Few tears will be shed over the demise of the department of public enterprises. But President Cyril Ramaphosa’s order last week to transfer shareholder responsibility for key state-owned enterprises (SOEs) to their line ministries, pending the establishment of a new state-owned holding company, can only add to the shambles around SOEs.
That is not to say it could not have good outcomes, at least temporarily, for the two SOEs that matter most to SA’s economic performance: Transnet and Eskom. Transport minister Barbara Creecy and electricity & energy minister Kgosientsho Ramokgopa are reform-minded, well-regarded ministers. There are high hopes that they will crack the whip and fast-track reforms to create urgently needed competition and efficiency in SA’s energy and logistics sectors.
Both also support the government’s collaborative efforts with business to address the crises in electricity, rail and ports that weigh heavily on SA’s economic growth. While the reform process is under way, much still needs to be done, particularly in logistics, and strong political leadership will be needed.
That is just one of the reasons the uncertainty and contestation over who the shareholder will be for strategically important SOEs is not helpful. The shambles, and the poorly developed plan to set up a new holding company, seem unlikely to help to make the SOEs any more sustainable financially or any more able to deliver the services and infrastructure the economy needs.
That blew into the open at the weekend with reports in the Sunday Times that the ANC is happy with the transfer to the line ministries — which was in line with its own congress resolutions — but unhappy with plans for a centralised state-owned shareholder — which was not in any resolutions.
Nor is the ANC the only unhappy party, as it were, though private sector critics of the proposed holding company legislation have a range of other reasons for their discomfort.
Ramaphosa remains adamant that government will go ahead with the National State Enterprises Bill, which former public enterprises minister Pravin Gordhan introduced into parliament in February.
The bill gives effect to the recommendations of the presidential SOE council, which Ramaphosa established in mid-2020 and that recommended a centralised shareholder model for the governance and management of SOEs deemed strategic for the economy.
There are some good theoretical reasons for such a model. It would separate the policy, regulatory and oversight functions of government in relation to SOEs and, so the theory goes, minimise the potential for political interference and for conflicts of interest. It could enable greater transparency and oversight and accountability. It has been described as international best practice. The example often cited by those in government who have long favoured the holding company idea is Singapore’s successful Temasek.
But in Singapore, the state-owned companies under Temasek’s stewardship are commercially and operationally viable — indeed they pay dividends to Temasek, which in turn pays dividends to the finance ministry. There’s no political interference. The companies implement their own strategies.
None of that seems likely here, whatever shareholder model government puts in place. Even if it were willing to give up on the political interference, none of the SOEs in question is now able to stand on its own feet financially, nor is that a prospect soon.
The more diplomatic critics of the bill often do not make the obvious point that putting a bunch of SOEs under a centralised state-owned company, under the control of the president, could just centralise the potential for corruption, if SA were to have another disaster of a president with no moral compass. But even leaving that aside, the idea has some flaws, and the bill in its current form has several.
It does not specify how the SOEs that are to be selected to go into the new holding company are to become commercially viable or to improve their operating performance, nor even why those particular ones are to be selected. It is not clear why adding another corporate layer to their structure should make them any more profitable, or any more able to overcome the inappropriate business models, lack of executive and board capacity, and political interference that have contributed to the crises in key network sectors.
Shifting shareholder responsibility for the strategic SOEs into this new company would involve a complex set of legislative changes and corporate finance transactions, and would need the approval of the creditors that hold the bonds of Eskom, Transnet and others. The complicated process could be worth it if it held out the prospect of better governed, more accountable and more efficient SOEs that could enable higher economic growth. But we would have to have a clear policy framework and rationale for it.
Until then, keeping the bill on the books while shuffling SOEs between departments just creates an overhang of uncertainty.
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