What’s the new National State Enterprises Bill about?

19 Sep 2023

The National State Enterprises Bill is being called the biggest reorganisation of state-owned companies in more than 20 years. The draft legislation has been published for public comment, but may not make it into law any time soon. We break down the details.

What does the Bill propose?

The headline detail is that the draft legislation would spell the closure of the Department of Public Enterprises, a ministry that few are likely to miss, given its patent failure to control the death spiral of most of South Africa’s state-owned enterprises (SOEs).

In its place would be a holding company to supervise the SOEs: the State Asset Management SOC Ltd.

What is the point of replacing the state’s Department of Public Enterprises with a new state-owned enterprise to manage the other state-owned enterprises?

That is indeed the question of the moment. But there is some optimistic thinking behind it, which the proposal’s major champion — Public Enterprises Minister Pravin Gordhan — explained to Parliament in May 2022.

Gordhan said at the time that the shake-up, which he is understood to have been working on for the past five years alongside the Presidential State-Owned Enterprises Council, would improve financial performance and reduce political meddling.

The minister told Parliament that the establishment of a holding company would “separate the state’s ownership functions from its policy and regulatory functions, minimise the scope for political interference, introduce greater professionalism, and manage state assets in a way that protects shareholder value”.

Who will the shareholders be?

The state. And only the state. The Bill proposes that the holding company be registered “under the name ‘State Asset Management SOC Limited’ with the state as its sole shareholder”.

And … why will there be less political interference?

Some scepticism is in order.

In an interview with News24 on Sunday, acting Public Enterprises director-general Jacky Molisane said the aim was to hire the “best of the best” and allow them to “run these entities professionally and insulate them from political interference”.

Molisane also said that corporate-style Key Performance Indicators (KPIs) would be set in advance to ensure a certain level of performance. (Although this sounds promising, we have heard this kind of pledge from the state before: most notably, in the performance contracts signed by President Cyril Ramaphosa’s Cabinet ministers in 2020 and apparently never referred to again.)

The Bill specifies that either the President or a Cabinet member — ie, a political leader — is the “sole representative of the holding company”, ie, the “shareholder” referred to in the draft legislation.

The board of directors will be appointed by the “shareholder”, the Bill states: in other words, by the President or a designated Cabinet minister. In other words, these will still be political appointments.

Any other worries?

The draft Bill is being greeted by multiple observers, including the DA, as a missed opportunity. The DA’s Ghaleb Cachalia said that the focus of the legislation should have been to “create pathways through which private investment could start flowing into the SOE sector”, either by entirely privatising the entities or opening them up to public-private partnerships.

This is, in fact, one of the more confusing aspects of the discourse around the new Bill. Molisane told News24 that the aim of the legislation was to “emulate best practices, such as in China, Malaysia and Singapore”. Yet in countries such as Singapore, often what is at play is a public-private partnership.

The government’s insistence on maintaining sole ownership of the holding company was described by Business Leadership CEO Busisiwe Mavuso in a Monday newsletter as a “disappointment”.

Wrote Mavuso: “Good examples of holding companies in the rest of the world are able to trade their interests in companies to realise the most value for the state.”

Are there positive aspects?

“A great deal will depend on who is appointed to the board of the new company, and then what kind of executive management is appointed,” Mavuso said.

The DA’s Cachalia termed the Bill “well-intentioned”, but said it was spoiled by “the ANC government’s penchant for centralisation and control”.

Exactly which state-owned enterprises would fall under this proposed new holding company?

This is currently unclear, but News24 reports that the Presidential State-Owned Enterprises Council has “compiled a list of those entities that would be suitable for inclusion in the holdings company and noted those that should be disposed of or shut down”.

The Sunday Times reported recently that in a desperate move to cut costs, the National Treasury was recommending either slashing or merging entities including the Road Traffic Management Corporation, a number of human rights bodies and multiple tourism agencies.

The Road Traffic Management Corporation CEO received remuneration of almost R9.3-million in the 2020/21 financial year, making the position, by Daily Maverick’s calculations, the best-paid job in the South African public sector. Another hugely lucrative post is the CEO of another roads-related government agency, the Road Traffic Infringement Agency.

How many state-owned enterprises does South Africa actually have?

Wonderful question, and one that it is astonishingly difficult to find a clear answer to in 2023.

In 1994, there were about 300 SOEs employing about 300,000 people. By 2010, when the Presidential Review Committee was appointed to look into SOEs, it was established that there were “at least 715” SOEs — yet somehow employing under 160,000 people by this point.

Some weeks ago, Daily Maverick asked the Department of Public Enterprises how many “state-owned enterprises public institutions/ public entities/government agencies” South Africa has.

The response we received:

“The Department of Public Enterprises, as the government’s shareholder representative, has oversight of six state-owned enterprises, namely: Eskom (power utility), Transnet (rail, freight, logistics and ports), South African Airways (SAA) (aviation), Denel (defence and manufacturing), Safcol (forestry) and Alexkor (mining). These entities all combined, employ around 100,000 people (the majority of whom are in Eskom and Transnet, which each have about 40-50,000 employees).”

How close are we to this new Bill being made law?

Quite far off, it would appear. There’s a public consultation period on the Bill currently, after which it will go to Parliament. While the ANC obviously has the parliamentary majority needed to pass the Bill if it chooses to, one of the interesting political questions around it is what the party’s stance on it will be.

The ANC has proposed a different solution to the SOE problem: namely, that entities fall under control of the relevant departments, so it’s unclear whether Gordhan’s proposal will find favour there. Unions are also likely to have something to say about the job losses inherent in cutting or merging entities. And because that will become a political hot potato, the ruling party may want to boot this one beyond the general elections in 2024. DM

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