A GNU way of dealing with problematic SOEs

Maropene Ramokgopa (Photo: Leila Dougan)

By Neesa Moodley

4 Jul 2024

As the country moves forward under a government of national unity, all eyes will be on progress across various fronts, none more so than the future of state-owned enterprises.

Addressing the public last Sunday, President Cyril Ramaphosa casually mentioned that there “will no longer be a ministry of public enterprises. The coordination of the relevant public enterprises will be located in the Presidency during the process of implementing a new shareholder model”.

The announcement heralds a move towards the National State Enterprise Bill, which seeks to place some SOEs (state-owned enterprises) under a single state asset management company with the government as the sole shareholder.

There were roughly 700 SOEs under the ministry of public enterprises. However, not all will immediately be transferred to the state asset management company.

The amended National State Enterprise Bill, published in January this year, identifies the SOEs earmarked for transfer as Eskom, Transnet, SA Post Office, Denel, South African Airways, South African National Roads Agency, Airports Company South Africa, South African Nuclear Energy Corporation, Central Energy Fund, Sentech, South African Forestry Company, Air Traffic and Navigation Services Company, and Broadband Infraco.

Corruption

In a bid to root out the corruption that has plagued SOEs, the new structure will see the board of the state asset management company appointed by an eight-person panel, which will include two members of the national executive appointed by the President, a person appointed by organised business and three others appointed by the President who “have been or are chief executive officers of public companies, as well as a retired judge”.

Maropene Ramokgopa, minister in the presidency responsible for planning, monitoring and evaluation, has been tasked with setting up the holding company.

Maropene Ramokgopa (Photo: Leila Dougan)

Before joining government in 2023, Ramokgopa held several positions in the diplomatic and civil service, including Consul-General to Mumbai, India, and special adviser to President Ramaphosa. She was the mayor of the Northern Cape’s Siyanda district municipality from 2006 to 2009.

Lunga Maloyi, director: economic and fiscal policy at Business Unity South Africa, pointed out that similar practices have proven successful in countries such as Singapore and Malaysia.

“However, government’s insistence on maintaining sole ownership of the holding company leaves little room for crowding in private sector investment in the state-owned companies (SOCs). The success of the holding company will rely greatly on who is appointed to the boards and the make-up of the executive management team, and there remains a risk that these appointments could be subject to political machinations in the construct where the government is the sole owner of SOCs.

“We think this Bill misses an opportunity to fundamentally change the governance and management of SOCs,” he said.

Costs

Maloyi said the Bill seemed to be a way to rein in costs, in addition to ensuring good governance of SOCs.

“The reining in of costs could take two forms. In the first instance, restructuring the SOCs and ensuring that they are profitable would result in savings on bailouts and contingent liabilities. And in the second instance, the cost-saving could come from the rationalisation of state entities through mergers (not the subject of this Bill) as well as the closure of the non-core state entities,” he noted.

However, he says the insistence that government is the sole shareholder is a limitation as it deprives the enterprises of the much-needed capital injection through private shareholding.

“With the appointments of boards and executives remaining the prerogative of the state as the sole shareholder, there are no guarantees that the political interference that has bedevilled SOCs in the past will not continue,” Maloyi told Daily Maverick.

Nicole Hendricks, an investment analyst at Old Mutual Investment Group, hailed the introduction of the new holding company as a positive move.

“There is a strong need to effectively address the issues SOEs and the economy are facing,” she said, adding that the Bill had the potential to enable government to step up and implement turnaround measures – if implemented effectively.

Futuregrowth Asset Management has raised concerns – namely, that there is no clarity on the timeline for the development of the strategy, nor the expected timeline for execution of the strategy.

“We recognise that multiple strategies have been devised by the various administrations for SOEs, but there has been a crippling lack of execution or implementation of these,” the asset manager has publicly stated.

Oversight

Futuregrowth has also pointed out the removal of all references to the Public Finance Management Act in the latest iteration of the Bill, which raises concerns about the effective oversight and management of public money by SOEs. The asset manager concludes with the terse note that many SOEs are a substantial drain on the fiscus.

“Their reform is paramount for South Africa’s economic recovery. We doubt that (the current) version of the National State Enterprises Bill achieves this and argue that further amendments are needed to ensure that the intended outcomes are achieved,” it said.

Cas Coovadia, chief executive of Business Unity South Africa, said it remains to be seen what the final structure looks like.

“We have always been of the view that the rationalisation of SOEs should be considered. If they are not of economic or social value to the country, they should be closed. Transnet and Eskom, in particular, have made good progress and hopefully that can continue.”

Part of this shift has come from government’s acceptance that it needs to collaborate with the private sector to realise meaningful change.

Read more in Daily Maverick: Next phase of SA reform agenda should target job creation

In its latest Financial Stability Review, the South African Reserve Bank noted that the country’s fiscal position remained under pressure from spending demands from SOEs that had, for example, become increasingly incapable of raising funds to support their capital expenditure plans.

“The concern is that government guarantees on SOE debt have increased and a portion of this could be converted to additional government debt. This creates vulnerability in the financial system because increasing borrowing costs for the government increases funding costs across the financial system,” says Sanisha Packirisamy, economist at Momentum Investments.

“Furthermore, the financial sector is highly exposed to government debt and a sharp repricing in government debt could cause instability.” DM

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Business Maverick

Corruption

Costs

Oversight