The “tough love” approach that Treasury has adopted towards state-owned entities (SOEs) might involve the introduction of more private-sector participation, deputy finance minister David Masondo told lawmakers on Tuesday.
Treasury sees state-owned companies as a major risk to the fiscal framework and has already introduced a strategic equity partner into SAA, enabled private generation of electricity and is planning private participation in the freight rail sector to increase competition, boost efficiency and reliability and reduce costs for customers.
Nevertheless, Masondo’s comments are likely to trigger intense opposition by those in support of a developmental state backed up by a strong state-owned sector.
Finance minister Enoch Godongwana introduced the “tough love” policy regarding SOEs — including no further bailouts — at a media briefing last Thursday before medium term budget policy statement (MTBPS). In his speech he noted that the government had spent R290bn in assisting SOEs since 2013 at the expense of important social expenditure. “We must be prepared to consolidate some of our state-owned entities and let go of those that are no longer considered strategically relevant,” Godongwana said.
His approach was then discussed during a Treasury briefing on the MTBPS to four parliamentary committees.
Masondo said discussions were needed on where the private sector should be allowed and where the state was needed to act as an entrepreneur where the private sector was not present or not performing optimally. These decisions should be based on empirical evidence rather than ideology, he said.
“We have to come back to this conversation about what tough love means and how we get the private sector involved in some of these industries in which the state over the years has been the dominant or only actor. If we engage the private sector, how should we do that — equity partners or liberalisation of certain sectors? If the SOE fails, what do you do?
“Do you continue to bail it out or do you... let other competitors take over that sector, or do you have an equity partners or do you simply say we will continue to bail out these entities, and what are the implications of this for the fiscus insofar as health, housing and so forth.
“We do need to have some trade-offs. We can’t finance everything. We have to make those strategic choices,” Masondo said.
Treasury director-general Dondo Mogajane said “there is not much that we can say in terms of value and returns” from the state’s investment in SOEs. “The collapse in most of these state-owned companies and the challenges they face suggest that we have to approach this very differently. The language of tough love simply means that at some point we should say ‘no’, and that at some point we should demand some kind of value and returns in any of the state-owned companies that we support. It is not going to be easy.”
Finance committee chair Joe Maswanganyi was adamant that the meaning of tough love needed to be fleshed out. He raised concern about the demise of the developmental state if SOEs were relinquished and what this meant for the affordability of services. Any such policy would have to align with the policies of the ruling ANC, he said.
Duncan Pieterse, Treasury’s head of asset and liability, noted that the MTBPS announced two new amounts for state owned entities — R2.9bn for Denel to settle guaranteed debt and R11bn for Sasria — to settle claims arising from the July rioting in KwaZulu-Natal and parts of Gauteng. In the last fiscal year about R21bn was given to SAA. Denel received about R2bn in the last two fiscal years, Eskom has received about R136bn out of government’s 10-year R230bn commitment, and this year another R10bn was committed to the Land Bank.
“What we are saying is that beyond amounts already in the fiscal framework and the new amounts announced now, there will be no further support for state-owned companies unless there are issues arising from guarantees called by their creditors, as well as an assessment of their strategic relevance going forward and what that means for our restructuring agenda,” Pieterse said.
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