The R10.5 billion SAA bailout is not a surprise, but the concern is lack of clear communication of the logic on investing in a new airline. Photo: African News Agency (ANA) Archives
The R10.5 billion SAA bailout is not a surprise, but the concern is lack of clear communication of the logic on investing in a new airline. Photo: African News Agency (ANA) Archives

We need decisiveness on SOEs reform for effective economic restructuring

By Opinion Time of article published Nov 2, 2020

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By Bheki Mfeka

JOHANNESBURG – Decisiveness on the future of state-owned entities (SOEs) is critical and will test government’s credibility and capacity to manage reforms and restructuring of the economy in general.

The R10.5 billion SAA bailout is not a surprise, but the concern is lack of clear communication of the logic on investing in a new airline. It does not seem like a logical approach to fiscal sustainability and consideration of risks associated with continued investment in a fragile airline industry was taken into account.

If there was a compelling case for a new airline this would have been presented proactively in the Medium-term Budget Policy Statement (MTBPS) not as a reaction to threats outside the test of commercial and developmental viability as a primary consideration.

For all the work that has gone into advising government by various committees and studies regarding SOEs reforms, including the impressive work from the National Planning Commission, there is still no clear plan that, given the crises, should have been presented on the 700+ SOEs which are a drain to the fiscus.

Instead the MTBPS presented by Minister Tito Mboweni proposes taking away budget from key departments with “labour intensity” such as “learning and culture” (eg police, and education), and conditional grants to fund the predictably money burning SAA venture. I find this approach completely contradictory to the Minister’s earlier stances and attitude towards SOEs.

The government, like all international benchmarks show, needs to have gazette and announced strategic SOEs based on sound scientific evidence. This approach safeguards key national imperatives such as state security, ensures supply of key public products, and SOEs key to market and socio-economic development.

From the list of strategic SOEs, the government is able to target its reforms agenda vis-à-vis the national development plan and support restructuring and revitalisation of those as they would play a critical role in development and inclusive growth. Those that would not have appeared on the list would need to justify their continued existence based on a key predetermined criterion, failing which they would be absorbed as part of government departments or be disposed to the private or civil society sectors.

The conditions will include maintaining jobs and the environment, and create sustainability for the business or contribution of the SOE to the economy. This is what many successful economies have done to balance the risks and ensure reinvigorated development and inclusive growth. Enormous savings can be realised in the process of reforming our huge SOEs portfolio.

Developmental states are not defined so because they permanently keep SOEs including stale and inefficient ones, they strategically retain SOEs where necessary but ensure that they are effective, efficient, and productive. They do this through cutting-edge analysis of markets where SOEs operate to decisive determination of positioning of SOEs.

Where markets have advanced and crowded in private sector, where it is optimally efficient and superior than the state, the mission would be accomplished and the state seamlessly disentangle itself in those circumstances. I don’t think South Africa has paid attention to the role and dangers of government owning SOEs in areas where markets are more efficient.

At this point in our country, it would seem government is prepared to leave with SOEs to the brink of collapse and until everyone is convinced that they have only one route, ie to be privatised. Conspiracy theorists would have it that this is a strategy often adopted by neo-liberal governments under pressure from dominant multinational corporations to instigate wholesale privatization.

But in this case, I’m not convinced that South African government has such a deliberate strategy. It would seem the government is either not capacitated to implement reforms programme of this magnitude or is merely not confident or decisive on the path that will be acceptable to key stakeholders or voters such as labour and political alliance partners.

The later position seems to have in the period since democracy in 1994 has crippled government’s ability to be decisive on SOEs reforms. When the so-called ANC’s class project of 1996 was implemented through GEAR policy, key SOEs were decisively privatised and many others were prepared for privatisation through the then newly created Department of Public Enterprises (DPE).

The problem with privatisation at the time was that the best performing SOEs critical for sustainability of markets, such as Sasol and Iscor for the manufacturing sector, were privatised instead of supporting them to continue to play a strategic developmental role in the economy.

This saw dangerously excessive profiteering by new private owners charging high import party prices to the demise of the manufacturing sector. This was done while non-essential and poorly performing SOEs were left to drain the fiscus. This was then confounded by rising corruption and deployment of incompetent boards and executives in many instances, which meant complete collapse of SOEs governance.

Presenting a credible SOEs reforms programme therefore remains a critical milestone for restructuring the South African economy. It is still doubtful if that can be done without highly capacitated oversight structure that will oversee the process.

That cannot be done within the normal government range of incentives for appropriate personnel to undertake this function. The SOEs Council set-up by President Cyril Ramaphosa will rely on DPE overwhelmingly under capacitated if you consider the size of the SOEs portfolio in the country.

Also, to a certain extent DPE can be conflicted or overwhelmed in overtaking the secretariat task since they are also currently playing an oversight role on key major problem SOEs such as Eskom, Transnet and Denel.

With capacity in place, the government would properly set aside a budget and timelines for SOEs reforms programme. This would then allow government to respond to ongoing challenges holistically ensuring efficiencies and proactive approach to intervening in the SOEs and the economy in general.

Dr Bheki Mfeka, is the chief executive, Economic Advisor and Strategist at SE Advisory. | Twitter: @bhekimfeka | Website: www.seadvisory.co.za | Email: [email protected]

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