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Low flying Air Namibia dumbfounds Jooste

Fri, 11 August 2017 19:32
by Villager Reporters
News Flash

Public enterprises minister Leon Jooste does seem to know what to do with Air Namibia unlike the Roads Contractor Company, which the minister is pushing for closure. Jooste admitted during a lecture at Unam on Monday that Air Namibia’s losses were increasing.

Professors, chief executive officers, students, lecturers and journalists attended the public lecture. Jooste singled out the Windhoek-Frankfurt route, which he said was gobbling about N$1 million per day. To service the route, Jooste further said, costs the country close to N$300 million per year. According to Jooste, Air Namibia’s chances of making a profit in the coming few years are but a mere pipe dream. “Chances of Air Namibia making money in the foreseeable future are very limited.

“The fact is fact; the Frankfurt route is costing us almost N$1 million per day. That is what we are losing on flying to Frankfurt. “What we are saying is that Air Namibia must cost us less than they are doing right now,” he said.  The minister attributed the losses on the route to the entry of world class airlines such as KLM and Qatar Airways.

 “In the past, there was a substantial argument. We had only one airline flying between Germany and Namibia. Germany is our biggest source market for tourists. “So there was the tourism factor that could quantify how important that route was. But multiple new global airlines have entered our market at an unprecedented pace. “It is very seldom that you find in any country nautical global players deciding on the open skies policy,” he said.

The expenditure, Jooste said, does not make sense anymore. “Subsidising that route is N$300 million and above per year,” Jooste said. To add insult to injury, Jooste said, he received confirmation that another significant global player, Lufthansa would be flying the same route beginning of 2018. The minister opined that Air Namibia’s situation was likely to get grimmer.

“We have had confirmation that Lufthansa; a Germany airline will early next year start flying the very same route. “These figures from Frankfurt may get worse from now. And these are the facts we need to deal with,” he said. The minister admitted that attracting competent directors was proving to be a chase after the wind as the reputational damage and low salaries synonymous with these SOEs were scaring professionals away. “There is reluctance on the part of people who want to serve on the boards.  State-owned enterprises pay lower than the private sector.  People would choose to work in the private sector or non-governmental organisations.

“So us dreaming of Air Namibia making a profit, chances are very slim for that but redesigning the business model and getting them to lose a lot less money so much that makes a significant contribution to the economy is possible,” he said The minister expressed frustration with the so called “jobs for comrades” mantra and the modus operandi which he said was counterproductive for state-owned enterprises whose future has now come under threat from voices from within the high political echelons. “We hear about corruption and all these things that are happening. Many of these things are the talk on the street; everybody knows everyone, people can tell that this one is “eating”, that one is “chopping”. “But do not be cowards. Do not sit and point fingers. If these things are happening why won’t you come to us with evidence, then we can investigate and do something about it?” he challenged.

Although Jooste has consistently maintained that state-owned enterprises were not designed to make profits, he has come down to admit that that should not give them the right to run losses continuously. “It should not be condoned for commercial public enterprises to operate on losses continuously, and we will not allow that,” he said. There is no “new model” for Air Namibia in place at the moment; he pointed out. “We have started a process to work with Air Namibia to see how the current business model can be tweaked to respond to their challenges. “Air Namibia has historically faced many financial challenges. The situation is, of course, now exponentially more pronounced due to the entry of multiple new global competitors. “I know some people have called for the privatisation of Air Namibia. This is something we don’t support. The airline can break even and still contribute extensively to the Namibian economy.

“Our interest and focus are rather on what can be done to minimise the losses by interrogating various business model re-engineering options. “We don’t have information on the previous turnaround attempts, and even if we did, I have to say that they are irrelevant in our current circumstances because the dynamics of the airline in the context of the new competition has changed entirely.

 “There is no reason to fi re anyone from the current board of directors. If required, we may propose to strengthen the board with appropriate skills, but that will be determined after a thorough evaluation is conducted,” he said. The airline business, according to Jooste, is incredibly complex and competitive. He said although there must be a sense of urgency to remedy the situation, they need to evaluate the current model and come up with a different one in a calculated and systematic manner.

POOR MANAGEMENT, POOR TURNAROUND

Last week, The Villager spoke to several analysts who said in most cases SoEs fail because of poor management as well as implementation strategies. Alfred Kamupingene, an analyst with the Namibia Equity Brokers, believes that there are so many reasons why business models do not eventually bring about the desired result. Generically speaking, Kamupingene said, the first possibility is that probably key important issues did not get the proper attention.

 “Nobody dug deep enough to determine the key drivers. You look at all the drivers without determining which ones are essential. “If you look at all the things without learning which are the most important, you will eventually tell a story which is almost worthless because if you try to do everything you cannot do anything,” he said. Kamupingene said sometimes the government brings in expatriates who do not understand the issue at hand and the environment.

“Factors that can determine the success of Kenyan Airways will not always be the same that ascertain the success of Air Namibia. “Those are the key issues. The experience of the board of directors is an important thing, but it is not the only thing. “If someone has been an air hostess for the last hundred years and has never been in the cockpit to fl y a plane, those hundred years of being an air hostess do not mean anything,” he said. Kamupingene added that some of the experience of the board of directors is not the most telling thing.

“Some individuals are just ingenious, they might not have done the thing for the last hundred years over and over again, but they are just brilliant. “They might see things that other people have not seen before.  I would think that for some of those enterprises it is important to bring in private capital. It comes with a lot of other positive things, the drive to make the business profitable and expertise as well.

