the formation of other SOEs in strategic sectors that were identified as critical for state security such as DENEL and ARMSCOUR for the military industry, which enabled the military to become vicious and notoriously aggressive in the continent and world; and TELKOM in the telecommunications industry as examples. Photo: Reuters
the formation of other SOEs in strategic sectors that were identified as critical for state security such as DENEL and ARMSCOUR for the military industry, which enabled the military to become vicious and notoriously aggressive in the continent and world; and TELKOM in the telecommunications industry as examples. Photo: Reuters

SOE Council will set the right tone for reforms and governance discipline

By Bheki Mfeka Time of article published Jun 23, 2020

Share this article:

JOHANNESBURG – The appointment of the State-Owned Entities (SOEs) Council should be hailed as a move in the right direction for South Africa’s troubled economy. As they say “it is better late than never”. The previous SOEs reviews or studies noted all the governance and other challenges and more, that we often read about in the media.

The fragmentation in oversight meant government was hum-strung in acting effectively at the highest level in dealing with the challenges systematically. Based on benchmarks and best practice the Council will play a focused role of oversight over the entire tapestry of state entities ensuring they exist and perform accordingly.

Of the more than 700 entities (including subsidiaries) I would estimate that about 80 percent or so of the SOEs that exists in South Africa were formed during Apartheid, 20 percent or so were formed during democracy i.e. post 1994. 

Those that were formed during apartheid were responding to the policy direction of the regime at the time such as import-substitution as a result intensifying sanctions by international community. The apartheid government created measures to, for example, ensure security of supply in sectors such energy and develop industrial capabilities with the formation of SASOL, ESKOM, ISCOR, IDC, research councils such as CSIR.

Also, the formation of other SOEs in strategic sectors that were identified as critical for state security such as DENEL and ARMSCOUR for the military industry, which enabled the military to become vicious and notoriously aggressive in the continent and world; and TELKOM in the telecommunications industry as examples. Scores of others were formed throughout the country including the so-called homelands or Bantustans.  Of course, it does not mean all of them are now irrelevant but most of them have to be reconfigured to align with country’s developmental and inclusive growth needs. 

Many of those that were formed during democracy were influenced by an attempt to improve efficiencies in traditional government departments. The bureaucracy in departments was perceived as stifling and also not attracting the quality of human resources required, which is probably still the case. It then became a trend to corporatize certain functions, what became famously known as “agencificatoin of government”, something that happened in many departments in all tiers. One of the leading departments nationally was the department of transport. Also, provinces such as Gauteng, and many metros formed developmental agencies and other types of entities. 

Many of these entities unfortunately became fiefdoms for corrupt politicians and officials. They weakened government capacity and, in many instances, did not improve efficiencies instead distorted remuneration markets, as executives set themselves higher pays inconsistent with the sizes and scopes of their entities. Boards of many of them became avenues for political and corrupt deployments.

The governance failures in many of them emanated not only through corruption, but also their fragmentation and disparate enabling legislations across the board. Each entity has its own enabling legislation and may not be consistent with the imperatives of a sustainable plan that aligns with the maxim of modern best practice for SOEs, country’s direction, and compliance with the constitution.

The semblance of their overarching legislation is found in the Public Finance Management Act, and the Municipal Finance Management Act, which are both limited, and not efficiently, to financial management. On the other hand, the Department of Public Enterprises was not formed, equipped, and enabled legislatively to be an oversight department but was more of a “privatization” preparatory structure for all intent and purpose. This exposed SOEs to misaligned and illogical shareholder oversight frameworks, as well as conflict between policy, regulatory, and shareholding functions across the board.

State owned entities, therefore, need urgent overhaul as has been recommended and as President Ramaphosa is providing leadership. Also, the purpose and the markets have changed significantly and they need to be reconfigured for developmental and inclusive growth purposes.

The Council, therefore has its work cut-out.  Although it would initially have no powers until empowered by an overarching SOEs legislation. Its formation currently may be effectively similar to that of an Inter-Ministerial Committee or a Presidential Working Group. This may temporarily have the unintended consequence of causing delays and uncertainty on key decisions that require a Minister or Cabinet.

The Council’s immediate tasks, as the Presidency statement highlighted, would include the following amongst others:

- Monitor and guide the work on stabilizing high risk SOEs such as Eskom, SAA, Denel, SABC etc.

- Determination of strategic and non-strategic SOEs/markets/assets based on the assessment of the conditions and country’s strategic objectives

- Creating an enabling legislation for the all SOEs in South Africa, the SOEs Act.

- Creating an appropriate State shareholding Oversight model

The determination of strategic SOEs/markets/assets is significant, and on its own when legislated will alleviate the questions around rationalization of all other entities. 

Whether the Council will be effective will still depend on its ability to articulate policy positions to convince the political and social stakeholders on the chosen path to reforms. Top of the list will be its articulation and position on SAA’s proposed rescue plan in relation to national development plans and projected market conditions. Whether the state disposes some entities or not, consideration of protection and creation of jobs and skills by society will be central to decisions.

Dr Bheki Mfeka, is the Economic Advisor and Strategist at SE Advisory; and former Project Manager for Research at Presidential SOEs Review Committee and former Economic Advisor to the Presidency. | Twitter: @bhekimfeka | Website: www.seadvisory.co.za | Email: [email protected]

BUSINESS REPORT

Share this article:

Related Articles