By Bongani Mankewu
South Africa's Eskom power crisis illustrates the detrimental impact of the vested interests of the various stakeholders in the governance ecosystem of state-owned enterprises (SOEs).
The vested interests enhance the negation of South Africa's development to be primarily driven by infrastructure - power, transportation, telecommunications, water and sanitation.
This requires South Africa's SOEs to be re-instituted, and the critical power of the ministers demands serious consideration. Sadly, inadequate governance and interfering government executives in these SOEs prevent the country from achieving its developmental agenda.
Without the suggested reform conditions, current practices weaken governance, institutions, and regulation, limiting SOEs' ability to compete globally and attract investment. As a result of the renewed SOEs, government ministerial authority is limited, resulting in a true economic recovery that relies on efficiency gains from the private sector.
In the context of developmental economics, radical reforms are necessary, but pre-existing institutional conditions have a heavy impact on the viability of any reforms. As a result, if pre-existing institutional factors prevent an optimal outcome, the polity is stuck in an irreversibly suboptimal state, and the citizens must decide what to do.
South Africa's economic recovery depends on the re-examination of the mandate of local Development Finance Institutions (DFIs) and SOEs. With the efficiency of the private sector, the highly necessary infrastructure can be made investable and bankable rather than blanket privatisation, as suggested by others.
Investing in infrastructure can be used as an agenda for political hegemony, nation-building, and economic development in a globalised context.
For this to become a reality in infrastructure delivery and financing, judicious, enlightened, and technocratic governance practices must be adhered to. By promoting productivity and export development, the government can nurture nascent entrepreneurs downstream of the value chain through the proper structure of public-private partnerships.
In Southern Africa, this is an opportunity lost as it is a norm that transitional economies benefit from state-guided entrepreneurship. Thus, the government must maintain the developmental mandate with a limit against the SOEs.
With this approach that has already been in place within the political corridors coined as a "developmental state," it makes sense that SOEs and DFIs would serve as the instruments to accomplish its objectives. To attract investment, we need to have an efficient governance system.
The reality is that SOEs today operate as inefficient quasi-government departments that do not offer meaningful competitive advantages to global value chains. Transitional economies should challenge the notion that corporate governance systems are convergent with a market-oriented (American) corporate structure.
The historical evolution of industrial economies demonstrates that a highly successful economy and system of corporate governance can be established with a government-controlled corporation instead of only private actors.
There must, however, be a legislative caution mechanism to curb the behaviour of principals or ministers who, in hindsight, foster corruption that undermines the principles of non-intervention and non-preference by disrupting governance institutions. It is only effective governance that has enabled some economies in the world to succeed economically despite their lack of natural resources.
The high ranking of Singapore in regulation, free market, and corporate governance makes it seem like a poster child for the American-Current-Global model of good corporate governance, which holds that dispersed, shareholder-centred, Berle-Means corporations are the best (Panda and Leepsa, 2017; Liu and Wang, 2018).Dispersedly held shareholder-centric Berle-Means corporations are virtually non-existent in Singapore.
Energy and railways are two of our large SOEs that should be completely controlled and managed by industry experts with a clear government mandate. Governments can own portions of publicly traded companies but have disproportionate control over them, such as a substantial cash flow right. As venture capitalists and investment companies do in more developed capital markets, government appointees on the board can serve as influential monitors if they do not interfere with the firm's daily operations.
The government should only have a minority of representatives on these boards, but those representatives should have sufficient veto power. An SOE's board of directors can, for example, be appointed by the Industrial Council Body, which reports regularly on the industrial development program to the line ministry. A key purpose of government involvement should be to speed up South Africa's economic development by promoting industrialisation.
PPP Special Purpose Vehicles must be established as part of the government's effort to promote industrialisation. Development Finance Institutions must act as catalysts to attract investment and enable the execution of identified infrastructure projects.
It is crucial to nurture potential world-class SPVs through effective stewardship and commercially driven strategic investments with the aim of creating global value chains that contribute to South Africa's economic growth.
Bongani Mankewu is an associate of the Infrastructure Development & Engagement Unit at Nelson Mandela University. He writes in his personal capacity.
BUSINESS REPORT