Parastatals facing their Waterloo

Published Dec 21, 2014

Share

Cape Town - The “developmental state” – with the major parastatals to the fore – was the term signalling a major shift in economic policy orientation after the defeat of the “1996 class project” at Polokwane in 2007.

Compared with the emphasis of the Growth, Employment and Redistribution (Gear) framework championed by Thabo Mbeki, the vision of a developmental state was of more direct intervention in the economy.

This was to entail expanding the mandates of the state-owned enterprises (SOEs) to include stimulating economic growth through massive infrastructure investment, supporting manufacturing though targeted procurement – with a strong black economic empowerment component – boosting employment and incubating skills.

Yet today Eskom, the “cornerstone of the economy”, as Minister of Public Enterprises Lynne Brown put it earlier this year, SAA and the SA Post Office are in intensive care, each facing multiple crises relating to their financial health, governance and performance and raising the question whether the state-led economic revival envisaged in 2007 has met its Waterloo in these crippled SOEs.

There is talk of seeking an equity partner for SAA, the sale of non-strategic assets to fund a capital injection for Eskom, and encouraging greater private sector participation in building electricity generation capacity – interventions more consistent with Gear than the more statist bent of President Jacob Zuma’s government.

It may be argued that the economic reality of a strained fiscus is beginning to define the limits of what the state can do on its own, prompting a rethink of the developmental state model.

On the other hand, three basket cases among the 715 SOEs identified by a review committee on parastatals instituted by Zuma do not, on their own, make the case that the model has failed, although there are other SOEs that are also unwell.

Still others, like Transnet, are demonstrating how the model might function quite well.

Surprisingly, many of the recommendations of the review committee, which examined the requirements for aligning the functioning of the SOEs with the vision of a developmental state, have not even begun to be implemented, more than a year and a half after the cabinet adopted the committee’s final report.

Some of the proposals might have mitigated the challenges facing the troubled SOEs before they evolved into crises threatening the country’s fiscal sustainability.

Much of the blame rests with the leadership and boardroom battles – the elements that have been making headlines – but some of it (including aspects of the leadership challenges) relates to structural contradictions identified by the review and yet to be resolved.

The proliferation of SOEs – the committee began with a list of 300 supplied by the National Treasury, only to discover another 415 in the course of its work – is a result of multiple economic policy objectives going back to the founding of the republic and elaborated over successive administrations. Many of the objectives no longer apply.

The committee found a patchwork of pertinent legislation, no overarching vision for the role of SOEs, and multiple oversight bodies, each with its own understanding of the mandate of any given SOE.

There was no clear delineation of SOE mandates or distinction between their commercial and non-commercial objectives.

As a result, even the managements of the parastatals did not always agree on their mandates, even as they confronted conflicting expectations from oversight authorities, including line ministers, legislatures and regulators. Each of the SOEs now under the wing of Deputy President Cyril Ramaphosa suffers from this lack of clarity.

Eskom, for example, has more than doubled the number of household electricity connections since 1994 – a social imperative – yet it was expected to finance this, along with the new generation capacity to go with it, even while its tariffs were initially too low to cover these investments.

Other failures have since compounded the problem.

Similarly, SAA has opened routes – to the rest of the continent and Asia – to complement the government’s efforts to shift trade and tourism patterns, running up huge losses in doing so.

The SA Post Office is required to maintain a presence in remote areas where its services are a lifeline for an otherwise isolated population, but these offices are not profitable.

The committee made a number of recommendations to deal with these issues, starting with the setting out of an overarching strategy for SOEs; the promulgation of legislation to formalise this; identifying strategic sectors and the priority SOEs within them; rationalising the number of SOEs by merging some, disestablishing those that no longer had a public interest role, and subsuming into government departments those whose work could be done effectively by the state; and establishing a transitional committee to drive reform of the sector and a council of ministers to strengthen oversight.

A key recommendation was that the non-commercial objectives of SOEs be clearly identified and funded separately from their commercial operations.

In the cases of Eskom, SAA and the post office, this would have helped them stay in the black and the government would have had a clear picture of the costs associated with the developmental and social goals it set for them.

All of this would also have clarified lines of accountability and responsibility for key appointments.

Some of these recommendations are now being fast-tracked.

A list of non-strategic SOEs is being finalised and some may be disposed of.

SAA is to cut some of its loss-making routes.

But the critical element, a comprehensive SOE strategy, has yet to be produced.

[email protected]

Political Bureau

Related Topics: