South Africa Losing The Tag Of ‘Gateway To Africa’? – Analysis
By Observer Research Foundation
By Lucy Corkin
South Africa has long laid claim to being the “Gateway to Africa.” Indeed, when the “Africa rising” narrative was at its strongest, buoyed by robust commodity prices, this moniker was shopped around tirelessly in an attempt for South Africa to catch on to the coat tails of the rest of sub-Saharan Africa’s impressive growth trajectory. Persistence paid off such that in 2010, South Africa was invited to be the fifth member of the BRICS grouping, and Africa’s representative in this bloc.
However, despite the fact that Gauteng, the South African province in which the country’s economic capital Johannesburg is situated, accounts for 10% of the entire continent’s GDP, Africa’s southernmost country will have an increasingly hard time retaining a credible claim to its jealously guarded gateway status. To develop and retain the significance of a continental hub, the most fundamental prerequisite is to facilitate access. South Africa has never been able to lay claim to monopolising the financial or information channels into and across the continent, but has thus far attained some success as regards the being the physical gateway through ports and, most importantly the command and control of air traffic.
One need look no further than Dubai, to understand the strategic power of a well-developed airline and flight routing. Sheikh Mohammed bin Rashid al Maktoum, armed with a vision and a tidy sum of petrodollars that he was prepared to invest for the long durée, has conjured out of sand one of the world’s major commercial hubs, assisted in a large part through the creation of Emirates airline.
The geo-economic politics of the commercial aviation industry holds true even for countries less well-endowed with readily available startup capital. Ethiopia has harnessed the strategic advantage of being the seat of the African Union, and a veritable mecca for governmental officials and expatriate NGO workers. Ethiopian airlines, despite belonging to one of Africa’s poorest states, now makes almost double the profit off all other African carriers combined and is a major hard currency earner (read lifeline) for the country’s government.
Positioned on the southernmost tip of the continent, South Africa is hardly a ‘natural’ hub to connect Africa to the rest of the world. More centrally located countries such as Nigeria, Angola, and, more convincingly, Rwanda, have laid plans to become a travel hub for the continent and reap the ancillary rewards. There is thus significant imperative for South Africa to retain its position as a dominant player in African airspace in order to retain its political relevance in the post-Mandela era.
Unfortunately, South African Airways (SAA), the state-owned airline that should be at the forefront of consolidating South Africa’s geostrategic positioning, seems to have captain and copilot asleep at the controls.
SAA is admittedly caught between a rock and a hard place. As a state-owned enterprise, there is an onus to further the South African government’s political objectives, which may not always align with a sound financial game plan. In the wake of South Africa attaining BRICS membership, in 2012 the airline established direct flights to Beijing and launched additional routes to Mumbai, only to have to cancel both routes in 2015. The Johannesburg-Beijing route alone had accrued almost R 1 billion (USD 71 million) in losses in its three years of operation. However, SAA would not be alone in establishing loss-making routes for political reasons. The difference is that the well-managed airlines use their lucrative routes to subsidise those retained for geostrategic reach. Unfortunately, in a fit of Euro-pessimism, SAA had abandoned hers.
In 2012, SAA removed its direct flight between London and Cape Town, allegedly citing reduced traffic between the two cities post the Global Financial Crisis. This is curious, given that the South African city was named the number one travel destination in the world by Trip Advisor the previous year, and has successively won similar accolades from a number of leading international travel publications, many of them British, in the wake of South Africa having hosted the Soccer World Cup in 2010. In a seeming fire sale, that same year, the airline sold its best material asset, 6:20 a.m. landing rights (coveted due to the timing preference of business travellers) for a paltry USD 21 million. Ironically, given that this was all part of the airline’s ‘optimisation strategy’ SAA has not posted a profit since.
Until September 2016, the airline had not submitted finalised statements for its last two financial periods. When the state-owned enterprise’s performance was finally presented at the South African parliament later that month, it was revealed that the airline had made a loss of R 5.6 billion (USD 398 million) in the 2014/2015 financial year. Not to worry, the promised huge improvement in the subsequent period projected a fiscal hole of a “pleasing” mere (USD 106 million). SAA has, to date received R 19 billion (USD 1.3 billion) in state guarantees, which are effectively promises of a tax payer bailout should the airline default on its debt. R 5 billion (USD 354 million) of this is purely to allow the entity to be viewed as a going concern. In fairness, the South African Treasury made the constitution of a new board a condition of the bailout, but controversial chair of the Board Dudu Myeni, who had suspended several of her previous board members, including the CEO and CFO, for crossing swords with her, retained her position.
Myeni has done little to assuage fears that the airline is grinding to a shuddering halt and the former school teacher has invited scrutiny on a number of occasions. Her appointment coincided with Jacob Zuma’s accession to state president in 2009 to whom she has been romantically and financially linked. Myeni also founded and heads up the Jacob Zuma Foundation. Although both parties deny any claims of cronyism, it is remarkable that she has managed to retain her position despite clashes with the Minister of Public Enterprises and the Minister of Finance regarding SAA’s mismanagement. Both Ministers technically have the power to fire her. Instead they came under fire from the Presidency.
Hoping to make up for lost revenue, SA has belatedly pinned its hopes on the establishment of a raft of new routes across the African continent. Flights to the Nigerian political capital of Abuja were launched in January 2016, with plans to expand networks to second tier cities in the region. This is ambitious and laudable, but may be too little too late. A strategy that seeks to foster and profit from regional integration is an excellent one, but it will not be the quick win that SAA needs to stay afloat. This requires long-term thinking and a significant financial war chest to support it while the requisite business linkages form and take hold. Discouragingly, African economic growth has also come off the boil of late, which does not body well for overbooked flights.
Fundamentally, the South African government cannot afford to squander the strategic state assets which should be a key part of the country’s geostrategic positioning, and yet are allowed to be pawns in petty local politics. For now, South Africa continues to punch above its weight as the African gateway, but this status, taken less and less seriously internationally, is South Africa’s to lose. And Pretoria may not realise what is at stake, until it is too late.