Memo re: SABC financial issues 8 March 2009
This memo seeks to give a brief history of the SABC’s finances over the last year and a half, to assist SOS members to understand the crisis.
Developments in 2008
The first indication of the SABC’s recent financial problems came to light in 2008 when the Chair of the Board Khanyi Mkonza claimed that management had presented the board with a deficit budget of R300m for the 2008/9 financial year. She argued that she and her fellow board members had refused to approve the budget as it had insufficient information and they were loath to approve a deficit budget. This (and his alleged refusal to rework the budget) was one of the initial accusations made against then CEO Dali Mpofu in a memo from the chairperson to Board members leaked to the media last year. The Chairperson later stated in an opinion piece in the media that the budget had been redrafted and approved and that the new budget did not provide for a deficit.
Whilst the deficit budget was handed to the Portfolio Committee of Communications by management of the SABC, it was never officially tabled or discussed as the Board indicated that it had not been approved. There appear to have been no questions raised by MPs about the deficit budget.
What is interesting is that the SABC’s budget was not ever (as is the norm) discussed by the Portfolio Committee of Communications last year prior to the Minister’s budget vote. The reason being that at the session when the budget was supposed to be tabled the Communications Parliamentary Portfolio Committee accused the Board of leaking the now infamous memo that detailed a set of charges of unauthorized expenditure and so forth against CEO, Dali Mpofu. Parliamentarians, instead of interrogating the SABC’s budget, quizzed Board members on the leaking of the memo, and then declared a vote of no confidence in the Board. Later the SABC’s budget, unexamined, was then passed as a component of the Minister’s overall communications budget vote.
Again what is interesting is that the SABC budget in the Minister’s budget vote for the 2008/2009 presented in 2008 stated that “SABC’s long term sustainability remains positive”. Her latest budget (not yet voted on but included in the budget presented by Trevor Manual) also in no way indicates that there are any problems. In fact it predicts an overall revenue growth of 9.5% over the next three years with increases in expenditure of 5.1% - thus showing continuing sustainability. This budget would have been submitted by the SABC last year and it is presumed the public broadcaster should have already indicated concerns arising from any economic downturn.
At the end of last year the SABC presented its annual report to Parliament. It declared a profit of R111.3m. There were indications that this profit was unrealistically high due to pension fund surpluses. However, the annual report was generally upbeat – with a few indications of problems and the need for belt tightening. In the presentation to Parliament no calls were made for increases to the license fees or the need for strict austerity measures within the SABC.
It is interesting that Chief Financial Officer, Robin Nicholson, is now claiming that, “The SABC has been actively managing the situation (financial crisis) since September after a very weak second quarter.” (Business Day, “SABC unveils turnaround strategy”, 6 March 2009) He certainly did not indicate this at the Parliamentary hearings.
Developments in 2009
In early 2009 there were a number of media leaks. At the end of January 2009 the Sunday Independent reported that the SABC was R500m in deficit. SABC Board and management remained silent on these reports. At the end of February the Mail&Guardian declared that in fact the deficit at the SABC was R700m. Again this information was not officially released by the SABC Board or management it was leaked after salary negotiations with SABC unions. It was at this point that things began to escalate. Barry Aaron and Associates, an SABC creditor, filed an application in the High Court on Friday 28 February calling for the immediate payment of outstanding legal fees to the tune of R450 000. The application stated that it appeared that the Corporation was R700m in deficit and thus could not pay its creditors. Court papers called for the Corporation to be liquidated so that its creditors could be paid.
Now that the dust has settled a little it appears that this case was a merely a publicity stunt to ensure that Barry Aaron and Associates got paid – and it worked – they according to newspapers, received assurance that they would be paid by this afternoon (Friday 6 March) and thus dropped the case.
However, there are some serious implications. This action could encourage a host of SABC creditors to follow suite, with the Corporation being tied up in a series of court cases.
It was only finally, on 5 March that the SABC leadership decided to make some public statements on the situation. SABC management held a press conference to allay stakeholders fears. Acting Chief Executive Officer, Gab Mampone stated that the SABC was not in a financial crisis and not under liquidation. He said however that there were concerns about the liquidity of the organisation. He claimed that the SABC’s financial woes emanated from the SABC’s funding model, the global credit crunch and the rapidly rising costs of content. He then declared that a turnaround strategy was being instituted looking at various measures to ensure the Corporation’s sustainability and viability. He said that these measures included the implementation of an “austerity plan, the freezing of vacant posts, optimization of TV license revenue and continuous engagement with government to find solutions on the funding of the organization.” (SABC Press Release, 5 March 2009)
Questions and comments
A few comments are important here: why is the SABC only starting its austerity plan now? No details as well are given of the austerity plan (apart from an indication that posts had been frozen) – whilst in contrast for example the BBC management announced publicly in January that all senior managers and directors would forego their bonuses and their salaries had been frozen until July 2010? Surely the leadership of the SABC must have been aware of the dire state of the SABC’s finances for a while now? Certainly if higher costs of programming are linked to the rand/dollar exchange rate they would have been aware of that from last year. An advertising slowdown has been blamed on the economic downturn which certainly may have had some effect – but why are e-tv/M-Net/DSTV not also announcing severe reductions in predicted advertising income? The SABC management announced, according to newspaper reports in the press conference, that sports sponsorship was particularly hard hit. This though was already identified in the latest annual report (till Feb 2008) and it was stated then that plans had been put in place to rectify this. How can we be sure that the loss in advertising revenue is due only to the economic downturn as indicated, and not due to inefficient management/ leadership? This is particularly concerning giving the reported finalization of a report commissioned by the Minister into the crisis which, according to newspapers describes the battles between the board and management as crippling the organisation.
Also, why is SABC only negotiating with National Treasury and the Department of Communications now in terms of possible extra funding? Surely these negotiations are a bit late in the day given the crises that have already developed. And also if the SABC is asking for extra license fees how can we as the public guarantee that it will not go to further executive excesses but rather pay for the excellent public programming that we want to see on our screens?
Gabs Mampone mentioned problems with the funding model – that is certainly true – it is not an ideal funding model. It certainly needs to be looked into. It makes the need for new SABC legislation – looking specifically at these issues - even more critical. It is also though critical that the SABC be more transparent about its expenditure and show how it is containing costs.