South Africa’s Airlines Are Keeping Its Currency Floating

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South Africa’s Airlines Are Keeping Its Currency Floating
skeeze / Pixabay

2020 has been a difficult year for many different airline companies in the world because of the COVID-19 crisis. However, as the spread of the virus got under control in some countries, the economic crisis decreased. But the tendency of getting back to normal functioning doesn’t apply to South African Airways which is a state-owned carrier airline in the country. SAA faces major economic challenges currently and this has a huge impact on the national economy.

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SAA recently raised much debate after the announcement of the finance minister, Tito Mboweniu to sell the company on Black Friday. According to Bloomberg. the minister has been against state-owned entities for so long, and now he finally doubts out loud that the country doesn’t even need a national carrier anymore. However, his statements deserved dissatisfaction from the Public Enterprises Minister, Pravin Gordhan as he thinks that SAA is vital for the economy and the whole sector will face great dangers if the airline company won’t survive.

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How could selling shares in SSA affect the economy?

As financial experts believe, although the national airline is already bankrupt, spelling shares may not be beneficial because South African Airways plays an essential role in making the country’s economy. Considering the fact that instability in the leading businesses usually affects the national currency in a bad way, needless to say, that now South African Rand, the national currency will probably face some problems. In particular, SSA is keeping the national currency floating which means that the government slowly loses the power to control the economy and determine the rate of Rand.

Current instability makes us believe that the forex industry is going to take over Rand and set a price for national currency based on supply and demand in relation to other currencies. Although the announcement of the finance minister was made just some time ago, the case of SSA is already at the center of attention of fx brokers. There are already certain forex brokers in the country that are ready to take advantage of the current situation and invest in SSA as the plan of the finance minister gives individual investors like these brokers, chance to take part in the management of this company. It’s not a big surprise that the fluctuating price of the national currency can be favorable for them but the overall economy continues to struggle at that moment.

Possible financial struggles and Mboweni’s plan

The plan of the finance minister is considered somewhat ambitious as he believes that it will allow South Africa to revive the economy. What he’s going to do is to integrate different parts of the South African Airways group into one company that will be co-owned by the government, as well as the pension funds, individual investors, and an operational partner. However, the government hasn’t yet agreed and they are still trying hard to get the national carrier back on track. But Mboweni continues to claim that a private company shouldn’t be given this kind of big chance to lead the whole economy of the country.

He believes that it’s time for the leading companies to release from the control of the government and give the private-sector investors chances to take part in the growth of South Africa’s economy. There are already several private investors that are ready to take part in the process of reviving South African Airlines and the minister believes that discussions are going well. However, the public interest is expressed only by the Ethiopian Airlines group which is the only one that has officially made an announcement.

As the impact of the pandemic continues to harm the SA economy, the minister claims that in order to speed the economic recovery, the government should draw funds from budgets such as the police and the education and use them to develop the business-rescue plan. Specifically, he wants to use $10.5 billion to overcome financial struggles but it seems like the national Treasury is not going to agree with him at this moment.

South African Airlines has been bankrupt for almost a year and since the beginning of the lockdown, there hasn’t been a single commercial flight since the shutdown of the international operations on March 21st. At the end of September, the operations of the airline were canceled o0nce again but this time the reason was searching for funds to restructure the company and develop new plans for recovery.

The public in this country is well-aware that the finance minister has always been an opponent of using the funds from the government to rescue SAA. Now he believes that the company has the potential to emerge as a stable business and benefit from an industry-investment partner, but still, it’s not yet clear whether his plan will actually be beneficial for the economy and help it overcome problems. However, one thing is certain - today as airlines worldwide face so many challenges, any kind of innovation in this market could be acceptable.

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