Pravin Gordhan will not turnaround SOEs but we run a huge risk of seeing SOEs sold
Opinion / 9 December 2019, 3:00pm / Miyelani Mkhabela
JOHANNESBURG – State-owned enterprises (SOEs) play an important role in the South African economy. Since 1994 SOEs have been a significant vehicle for achieving economic growth and poverty reduction. They are especially important vehicles for addressing market failure and for delivering key infrastructure services such as energy, transport, and water that allow the economy to grow while ensuring equity through access and quality of social services to all citizens.
Strengthening their role and performance is a key component of the Developmental State agenda. This agenda addresses the key challenges facing South Africa: high poverty and unemployment levels; skewed distribution and maintenance of infrastructure; unequal distribution of land and capital; and growing disparities between the rich and poor.
This phronetic planning research sets out to answer four questions of power and values for specific instances of planning:
Where are we going with planning for SOEs?
Who gains and who loses in SOEs, and by which mechanisms of power?
Is this SOEs turnaround or selling non-core assets desirable?
What, if anything, should we do about SOEs in South Africa?
A central task of phronetic planning research on SOEs Governance, Accountability, operational efficiencies, capable Human Capital and commercial viability of SOEs is to provide concrete examples and detailed narratives of the ways in which power and values work in planning and with what consequences to whom, and to suggest how relations of power and values could be changed to work with other consequences. Insofar as planning situations become clear, they are clarified by detailed stories of who is doing what to whom. Clarifications of that kind are a principal concern for phronetic planning research and provide the main link to praxis.
Where are we going with planning for State Owned Enterprises?
The future of SOEs must be resilient and operationally viable and that will need prioritisation of clarifying SOE objectives; improving the legal and regulatory framework for SOE governance; strengthening the state’s role as owner/shareholder; professionalising SOE boards and management; and Promoting the financial sustainability of SOEs; and enhancing the transparency and accountability of SOEs.
Launching a black Friday focused on selling SOEs is wrong for the country as the national conference of the ruling party and the policy conference, both 2017, never bestowed any NEC member to even start the discussion of selling the SOEs. Putting SAA under a business rescue process is a sign of failing to implement reform and inability to plan, discovering creative solutions to everyday challenges.
Strategic planning and implementation is not magic, it’s a process. Finding sustainable solutions to complex problems in SOEs and opportunities facing us today will require the collective creativity, talents, knowledge, and hard work of many people across all SOEs and beyond.
Good ideas can come from anyone, opportunities can come from multiple sources as well. Interestingly, discovering solutions requires both generating new ideas and then applying them in a useful way; new methods, customs, devices, approaches, combinations, or changes in a process.
New ideas are important, but generating ideas is typically not the problem. There are more than enough ideas to go around. Truly creative solutions require experimenting with the ideas, making unique connections, and – when you eventually find the combination that works- actually implementing it.
Public Enterprises need a lot of assistance with planning and implementation, mainly when it comes to small wins and prototypes as SOEs are not like social development they are companies of the state, they cannot be run like a department which purpose is just service delivery. South Africa hasn’t explored enough to quickly sell SOEs, we must learn to solve problems, manage complexity and then create viable systems to effectively operate all state companies.
Today we can openly say that Public Enterprises Minister Pravin Gordhan cannot turnaround SOEs and his capabilities don’t need complex departments, he will not manage and it’s great to assess yourself before taking a role.
The chemicals used to run SOEs are not sold everywhere, it’s a different breed that can do so and we need to all know this truth.
Forty years have passed since Deng Xiaoping embarked on the liberal reforms which generated an average gross domestic product (GDP) growth of above 10 percent and transformed China into a global manufacturing powerhouse with considerable political influence.
Deng gradually rose to power and led China through a series of far-reaching market-economy reforms, which earned him the reputation as the "Architect of Modern China.
Deng exhibit experience and observation on how to govern a nation and how to plan and execute reforms using small wins and prototypes initiated by Chairman Mao Zedong's, Deng was patriotic to the resources for the nation and was well dressed with Marxism, firm leadership traits, influential, strategist, focus and analytical.
