After the Bell: A rare sighting of good news for SA’s state-owned enterprises

The three state-owned enterprises (SOEs) published financial results within six months after the end of their financial year as required by the Public Finance Management Act. With this timeline, SOEs are obliged to publish their results by 30 September.

Two of the three SOEs (the IDC and PIC) generated profits and paid taxes on them, contributing to the fiscus instead of draining the public purse by requesting taxpayer-funded bailouts. 

This might sound like praising a fish for swimming or a dog for barking. After all, good governance ordinarily requires that companies generate profits for financial sustainability, and publish financial statements on time because investors/lenders rely on them to make critical financial decisions. 

However, good governance has not been a hallmark of this country’s SOEs for more than a decade. Most of them are unable to deliver on their developmental and public interest mandates of growing the economy and creating jobs. 

Take Eskom, SAA, Denel, and Alexkor, for example. These SOEs have not uplifted the economy or created jobs (in fact, they have embarked on retrenchments), but have relied on taxpayer-funded bailouts for survival for many years.

The SOEs can’t even demonstrate grace to taxpayers by publishing their financial statements on time — a basic tenet of good governance. This year, Eskom, SAA, Denel, and Alexkor have missed the 30 September deadline, proffering several reasons for their tardiness, including having to deal with outstanding audit matters.

SAA and Denel are serial offenders, with the latter publishing its last financial statements three years ago in 2020, and the former last opening its books five years ago in 2018. 

Curiously, these SOEs have been quick to ask the government for bailouts, with SAA receiving R50.7-billion between 2007 and 2022, and nearly R9-billion for Denel since 2019.  

However, the public is in the dark about their true financial position, as well as efforts to restructure their operations. 

This is more evident in SAA which, over the past two years, has been in the process of being purchased by private sector investors — mainly Harith General Partners (an infrastructure company that owns Lanseria International Airport in Gauteng). 

There is no evidence yet if the investors have the money to buy a majority stake in SAA or recapitalise it, or even have a credible plan for the airline to fly on its own without tapping into the public purse again.

In this context of governance failures, when the IDC, PIC and Acsa publish their financial results on time and manage to eke out profits, it becomes a big event.

The IDC, a development financier, led the way in financial sustainability by recording core profits of R5.9-billion during its 2022/23 financial year — marking the third successive year of the SOE being in the black. 

By providing businesses with funding to the tune of R6-billion during the period for their expansion, the IDC estimates that 3,000 jobs would be created. However, the IDC has its problems, mainly arresting growing write-offs/impairments (loan repayments that it may never recover because the businesses it funds have become financially distressed). 

The PIC, a state-owned asset management company that invests pension savings worth R2.3-trillion belonging to public servants, is also profitable. 

The PIC recorded a profit of R221.7-million during its 2022/23 financial year, though profits were down 28% compared with the previous year. 

The PIC also reported improvements to its governance. Six years ago, the PIC was thrown into a governance storm after a whistle-blower detailed impropriety at the SOE and the funding transactions it executes, implicating senior executives in sullied deals. 

This storm pushed President Cyril Rampahosa to establish a commission of inquiry into the governance affairs of the PIC, which probed nearly 40 deals and the conduct of executives. 

The inquiry’s work was concluded in 2019 and made wide-ranging recommendations to overhaul its governance structure and lessen the powers of executives in approving deals. 

The PIC board said that, to date, 96% of the inquiry’s recommendations have been addressed or implemented. This is arguably impressive considering that Chief Justice Raymond Zondo recently trashed Parliament for not moving fast enough with implementing recommendations from the State Capture Commission of Inquiry.

Meanwhile, Acsa, which manages the country’s nine biggest airports that are still recovering from travel patterns that were decimated by Covid, is not profitable. 

Acsa expects to return to profit from next year. At least its financial situation is available for all to see, unlike many of its SOE counterparts.

Happy investing. DM