Fikile Mbalula vs Pravin Gordhan: South Africa’s ailing state-owned enterprises and the future of the economy

Following an ultimatum from Fikile Mbalula, the secretary-general of the ANC to Public Enterprises Minister Pravin Gordhan, State Owned Enterprises performance has come under renewed scrutiny. File Pictures

Following an ultimatum from Fikile Mbalula, the secretary-general of the ANC to Public Enterprises Minister Pravin Gordhan, State Owned Enterprises performance has come under renewed scrutiny. File Pictures

Published Jul 24, 2023


South Africa's state-owned enterprises (SOEs) have long been a source of national concern, and the spotlight is currently on Transnet, the state-owned railway company.

Following an ultimatum from Fikile Mbalula, the secretary-general of the ANC to Public Enterprises Minister Pravin Gordhan, the company's performance has come under renewed scrutiny.

While addressing the ANC Women’s League conference at the weekend, Mbalula singled out Gordhan for the slow pace of getting South Africa’s ailing railway infrastructure back on track through Transnet.

“Now I am going to say to Pravin Gordhan, I was with him there, I was also a minister of transport. Comrade Pravin, move faster or otherwise we will move you,” he said.

While he later backtracked and said his comments were not a threat, but a clarion call, his remarks have set tongues wagging.

Economic political analyst Moeletsi Mbeki and Dr Dion George, the finance spokesman for the DA waded into the conversation on Newzroom Afrika on Monday morning, with Mbeki alluding to the fact that Mbalula may not have read up on ANC’s past cabinet decision regarding rail.

He said that the government is thoroughly aware of Transnet's under performance and recalled that, as early as 2003, the South African government had enlisted the aid of the British government to help them manage the country’s rail network.

The British government paid a renowned consulting company Adam Smith International to develop a plan to assist the government.

These advisers had laid out a blueprint for change, which, according to Mbeki, the government chose to ignore. This crucial decision, Mbeki suggests, has led to the current crisis.

George echoes this sentiment, expressing doubt about the government's willingness or ability to address Transnet's issues.

He cited the cadre deployment programme as a major problem, accusing the government of appointing officials who lack the necessary expertise to manage SOEs efficiently.

George emphasised the failure of the current business model with the damning figure of R331 billion in bailouts to SEO’s over the last decade, according to the DA’s own research.

These bailouts, he argued, are the consequence of a broken system that rewards under performance and inefficiency.

The two agreed that the solution to Transnet's woes lies in re-evaluating the business model.

Mbeki referred back to the recommendations of Adam Smith International, who proposed a privatisation of train sets, thus easing the financial burden on the government.

He argued that this move would have prevented the current crisis, allowing the private sector to manage operations, while leaving infrastructure maintenance to the government.

“So if this had been implemented in 2005, when this report was given to the South African government, we wouldn't be in the trouble that we are in now. Because the people running the trains would have been the private sector. They will be paying a fee to the government to use its track, and all the government would have had to do was to maintain the track, which means the huge payments and subsidies would have been unnecessary, because the private companies would be the ones that would have bought the locomotives, the rolling stock and so on. But the government decided not to implement that recommendation,” he said.

George reinforced this argument, pointing out the need for private sector expertise to rectify the situation.

He criticised the government's fixation on controlling the economy and suggests that the incorporation of the private sector need not equate to complete privatisation, but rather a change in the overall approach.

Another contentious topic in their conversation is the role of Minister Pravin Gordhan, who has been warned by the ANC to improve performance or face removal.

George expresses that it is unfair to single out Gordhan, as he is working within a model that is inherently flawed. Furthermore, he insists that the collective cabinet, rather than one individual, should be held accountable for these systemic failures.

Transnet's current state, which George describes as a "distressing situation," affects not only the government, but the wider South African economy. George points to the state of the roads and the inability to efficiently transport goods across the country as further proof of Transnet's failure.

He also draws attention to the extravagant earnings of Transnet executives, who collectively earn R61 million rand per year, as a grave misuse of funds.

“We get no value for the money we spend,” he said.

SOE Bailouts

South Africa's state-owned enterprises are in a state of crisis. The government has been forced to bail out several SOEs in recent years, at a significant cost to the taxpayer.

In 2022, the government spent R69.8 billion on SOE bailouts. This is a significant increase from the R43.6 billion spent in 2021.

The SOEs that have received the most bailout money in recent years are Eskom, South African Airways (SAA), and Transnet.

Eskom is South Africa's power utility company. It is the largest SOE in the country and has been struggling to meet demand for electricity. In 2022, the government spent R35.3 billion on bailing out Eskom.

SAA is South Africa's national airline. It has been struggling financially for several years and has been forced to cut flights. In 2022, the government spent R16.6 billion on bailing out SAA.

Transnet is South Africa's freight rail company. It has been plagued by corruption and mismanagement for several years. In 2022, the government spent R17.9 billion on bailing out Transnet.

The bailouts of South Africa's SOEs have had a significant impact on the economy. The government has had to borrow money to finance the bailouts, which has increased the national debt. The bailouts have also led to job losses in the SOEs and have discouraged investment in the private sector.

The South African government has said that it is committed to turning around the ailing SOEs. However, it remains to be seen whether the government will be able to do so without further bailouts.

In addition to the financial cost of the bailouts, the ailing SOEs have also had a negative impact on the economy in other ways. For example, Eskom's power outages have disrupted businesses and caused economic losses. SAA's financial problems have made it difficult for the airline to compete with international carriers, which has led to a decline in tourism. And Transnet's corruption has damaged the company's reputation and made it difficult for it to attract investment.

The government needs to take urgent action to address the problems at South Africa's SOEs. This will require a combination of financial support, restructuring, and good governance. If the government fails to act, the ailing SOEs will continue to drag down the economy and damage South Africa's reputation as an investment destination.

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