Reshaping SOEs to align to South Africa’s developmental mission
JOHANNESBURG – State-owned enterprises (SOEs) and their developmental state approach plays an important role in the South African economy. 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.
When a corporate fails to perform to its expected requirement, a change in management is sufficient to instil a new culture in a corporation and we don’t need to sell a corporation because of it’s immediate past performance. There is always capable human capital ready to govern big corporates or SOEs in every economy.
Strengthening SOEs’ 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.
The government policies specifically call on SOEs to play a key developmental role. Other policies such as the National Development Plan (NDP), the Medium-Term Strategic Framework (MTSF), and the Industrial Policy Action Plan also highlight the role of SOEs as major contributors to infrastructure development and to economic restructuring, while the Nine-Point Plan, which outlines the government’s priorities, includes addressing the electricity challenge and supporting reforms in SOEs.
A state is developmental when it establishes as its principle of legitimacy its ability to promote and sustain development, understanding by development the combination of steady high rates of economic growth and structural change in the productive system, both domestically and in its relationship to the international economy.
For a state to be successful in implementing its developmental vision, it must be sufficiently embedded within its society so that its policies and strategies resonate with its citizens. However, the state must simultaneously be sufficiently protected from private interests and political influence in order to exercise its autonomy.
Developmental’ states make extensive use of central planning agencies and SOEs to implement or coordinate their policies. Institutions acting as central planning agencies have taken many different forms including economic planning agencies, government ministries or development bureaus. a developmental state is essentially one whose ideologically underpinning approach is developmental in its high accumulation and industrialisation.
Through these initiatives, the government’s goal is to ensure that SOEs deliver on broader developmental goals and that they support the transformation and competitiveness of the economy.
The past 10 years reflections (2007 to 2017) invites policymakers to rethink how the South African government SOEs must operate, starting with capable human capital or meritocratic leadership style in all state companies at national, provincial and local governments to encourage the purpose of high economic growth and competitiveness.
Debates can be that SOEs aimed to be developmental as an orientation requires the government to be reflective and mindful on the ideological relevance to operating SOEs. The ruling party has to guide on decisive governance, accountability and continuously improving resource allocation strategy that achieves maximum efficiency and results.
In light of the changing global landscape and the 4th Industrial Revolution, South Africa must be transitioning from an investment-driven export economy to an innovation-driven economy reliant on domestic and continental consumption. The role of SOEs has become 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.
South Africa’s SOEs are enormously bulky and they must be carefully redesigned to provide flexibility when responding to market demands while serving their radical socio-economic transformation.
It is evident from the past 10 years that SOEs are highly over-leveraged and structurally less efficient than their private peers. Stagnating growth throughout South Africa’s public sector has led to a shrinkage in its overall asset holdings. SOEs are often criticised for abusing their preferential access to loans, and for lobbying for regulations which drive out competitive private companies. It is widely argued that the SOEs would not survive in an innovation-driven market environment without the perks they currently enjoy.
The inefficient management of government corporations has also worsened and all eyes on President Cyril Ramaphosa and Public Enterprises Minister Pravin Gordhan, to turnaround all government SOEs. In actual sense, the current ANC president was elected to turnaround state owned companies, as that’s the solution to reinstate the economy’s attractive economic growth above 4 percent, inclusively creating jobs to boost the Services Industry to turnaround as well.
The country must forget to see growth when Eskom is not efficiently operating and generating cost-effective electricity to support industrial development.
The president must continue with his anti-corruption campaign, expedite proceedings at the sitting State Capture Commission to complete its assignment, to release a statement to the investment society to be aware of the findings and provide guideline mitigations to ensure global asset managers to restore trust to the South African economy and government. Meritocratic leadership system can assist the SOEs to be relieved of corrupt executives – but on the other hand, SOEs will have management who has a coherent strategy and understands the state companies developmental state approach.
While this has been happening South Africa’s private sector – which has been revving up since the global financial crisis - is now serving as the main driver of South Africa’s economic growth. The period from 2009 till 2017, marks an era where SOEs are misusing its division of revenue not to improve the country’s socio-economic development conditions and further fails to realize the radical socio-economic transformation agenda.
The success of South Africa’s private and public technology sector will worth to develop the economy in the fast changing fourth industrial revolution and the lightning fifth and sixth industrial revolutions. In areas where we don’t have enough strength, we need to collaborate with global players to add to our efficiency and transition the South African economy to innovation and sophistication-driven economies.
Despite the past 10 years as disappointing factors, the South African government must still support SOEs for the practicalities of their purpose and mission statement for a societal developmental state and be committed to making them bigger, stronger and more efficient.
The South African government must establish a state-owned Asset Supervision and Administration Commission (SOASAC) to assist in implementing the government’s approach to realize a best model for operating SOEs with continuous improvement and innovation, governance and accountability principles and only prioritize meritocratic practices.
The state-owned Asset Supervision and Administration Commission needs to concentrate it’s strategic foresight to restructure the SOEs into modern profit-oriented corporations and lead them to a full adaptation governance and accountability principles.
Practically all of the entities overseen by SOASAC are structured as corporations and are legally separate from the government with their own boards of directors, effectively delegating more authority to the executives.
These efforts to make SOEs competitive while holding absolute control over their final decision-making reasserts the South African government’s commitment to consolidating state control while simultaneously allowing the market to be the ultimate resource allocator. In other words, the government wants to keep a close eye on market forces while reserving the ‘intervention option’ in critical situations.
Governance and other reforms are critical to improving SOE performance and competitiveness, increasing financial sustainability through access to new sources of capital, and achieving higher levels of transparency and accountability.
Miyelani Mkhabela is a founding director and capital markets strategist for Antswisa Transaction Advisory Services. Contactable at: [email protected] , www.antswisa.co.za , tweets on: @Miyelani_Hei