JOHANNESBURG – As South Africa’s domestic economy languishes deeply in economic paralysis, our state-owned enterprises (SOEs), which are a significant feature of the country’s economic agenda, remain in distress, characterised by poor performance and flirting with bankruptcy. We are now at a crossroads and fitting to argue that our country needs to develop a sound mechanism for dealing with its SOEs.
A time in the post-democratic era has befallen us to look at alternative means of business prosperity that are designed specifically for the unique contribution of our SOEs to the country’s economy.
SOEs usually have a two-pronged mandate, a combination of public welfare and profit-making. This is true for South Africa and many other nations. Key to the character of SOEs is their inherent bona fide public purpose. As such, SOEs are expected to operate by merging strategic business and political goals on top of public welfare and profit-making.
It appears that our government intends to maintain sole ownership over all the SOEs instead of pivoting only the ones that are operating in strategic sectors of the economy.
Sadly the business and political objectives have often failed to agree and at worst led to apathy between those charged with running the SOEs and their political masters. More recently, most of our strategic SOEs lost all capabilities to retain chief executive officers and senior executives. This was also made possible by boardroom squabbles, highly compromised and ineffective board structures.
Unfortunately, when the board whose responsibility is to provide strategic oversight and hold management accountable fails in its monitoring and evaluation function, SOEs simple function rudderless thus opening a window for inept oversight and corruption.
Usually, this is reflected in conditions such as weak management oversight, lack of accountability and corruption with depressed levels of productivity and profitability.
Despite significant contributions made by our SOEs in driving economic development and employment creation, all that has now been trampled by the alleged corruption, operational and financial sloughs, less commercial orientation, managerial instability and ineffective board instruments. In addition, the view that the government as a sole shareholder interferes in the daily operations and the consequent adverse effects on the competitive nature of our SOEs.
Needless to say, we ought to bring the much-needed SOE reforms to strengthen the mandate and effectiveness of our SOEs to the country’s developmental agenda. Presently, most if not all the strategic SOEs are bleeding financially, plagued by agency problems, loss-making with heavy reliance on government bailouts and guarantees. As expected, any reforms will need to be part of the state’s overall political programme.
Evidently, our government’s interventions within SOEs have so far achieved nothing but paralysis, private greed and unsanctioned extraction of wealth.
Instead, the government continues to show a chronic tendency of replenishing the diminished operating financial requirements of the SOEs through guarantees and bailouts without ever holding anyone accountable.
Do we have decent SOE reform policies that will help stimulate the commercialisation of our SOEs whilst exerting more accountability? Are those reform policies decent enough to address the present-day SOE woes?
How does China manage to get their SOEs right then? Ian Bremmer argues that China’s political and economic system is better equipped and more sustainable than that of most economies including the world’s biggest economy, the US.
Bremmer suggests that China has the ability to use its SOEs to boost their domestic and foreign influence which has positioned them well in their quest to surpass the US gross domestic product by 2029.
Most importantly, China has built a system where its government embraces commerce whilst tightening control over domestic politics and economic competitiveness. In South Africa, the narrow-mindedness towards our SOEs is appalling. Unfortunately, these entities have been used by some as a safe cushion for plunder. Now is the time that President Cyril Ramaphosa and his government change tact.
When Moody’s axe that they had wielded for more than two years finally fell sharply on our country’s sovereign credit rating into junk status, they were quick to remind us of the nine wasted years whose remnants will still be with us for many years to come when they said, “the broader erosion in institutional strength induced by the wide-spread corruption of the Zuma administration is an important factor behind the erosion in South Africa’s credit profile in recent years. Moreover, the legacy that era has bequeathed of poor governance of state-owned enterprises remains a key drain on fiscal resources”.
The decline of our SOEs financial fortunes is a mirror of the fundamental problems that are inherent in our domestic economy.
The lack of visionary leadership has eroded our competitiveness as a country and consequently that of our SOEs.
South Africa needs a master plan that will readjust its SOEs focus to adapt to the ever-changing business and economic landscape. As such any reforms within SOEs must be backed by appropriate fiscal policies, the need to recapitalise the current existing SOEs or dilution of their existing capital structures to include private capital.
The character of our SOEs as the public purpose and profit-making entities is a useful framework from which to evaluate their operating and financing agenda. The success of any reforms will be linked to sound financial reforms that will enable our strategic SOEs to have access to working capital and project finance necessary to drive business stimulation.
The SOE boards need to be empowered with greater oversight and authority over management decision-making. It should also be our duty to increase the commercialisation of our SOEs in order to improve their operational performance, reduce state reliance and bring stability at the top.
The truth is that we have mismanaged these SOEs for too long. Our response in bringing about the necessary SOE reforms against the backdrop of deep operational challenges must be deeply guided to keep these entities from a total collapse.
Thabile Wonci is the chief executive at Kogae Rainbow Investment Holdings and a senior partner at Kogae Advisory Partners.
