Delinquent SOEs will destroy SA economy

Finance Minister Pravin Gordhan. Picture: Reuters/ Mike Hutchings

Finance Minister Pravin Gordhan. Picture: Reuters/ Mike Hutchings

Published Apr 17, 2016

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For a brief spell in December, when the rumble of a crashing economy had subsided and the forces that had launched an assault on the Treasury had been put to flight, new possibilities seemed to unveil themselves.

Finance Minister Pravin Gordhan, cloaked in an authority polished by the crisis, spoke of stamping out the wasteful spending, the grand projects and of knocking delinquent state-owned enterprises (SOEs) back into shape.

They should not only cease to be a drain on the fiscus, he said, but turn a profit.

There was a sense of urgency in his approach and he seemed to have the backing of a chastened President Jacob Zuma, as the two reached out to business to chart a path back from the economic wilderness.

Gordhan pulled the plug on a planned aircraft acquisition dear to the heart of SA Airways board chairwoman and Zuma confidant, Dudu Myeni, and it seemed the balance of forces favoured the champions of fiscal rectitude.

But, even as Gordhan and Zuma were meeting captains of industry - with measures to tackle corruption together among the agenda items - there were signs that all was not entirely peachy.

One strand of this story - the attack on Gordhan’s integrity via a stitched-up investigation into a SA Revenue Service (Sars) intelligence unit - immediately grabbed attention.

But in the background, another sub-plot in the drama began to unfold, as state arms maker Denel announced it had entered into a joint venture with VR Laser Asia, a firm with links to the Gupta family.

This in turn prompted a number of questions. The company had no track record in the industry and there was the suggestion that three Denel executives had been suspended.

Even more alarming was news that Denel had not been given the go-ahead for the deal, either by Public Enterprises Minister Lynne Brown or Gordhan.

Meanwhile, momentum for reform seems to be running out of steam.

The sense of crisis that prevailed in those bewildering days in December, the sense of urgency, seems to have gone.

Yet the scale of the problem is as great as ever. On Friday, the leadership of the SA Post Office was in Parliament to outline plans to right that particular sinking ship.

A decade of mismanagement, negligence and outright fraud had run the Post Office into the ground - blowing between R3 billion and R4 billion on labour broking charges - leaving mail delivery trucks stranded at the side of the road, post offices locked and overgrown by vegetation and creditors suing for outstanding payments that were on the brink of driving their own businesses under water, chief executive Mark Barnes and board chairman Simosezwe Lushaba revealed.

There is a bitter irony in the Post Office's conundrum: it needs more money from the state to persuade the banks it's viable, yet the shelling out of cash to crippled SOEs is precisely what causes lenders to question the country’s sovereign creditworthiness.

It’s a downward spiral which, if not reversed by credible measures to get parastatals under control, will suck in the whole economy.

Which brings us back to Denel; at one point the model of successful public-private partnership on which elements of SOE reform were to be based.

After weeks of confusion and following its blithe announcement that it had, indeed, concluded the VR Laser deal in accordance with the legal requirements, Gordhan decided to set the record straight.

Not only had permission not been given, he said in a statement on Wednesday, but to proceed with the deal would attract disciplinary charges if necessary.

As snotklaps go, that is about as emphatic as you would expect a minister to be in a public statement.

And you would have expected anyone on the receiving end to have quietly made an appointment with the minister to try to make amends.

But Denel was unshaken, hitting back with a statement of its own in which it implicitly accused Gordhan of acting in bad faith by going public with his concerns.

Not only that, it described itself and the Treasury as two organs of state engaged in a dialogue, as though they had equal authority.

Whereas, the week before, following the news that the Guptas had resigned from their executive positions at Oakbay and reports they had left the country, there was a sense they and others like them were on the retreat, this week they came back with a bang.

On the same day, Oakbay announced its Tegeta subsidiary had concluded the purchase of the Optimum coal mine, dependent for its income on a contract with Eskom - another SOE - which, on the face of it, would have to gift the Gupta company a remarkable increase in price to make it profitable.

So the sense of relief many felt when they read the Guptas had taken off has been replaced by the dawning realisation they probably never left.

Judging by the confidence it would take to sink R2.1bn into a loss-making coal mine, they are in fact just getting started.

But a briefing by chief procurement officer Kenneth Brown in Parliament this week showed that while the Guptas and their ilk are a big part of the problem, they are by no means the sum of it.

He described how tenders ranging from national to municipal level were rigged to favour cronies of those in a position to manipulate them.

His office's efforts to automate these processes and drag them into the public glare could only go so far, he warned.

“We're getting close to a million transactions a month in different parts of the system. So we have thousands of tenders a day.”

It would be impossible to create a surveillance system to cover all of these and, ultimately, it was a question of making the institutions for oversight and control work as intended.

“Where is the supply chain head, what qualifications does he have, what is it he needs to report on a regular basis to the board,” Brown said.

Sunday Independent

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