On the other hand we have Minister Gordhan. Gordhan is very fast, and his speed enables him to conduct phronetic research, developing small wins and prototyping. There is a sense of failure to turnaround the SOEs from him and lack of respect for gradual leadership principles of succession planning at Eskom with an extreme appointment for a less performing executive from Nampak.
The New Economic Plan of Lenin can assist Gordhan
Gordhan will not turnaround SOEs but we run a huge risk of seeing SOEs sold starting with SAA, SA Post Office, as well as certain units at Eskom and Transnet that can be disposed to investors who will buy valuable assets and easily turn them around.
I, therefore, suggest that South Africa must train a calibre of managers and leaders to run SOEs and also the selection of candidates ministers in the future must have large commercial corporation management to ensure that we don’t run a risk of a Minister who never evaluated values of SOEs but opting to sell as a first priority. South Africa has capable human capital such as Bonang Mohale in the energy sector who run Shell South Africa and achieved better results.
Microeconomic reform comprises of policies directed to achieve improvements in economic efficiency, either by eliminating distortions in individual sectors of the economy or by reforming economy-wide policies such as tax policy and competition policy with an emphasis on economic efficiency, rather than other goals such as equity or employment growth.
Economic reform usually refers to deregulation, or at times to reduction in the size of government, to remove distortions caused by regulations or the presence of government, rather than new or increased regulations or government programs to reduce distortions caused by market failure.
Ever since the Communist Party of China (CPC) has been striving to gradually allow the markets to play a decisive role in resource allocation. The situation with China’s state-owned enterprises (SOE), however, is more complex than with the general economic picture. There are lessons South Africa can derive from Chinese SOEs executive management and board appointments.
In light of the changing global landscape and the Fourth Industrial Revolution, South Africa must transition from being an investment-driven export economy to an innovation-driven economy reliant on domestic consumption and the African economy while managing trade relations with the global markets.
The role of SOEs has become all the more important in these circumstances, as they have traditionally assisted the government in reforms - even though the new consumption-oriented economy requires a level of flexibility and responsiveness that publicly owned bodies generally lack.
Who gains and who loses in SOEs, and by which mechanisms of power?, the leadership style of Pravin Gordhan doesn’t exhibit that he is managing this SOEs for strategic value, for societal value and for shareholder value. The South African government will loose and society at large will loose from the sale of SOEs which are the strategic pillar of running a balanced government that can create jobs and reduce poverty.
Is this SOEs turnaround or selling non-core assets desirable?
The SOEs turnaround is a desirable exercise but that needs capable human capital that can be appointed to the boards and executive management, with foresight for the future efficiencies, build a pool of managers to succeed the chief executives, chief operations officers, chief financial officers and chief technical officers.
It’s too risky for the country to have a minister who doesn’t understand SOEs operations and on the other hand, a chief executive who doesn’t know the organisation and expect that candidate to turnaround while he is not having social capital value network within the organisation, chances are workers will not embrace him and the worrying matter is South Africa delaying recommended reforms by rating agencies.
What, if anything, should we do about SOEs?, strengthening governance and accountability of SOEs, prioritise on core operational elements of the SOEs, appoint professional management executives and experienced and potential board members, improve financial management and train enough pool of managers that will be deployed to work at SOEs, an individual cannot transform a large organization such as Eskom, big corporates need a solid team of management acumen who will be leading from the centre as that’s the most operational functions.
The Department of Public Enterprises must partner with a leading business schools such as UCT GSB and GIBS to design and develop a special programme to train candidate mainly youth to lead this SOEs in the future. Investment in education is the solution and it will reduce dependence on consulting firms.
Making all SOEs adopt King IV's 17 principles can assist the Department of Public Enterprises for monitoring and evaluation, enforcing all departments to adopt technological systems. All SOEs must have a priority of building a viable system for SOEs to manage the complexity of corruption and fast-changing world.
Miyelani Mkhabela is an Economist, Director of Antswisa TAS and Antswisa Private Equity.