SOE reforms? ANC-ruled, politics-dominated South Africa makes it the steepest climb of all

19 Sep 2023

The end of the road for our current course is closer than it has ever been, and the case for reform is growing screamingly urgent.

Many parts of government have been in dire need of reform for years, and momentum is now gathering to implement what could be described as “real” reforms.

These would include changes ranging from the way government spends its money, to the number of departments it operates, and to how it manages state-owned entities (SOEs).

If even half of these reforms are implemented, it could lead to real change in our economy and our society.

And yet, despite the real and pressing need for reform, there are still many vested interests likely to work against anything meaningful from happening.

Over the past few weeks, it has become clear that there is, once again, a drive under way to introduce reforms in government. The National Treasury has made it abundantly clear that government cannot continue spending at current levels, and is threatening major cutbacks.

One of the most important changes being suggested is to reduce the number of government departments and to fold some of their functions into one another.

SOE reform process

Now, as News 24 has reported, government has started the process that may lead to real reform of the major SOEs. Instead of some being run under the Department of Public Enterprises, the department itself would cease to exist and the entities would become an asset within a holding company.

It appears the motivation for this is to allow a greater role for the private sector – the fact that most SOEs have run out of capital is helping SA’s ruling party cross that ideological bridge.

This would appear to be a continuation of a series of circumstances that saw Transnet tender for a private company to take over the running of the cargo line from Joburg to Durban, which has led to what is now supposed to be the privatisation of SAA.

These new reforms would take this agenda much further.

It is probably true to say that the case for reform in many sectors of government has never been so urgent.

The Treasury is clearly convinced that, on the numbers, our current government spending is unsustainable.

It has also been clear for many years that the number of government departments appears to be based more on political realities than anything else – it is for this reason that the number of government ministries may actually increase to satisfy the demands of new parties on the block.

It is also obvious that our SOEs are failing on their mandate, whether it is Eskom, Transnet, Denel or any of the more than 700 currently in existence.

The case for reform is unarguable. The end of the road for our current course is closer than it has ever been, and the need for reform is growing screamingly urgent.

Why not?

However, that does not necessarily mean the reforms will, in fact, happen, or even be ultimately productive.

There are important reasons why some reforms like these have been promised, yet failed to materialise.

As long ago as 2012, the ANC’s Riah Phiyega submitted her report after chairing a commission into the future of SOEs.

President Cyril Ramaphosa has promised many times since 2019 to reduce the number of Cabinet ministers and ministries themselves.

However, the fundamental cause of this situation remains as prevalent as ever; politics is the core reason we are who we are and where we are.

At the heart of this is the problem many governments face when trying to implement reforms – it means reducing the political power of people whose lifeblood depends on it.

While there is an obvious example of how reducing the size of the Cabinet removes the opportunity for patronage, the difficulties in our SOEs also show how hard this will be.

One of the stated aims of the latest bid to reform SOEs is to reduce or remove political interference. This is literally asking politicians to change a system from which they benefit.

It’s like asking Cabinet to agree to reduce the budget for the VIP Protection Unit.

Among the extraordinary aspects of these latest reform proposals is that they appear to be different to what the ANC appeared to agree to at its conference just last year.

While the policy discussions were delayed (in the end, the conference restarted for a day in January), it appears that delegates resolved that SOEs should move to their line departments.

This suggests that those in government were comfortable with making up their own policies and ignoring the binding decision by ANC delegates at the party’s paramount conference.

It also appears there was little discussion within the ANC about the entire privatisation programme for SAA or parts of Transnet.

Power and opportunity

There may be other reasons to believe that real reform may not happen.

While there can be agreement among those who make the decisions of the need for reform – or even for the direction that should be taken – the details of the reform could lead to intense contestation.

If it is true that every reform will see someone, or a department, or a constituency, losing power, simply starting this debate may mean there is a chance for someone to end up with more power than before.

The importance of the nitty-gritty of what this reform will look like cannot be overstated. And in some cases, these arguments may be politically unresolvable.

There could also be other actors who suddenly spot an opportunity.

During the State Capture era, it became clear how consultants such as Bain and Company and McKinsey felt no shame (and probably still don’t) for benefiting massively from the SOE mess and corruption.

While both these companies have seen their reputations sullied by what happened at the SA Revenue Service and Eskom during that time, this could be the perfect opportunity for them to once again snag lucrative government contracts.

They may feel that a restructuring of SOEs, particularly into the holding company structure currently being suggested, would be just the right moment to get back into the game. Which would result in them being rewarded for helping to fix a problem they created in the first place.

Then there is the possibility that these reforms are merely carried out badly and that vital mistakes are made, which we have seen happen many, many times before.

The perfect example of this is the famous 1998 Electricity White Paper that first predicted blackouts would start in 2007. It was probably the first government document to formally suggest the use of independent power producers on our grid.

And yet, because of mistakes made in the implementation of that policy, not enough generation capacity was built, leading to the situation we are in now and have been in for so long. Some 25 years later, we are still struggling.

A great need

Still, while there are many legitimate reasons to believe meaningful reform will not happen, it is important to reiterate that the need for reform has never been so great.

Also, the fact the ANC could dip below 50% in next year’s elections could convince certain decision-makers to reform now, while they still have total political control over the process. They may have reduced power to control the reforms after next year’s elections.

What is clear is that real reform requires real political will from the top, from Ramaphosa all the way down.

And despite the President’s stated intention to implement reforms, we are still awaiting concrete evidence of his determination to go ahead and do it. DM

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South Africa

SOE reform process

Why not?

Power and opportunity

A great need