately have unintended consequences which are of detriment of the general public. And in the case of SAA, it’s the most high-profile example yet.

As uncertain and difficult a path that business rescue is, and wary to the unintended consequences of it, the shareholder’s stance in the SAA matter has put to paid one thing: that its companies are not “too big to fail”.

A milestone, and I would suggest a significant one at that, was reached by the administration this week in its pursuit of structural reform.

Labour has just been read the programme in the fallout from their badly timed and executed industrial action at SAA. They have to come to the table or workers will bear the brunt of their rigidity.

Business Leadership Soiuth Africa CEO Busisiwe Mavuso
Picture: Masi Losi

Mavuso is the CEO of Business Leadership South Africa

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