Operating commercially viable SOEs is the solution for economic stability in South Africa
Opinion / 11 November 2019, 4:00pm / Miyelani Mkhabela
JOHANNESBURG – The Government has implemented various developmental and transformation policies, strategies, and programs through state-owned enterprises (SOEs) aimed at overcoming economic inequalities and underdevelopment but performance challenges remain.
SOEs are expected to provide capital for the attainment of BEE objectives, but several reports indicate that BEE programs have not worked optimally, which has led to the enactment of the B-BEE Act and the establishment of the B-BEE Advisory Council to provide leadership and direction for implementation. President Cyril Ramaphosa is the first chairperson for the BEE commission appointed around 2002.
The president has so much experience in transformation as a former working-class leader and an aggressive black entrepreneur. We haven't seen much from the president in trying to redress the impurities of the past by addressing trade union challenges and also ensuring that small businesses boom in all sectors.
The department of trade and industry has the black industrialists Programme that will only work when the economy is stable and SOEs are experiencing efficiency in their functioning. More industries should've been created with the budget allocated to bail SOEs from 2012 to 2019. We need to change how we do things as a nation to turnaround the SOEs and experience growth.
While SOEs are aware of their role in supporting social, economic and political objectives, critically at the epoch, governance, accountability, financial and resource constraints are an impediment to achieving results on the ground leaving 10 million South Africans unemployed, youth unemployment is the most catastrophic situation as it builds to generational poverty.
What is the prerequisite to be a servant leader in emerging markets? What's needed to capable govern a nation? What types of members of parliament, Ministers and presidents does South Africa need to move forward? These are some of the phronetic questions we need to ask ourselves, reflect on and provide a solution to turnaround South African economy.
Operational and financial challenges affect SOE performance but there is growing recognition that weak governance frameworks and practices are the root cause. Governance framework alone will not work but the appointment of capable human capital and implementation of all functional internal controls can assist in making SOEs be efficiently operational and commercial viable entities.
SOE performance is hindered by the lack of technical skills; lack of financing capacity to sustain operations; inadequate infrastructure; and lack of long- term planning. To this end, efficiency or productivity improvement programs need to be put in place to enable SOEs to achieve their objectives.
Key processes, and institutions that govern the relationship between SOEs and government as their owner/shareholder, operate more like government departments rather than as efficient, autonomous, and professionally run enterprises.
SOEs typically face governance problems that include:
multiple and competing objectives, such as balancing commercial and developmental objectives outside their core mandate and preventing interference in SOE management;
lack of a clearly defined state ownership framework combined with a decentralized and heavy oversight structure;
politicized boards and management with rising levels of corruption;
uncertainty on funding strategies and tariff policies resulting in a lack of financial sustainability for SOEs;
Lastly, the lack of a proper performance management system and disclosure practices to ensure transparency and accountability.
Key Areas for Improving SOE Governance
Clarifying SOE objectives;
Improving the legal and regulatory framework for SOE governance;
Strengthening the State’s role as owner/shareholder;
Professionalizing SOE boards and management;
Promoting the financial sustainability of SOEs; and
Enhancing the transparency and accountability of SOEs.
When investors are comfortable with SOEs governance, accountability and financial management, it can be even easier for the government to initiate a state-owned food manufacturing company to produce consumable grocery products to reduce imports of basic agricultural production.
The food manufacturing SOE can attract investors and the government can use it as a model to control prices in South African retailers and in times of challenges when we are faced with recession and downgrading. Selling some of the SOEs will be a great loss for the nation but seemingly treasury confirms high government debt while investors are interested to buy the 2 trillion value of SOEs to operate them commercially. New case scenarios at business schools.
We are expected to change our attitudes and character before we attempt to transform the nation. Change is a process and it will never be achieved in three months. We need to be mindful of what we do every day to implement reforms. Personnel and Organisational behaviours are the first priority aspects to implement economic reforms in all nations. Complexity is a recipe of the day in a fast-changing world and we need to prioritize human capital that is trained to manage complexity in our state-owned enterprises and listed companies as they will experience huge challenges at the first and second quarter of 2020.
Good practice calls for SOE boards to be composed primarily of members from the private sector, with business, professional and, other relevant backgrounds, based on a structured and transparent nominations process.
SOE boards should be properly composed so that they can exercise objective and independent judgment. Increasingly, developed and emerging countries have none or only a small number of civil servants on SOE boards. They also have explicit requirements to include non-executive members that meet formal definitions of independence, usually covering at least one third and sometimes significantly more of the board. To ensure properly appointed boards, the board nominations process itself has moved to become more transparent and merit-based through a properly-outlined board nominations policy and procedures. That will set a tone for professionalizing SOEs to be commercially viable.
Miyelani Mkhabela is an economist and director at Antswisa Transaction Advisory and a speaker at the state-owned enterprises governance and accountability conference 2019.