An answer for South Africa’s struggling state companies
Enhancing the competitive pressures on South Africa’s State-owned enterprises (SOEs) can drive a more coherent and effective reform programme than what is currently in place.
These are the views presented by the Centre for Development and Enterprise (CDE), a think tank that recently called on President Cyril Ramaphosa to “appoint a high-level team led by business leaders to conduct a review of the financial position of all major SOEs and identify solutions to the most pressing challenges.”
This is one of the recommendations contained in ACTION SIX: Solve the SOE challenge, a recently published report in CDE’s AGENDA 2024: Priorities for South Africa’s new government series.
CDE’s executive director Ann Bernstein said that one of the key reasons for South Africa’s low growth rate has been the ongoing operational and financial crises that have characterised large SOEs.
“The performance of the major SOEs since 2009 has been disastrous. Eskom and Transnet have wrought the most damage, but the others are failing just as badly. This applies to PRASA, Denel, SABC, the Post Office and SAA,” said Bernstein.
“The economy will never be able to grow quickly… unless fundamental reforms ensure access to reliable and affordable energy, and logistics constraints – especially for freight rail and the ports – are eased so that exports can grow,” she added.
According to the report, the CDE said that South African SOEs are beset with five key challenges, including:
- Confusion over their role and mandate;
- Commercial crises – caused by unfunded mandates, non-payment for services, over-spending on capital projects, increases in operational costs and the impact of crime;
- Shareholder interference coupled with weak boards;
- Corrupted procurement processes;
- Weak regulators
The CDE argue that a renewed focus on strengthening the competitive pressures on SOEs like Transnet and Eskom “will drive a more coherent reform programme than what is currently in place.”
It is said that competitive pressure constrains costs and maximises efficiency in service provision.
“It is not enough to say that the parlous state of our SOEs is the result of bad governance… bad governance is enabled by the SOEs’ status as protected monopolies – there are no consequences for poor performance since these firms do not have to compete for business,” said Bernstein.
For example, between March 2019 and May 2024, government spent R283 billion bailing out Eskom, Denel, Transnet, and SAA.
In those five years, only the South African Forestry Company Limited (SAFCOL) declared a R1 million dividend to the government shareholder.
To turn this around, the CDE suggests:
| Action | Description |
|---|---|
| 1. Make strategic reviews public | Spark debate on the future of SOEs. |
| 2. Appoint high-level team | Review financial status of major SOEs and propose solutions, including asset sales and privatisation income generation. |
| 3. Move SOEs under Treasury | Ensure management focuses on national interests and facilitates reforms. |
| 4. Establish skilled department | Focus on competition and regulation, supported by a competition-oriented policy framework. |
| 5. Review SOE boards and management | Replace unsuitable leaders swiftly under Treasury oversight. |
| 6. Commission independent reviews of projects | Ensure large capital projects meet their purpose and budget; address deficiencies as needed. |
| 7. Strengthen PPP framework | Attract and incentivise private partners effectively. |
| 8. Address regulatory weaknesses | Support competition by strengthening regulatory institutions. |
| 9. Develop competition policy for SOEs | Detail SOE roles and enhance competition in SOE-dominated sectors. |
| 10. Implement specific SOE reforms | – Transition Eskom to a systems operator. – Restructure Transnet’s freight rail for competition. – Separate port management from Transnet. – Decentralise PRASA’s passenger rail operations. – Deny future bailouts to non-strategic SOEs like Denel and SAA; sell if unsustainable. |
Bernstein emphasised that “malfunctioning SOEs hold back growth [and] detailed and specific recommendations for reform are required for each of the major SOEs.”
“How the GNU manages and develops consistent, coherent policy for the large SOEs is a vital task which is currently confused and confusing,” she added.
Will the National State Enterprises Bill be the answer?
Ramaphosa did establish the Presidential SOE Council in 2020 in attempts of repositioning SOEs and identifying interventions to stabilise and strengthen their financial and operational performance.
The council recommended the establishment of a centralised SOE holding company, which is provided for in the National State Enterprises Bill now before parliament.
In June 2024, Ramaphosa announced a big shift for the SOEs, dissolving the Ministry of Public Enterprises and moving the portfolio into the presidency.
The Minister in the Presidency responsible for Planning, Monitoring, and Evaluation, Maropene Ramokgopa, was assigned the responsibility to finalise the National State Enterprise Bill.
Broadly, the National State Enterprise Bill aims to:
- Enable the development of a ‘national strategy’ for state-owned enterprises.
- Establish the State Asset Management SOC Limited (SAMSOC), with the state as its sole shareholder.
- Consolidate the state’s shareholdings in “strategic” SOEs through a centralised shareholder model;
- Phase in these enterprises as subsidiaries of SAMSOC over time.
On 26 August, the president assigned shareholder responsibility for each of the state-owned enterprises that previously fell under the Department of Public Enterprises to the respective line-function Ministries.
This includes:
- Alexkor: Minister of Mineral and Petroleum Resources
- Denel: Minister of Defence and Military Veterans
- Eskom: Minister of Electricity and Energy
- Safcol: Minister of Forestry, Fisheries and the Environment
- South African Airways: Minister of Transport
- South African Express: Minister of Transport
- Transnet: Minister of Transport
However, Bernstein does not believe that the National State Enterprises Bill under consideration in Parliament is the answer.
“It is a partial solution to one problem, but does nothing to alleviate most of the crises SOEs face,” said Bernstein.
“The cost and effort of setting up this complex new institution will far outweigh whatever marginal benefits such an approach to managing the SOEs might have.
“The general approach must be to increase the role of competition between service providers to discipline SOEs, so that they are incentivised to improve and develop their own sustainable solutions,” she added.
Loading ...