 “But you have to balance it with the human face of the firm so that you can not only chase profit but seek the prosperity of the human element; otherwise, you will become a beast. “We might do well if there are other private businesses out there willing to invest in Air Namibia to reduce the over-dependence on government.

 “The parastatals, in my opinion, were created to reduce 100% dependency on government so that they can generate their own money and where possible also make a profit and pay dividends to the shareholder who is the government,” he said.

 Unam Professor Roman Greenburg said the onus was on his ministry and stakeholders to come up with a new workable model that makes massive cut backs on subsidies and losses. Analysts who spoke to The Villager last week held that a brilliant billion-dollar business model could never work if the management behind it is incompetent. Danny Meyer said turnaround strategies do work if they are realistic regarding targeted objectives and there must be no hesitation in making unpalatable decisions to achieve the set goals.

 Meyer also said the implementing agency must deploy resources to meet set targets and that all stakeholders must focus and commit to implementing the strategy. According to Meyer, there must also be a willingness to swiftly make changes if the plan moves off course for whatever reason.

“Lastly, the plan should not only lead to a quick-fi x result or outcome but must lay the foundation for viability and sustainability of that public enterprise,” Meyer said.    Although it is desirable that some public corporations should make a profit to meet a social objective, Meyer said the target should be to operate as close to breaking even point as possible. State-owned enterprises should ensure that the use public funds allocated for their operational needs are effectively and efficiently. By using public money properly, he said, state-owned enterprises disallow the notion of continuous bailout, underperforming and inefficiency. 

“Take NBC for example. The public broadcaster’s mandate is to inform, educate and entertain the entire population of Namibia and not only people living in larger urban areas. “NBC is required to broadcast in the vernacular, and this means that NBC has to maintain a technical infrastructure, employ broadcasting staff across Namibia’s linguistic spectrum and reporters all over the country,” he said. Meyer further said private broadcasters don’t carry the same costs NBC bears because they are in to make money not to provide a social service.

“Another factor to consider, as it pertains to NBC, is the attractiveness to advertisers. Firms want to advertise on services that reach mass-markets. “Not to a few thousand Damara speaking individuals or Himba people in Kunene region. Or for that matter to the small populations in and around Tses, Bethanie, Kongola, Fransfontein, Aminuis, to name but a few,” Meyer said.

On the other hand, he added, there are public enterprises that have the ability to and should operate profitably. “The cause of the problem why they don’t could be complex. However, from an outsider’s perspective, it seems that the problem often emanates at the top. “Directors, who meet an educational criterion, are appointed, but do they have the requisite business expertise?

 “Are they business wise or smart?  Another impression one gain from media reports is that there is a constant tug-of-war between boards and senior management, the board and their line ministry, and senior management and the line ministry too,” he said. 

In 2014, TransNamib announced their plans for a 180 day turnaround plan hoping to bring in 12 million each month. There is a limitation of knowledge of background information, but it seems to be wishful thinking that a large public enterprise plagued by challenges that gained momentum over many years, can be turned around in 18 months. A question that begs an answer is, was the strategy ever given a chance to work? Were objectives realistic, unpalatable decisions embraced, resources required availed? Was the focus and commitment on the part of all stakeholders unquestionable? Another analyst, Joseph Diescho, said it would appear that Namibia does not have a comprehensive development strategy into which the mechanisms of the SoEs sit. 

Diescho said SOEs are expected to do certain things that are not in tandem with the overall economic, strategic plan of the nation.  The strategic plan would begin at a micro-level before it gets to the macro-level.  “If we have a severe, genuine, authentic, reflective economic strategy, it would have started with what we have in the nation, who we are and where we want to go.

 “In other words, we would have begun with a micro-thinking. In a country of two million people, what is the size of bureaucracy that should save SOEs?  “When President Macron in France was elected, he was earnest about redefining the direction of the French economy in the context of Europe and the world,” Diescho said.  Macron, Diescho said, has 15 ministers to execute the functions of the state and that until 2001, the United States had only 14 representatives, but when there were security threats, they created the ministry for Homeland Security.  So for every department, Diescho said, there is a plan, in other words, we have more ministers than what they must do.

 “The first error is that we do not even know our size and what we can do with our size.  “Our state apparatus is way out of work. Our wage bill is way too big paying for all these ministers and permanent secretaries and should be going into what our SOEs can do.  “So we don’t have a real plan.  Decisions are being made at party levels and then at government level and not at legislative level.  “If you look at the manner in which we have evolved as a nation, we have had several ministers of finance who should not have been there,” he added.

THE PROBLEM IS IN THE POT

According to Diescho, the fault is not with SOEs but with the pot that cooks the porridge - the politicians. “We are sitting with a legislative body of people who can’t read and write, never mind legislation, never mind debating law never mind making the laws.  “Now, where is the fault? You expect them to make laws about SOEs that make sense when they don’t make sense? 

“So we need to regroup and go back to the drawing board and define Namibia differently? “We need to reboot our identity as a nation? Can you find in our body of politicians one person who speaks to the real crucial needs of the country? I find none!

  “We have leaders who talk about the needs of their parties, maybe of their tribes, perhaps of their particular concerns but not Project Namibia. “In African politics, when you want a job you must first say whose child you are,  you must first mean that you were also at the meeting that so and so attended,” he said. Diescho further said, in other words, people never understood the importance of skill and merit.  “When you have a system that appoints people not on merit but based on association, then the association will defend them even when they are wrong,” he said.