After the Bell: SAM I am ... not — State Asset Management company’s prospects are not great

A draft legislation, the National State Enterprises Bill, is now out for public comment. My colleague Rebecca Davis has done a cool set of Q&As on the Bill, which is being heralded as the biggest reorganisation of state-owned companies in more than 20 years.

Broadly speaking, the Bill intends to place SA’s existing and very troublesome state-owned enterprises (SOEs) into a single corporate container which will vest in the Presidency and simultaneously make the Department of Private Enterprises defunct.

Of course, lots of open questions remain, like who will be on the board and which SOEs will be part of the company? Furthermore, the idea is to distance the SOEs from the interfering and desirous fingers of the political class, which is in itself an admission of sorts. Yet, one wonders how this will work, since the board of the State Asset Management SOC Ltd — let’s call it SAM — will still be part of the Presidency, which is, um, pretty damn political when I last checked.

This legislation is the product of five years of work by no fewer than 10 of the biggest names in SA business on the State-Owned Enterprises Council. This group includes some leading lights of ANC business and policy, including Vusi Khanyile, the chair of ANC funding company Thebe Investments; and former ANC minister, strategist and policymaker Joel Netshitenzhe. 

There are also representatives of the investment industry including Sanlam director Sipho Nkosi, and Nazmeera Moola, the head of investments at Ninety One. The council also includes some straight-up businesspeople, like Marion Lesego Dawn Marole, who is a non-executive director at MTN, and former AngloGold Ashanti CFO Christine Ramon, who is now on the board of Clicks.

One doesn’t want to be overly critical, but I think the average advisory firm could have put together this plan over a weekend and frankly have done a better job of it.

The legislation has huge holes in it where presumably the parties couldn’t agree. But there is a larger problem: its conceptual basis.

The legislation claims to be modelled on some of the world’s leading examples of SOEs in China, Singapore and Malaysia. According to its assessment, Singaporean, Malaysian and Chinese models have a holding company which plays the equivalent role of a global investment asset manager. In this structure, the state-owned companies earn a return for investors (in this case the State Asset Management company). The companies owned by SAM could be listed, in which case individuals and entities other than the state could earn returns.

This idea does have some overlap with the Chinese and Singaporean models, but if you have a closer look, it’s not quite the same thing. Temasek, the Singaporean example, is the most well known. Temasek similarly started as a sleepy state investment company. Its initial portfolio, worth about $250-million, comprised shares in a bird park, a hotel, a shoemaker, a detergent producer, naval yards converted into a ship repair business, a startup airline, and an iron and steel mill.

But the company has an extremely long history, and initially, was the controlling force behind the local telecoms and airline industries. In this incarnation, it wasn’t very different from many state-owned enterprises around the world. It earned a profit but did so mainly in businesses in which the state had control over the regulatory environment, and hence were essentially operating as monopolies or quasi-monopolies. It’s not hard to make money there.

But Temasek was revolutionised in the early 2000s when it was effectively taken over by Ho Ching, who had the advantage of being the wife of then Prime Minister Lee Hsien Loong. This seems very fishy, but actually, it’s funny how things turn out: The relationship helped Ho, herself a Stanford graduate, to revolutionise the company and turn it into a global investment company.

The civil servants were dumped and skilled professional investors were brought in. The company changed from an investor in Singaporean state-owned entities to a broader investment house. Temasek now has a portfolio of about $287-billion and has offices in nine countries.

But the point is that Temasek invests according to its own mandate, mostly in equities. That’s hardly a model — or a conceptual basis — for SAM, which is going to take over some struggling SOEs on the verge of bankruptcy. Even the notion that they could be compared is, you know, a bit fanciful.

What the SOEs need most of all now is a genuine skills overhaul. It’s not the structure that is the problem; it’s the skills base. Until the ANC drops cadre deployment, which it’s not going to do, SA’s state-owned companies will continue to degrade.

IMHO, a better solution would be to sell them so an ambitious private buyer can try to sort out the mess. But the very fact this legislation exists demonstrates this is not the route the government intends to take. More’s the pity. DM