Around this time in 2017, SA’s major state-owned enterprises (SOEs) were in the grip of a multifaceted crisis of governance, leadership and capital structures. Even though the trains were still running, moving freight to ports and passengers to and from work, the lights were on and the national airline was airborne despite its controversial board, the sense of deepening crisis wasn’t lost to funders, investors and bondholders.
Five years on the picture has worsened, and yet no sense of urgency around this economic emergency is evident. Eerily, it’s almost like business as usual.
After a business rescue that culled much of its workforce and plunged employees into untold hardship, SAA has just begun flying again. However, its regional feeder, SA Express, is facing liquidation.
Denel, the state-owned arms maker, is like the governing ANC — paying salaries irregularly after the departure of its chair. Power utility Eskom is still struggling to keep the lights on most of the time, while the Passenger Rail Agency of SA (Prasa), which used to ferry millions of employees to work each day, is battling to restart services.
Freight logistics SOE Transnet has reported a multibillion-rand loss as it faces a deadly cocktail of challenges, including a lack of parts to perform maintenance on its new fleet of locomotives.
Worse, some of these entities are mired in debilitating leadership wrangles. After years of operating with a caretaker CEO, Prasa is again without one after booting out Zolani Matthews late in 2021.
Others, such as Eskom and Denel, have yet to get suitably qualified nonexecutive directors appointed to fill long-standing vacancies. Denel has yet to come up with a credible strategy.
And Eskom is in the throes of a complex and costly restructuring — to split generation, transmission and distribution operations into subsidiaries of a holding company — and is caught up in a standoff with energy minister Gwede Mantashe over the finalisation of independent power producer agreements and how these new sources of energy will be brought onto the grid.
For its part Transnet, like Eskom, has been asked to allow private players on its infrastructure networks. Glibly but ominously, these days cynics talk of Transnet as being the next Eskom.
In his closing remarks after the ANC alliance’s lekgotla at the weekend, and in his capacity as president of the governing party, President Cyril Ramaphosa did mention the SOEs. But it was in passing — not as the cornerstone of the economy — and there was no mention of the worsening crisis that is unfolding and slaying small businesses.
Sensing impending trouble, Ramaphosa set up an impressive advisory panel to advise him on the SOE portfolio. This wasn’t the first time. Upon assuming office in 2009 after toppling Thabo Mbeki, Ramaphosa’s predecessor, Jacob Zuma, also set up an advisory panel. Its report and recommendations were hardly implemented.
In 2017 all role players, including the private sector and banks, which were significantly exposed to financially distressed SOEs, appeared to be watching the same horror movie. They made offers of skills and other forms of support to the government.
Partly as a result of these offers the boards of several entities, including Eskom and SAA, underwent significant changes at the beginning of 2018. These changes were also made possible by Ramaphosa’s victory at the December 2017 Nasrec conference of the ANC, and his ouster of Zuma as president on Valentine’s Day the following year.
Since then, several major executive leadership changes have occurred. The problem is that leadership instability continues. Eskom, for example, is on its second CEO and second chair since then, and Transnet, one of the most consequential SOEs, has gone through numerous CEOs.
Also, the leadership changes have been accompanied by major restructurings and personnel changes. In the middle of a slow-growth environment, CEOs and boards have resorted to cutting costs through headcount reduction.
The advent of Covid-19 in 2020 hasn’t helped. But it is not solely to blame for the state SOEs find themselves in. The presidential panel on SOEs will hopefully come up with some fresh ideas on governance and leadership. But these are unlikely to help resolve the short to medium-term problems faced by these SOEs, especially the bigger ones.
Nor are they likely to identify strategies of generating alternative revenue streams. The latter will be a function of clear, coherent strategies and fit-for-purpose board and executive management leadership that has the political support of so-called shareholder ministries (politicians).
Most failures and leadership instability at SOEs have been caused by political meddling. At Telkom, for example, which is held up as a success story, leadership stability did not emerge on its own. It came about because both the CEO and chair — former CEO Sipho Maseko and the late Jabu Mabuza respectively — explicitly asked politicians to give them space to run the company. Also, it helped to occasionally remind the government that it was just one of several shareholders of Telkom. This is not the case with most SOEs.
As a listed company Telkom was also freed from the shackles of the Public Finance Management Act which in effect ties the hands of SOE CEOs by expecting them to go to war armed with pen knives against private sector competitors who have bazookas.
So if they are to be allowed to contribute to economic development SOEs, especially the major ones, have to be freed from both the stranglehold of politicians as well as laws that blunt their competitiveness, such as the Public Finance Management Act and procurement policies.
In the medium term the government should consider a crack team to stabilise the SOEs before they develop into a systemic risk.
• Dludlu, a former Sowetan editor, is CEO of the Small Business Institute.
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