Most countries, including South Africa, have mixed economies in which the state regulates markets and participates alongside the private sector as an investor and an operator of businesses.
In South Africa the government owns and operates about 700 companies, most of them created during the apartheid era to facilitate infrastructure development and stimulate industrial growth when the country faced international sanctions.
These state-owned enterprises (SOEs) have investments across a wide range of industries from Eskom to oil and gas production (PetroSA), freight rail and ports management (Transnet), commuter rail (Passenger Rail Agency of South Africa), road building and management (South African National Roads Agency), airports management (Airports Company South Africa), arms manufacturing (Denel), telecommunications (Broadband Infraco and Telkom) and the South African Post Office.
The state’s industrial holdings include financial services (Industrial Development Corp), media (SABC) and mining (Alexcor and African Exploration Mining & Finance Corp).
However, many of these SOEs have experienced dramatic value destruction due to a toxic mixture of political interference and infighting, cadre deployment, incompetence, mismanagement and general disregard of corporate governance prescripts; which enables politicians, corrupt officials and their business proxies to siphon off funds from SOEs.
The amount looted from Eskom, according to the Zondo Commission.
— R14.7bn
Taxpayers bear the brunt of this value destruction as the run-down, debt-ridden and loss-making SOE are sustained by the government through bailouts. In some instances, the government is forced to privatise these companies under duress to avoid bankruptcy. This is a fate that befell SAA nearly two years ago. The government was forced to sell 51% to the Takatso consortium to save whatever value was left in the company.
State support for ailing SOEs is punching a big hole in the fiscus. In August 2020, the then finance minister Tito Mboweni told parliament that the government had spent R187.4bn recapitalising and bailing out SOEs between 2000 and 2020. But Research and Markets, a leading source for international market research reports and market data, puts the amount at R308bn.
Last month, finance minister Enoch Godongwana delivered a budget that dished out more bailouts. The latest round came in the form of debt-relief assistance for Eskom and a R1bn injection to help SAA settle a portion of its historic debt.
In terms of the relief for Eskom, the government will take over about R254bn of the parastatal’s total debt of R423bn. The downside of this bailout is that it will increase the government’s indebtedness and divert funds badly needed for social spending for the poor.
The partial takeover of Eskom debt will also significantly increase the government’s debt service costs. Godongwana singled out the debt takeover as a huge contributor to pushing up the government’s gross debt stock, which is projected to rise to R5.84-trillion in 2026 from R4.73-trillion this year.
It is not surprising that calls for privatising SOEs are being made once more. There is a belief that the state must leave these services to the private sector
This debt spike would not have occurred had there been no political interference in, and mismanagement of, Eskom, which the Zondo commission found had been looted to the tune of R14.7bn.
Therefore, it is not surprising that calls for privatising SOEs are being made once more. There is a belief that the state must leave these services to the private sector, which is more efficient at allocating resources. Where there is no market failure, there is no need for state involvement.
Take Telkom — it was partly privatised in 1996, but the state still holds a 55.3% stake, split between 40.5% held by the central government and 14.8% by the Public Investment Corp. There is a view that the government no longer needs to hold huge stakes in Telkom, which is operating in an industry considered to have sufficient competition from companies willing to invest in low-income areas such as townships and rural communities.
Telkom was involved in a legal showdown with President Cyril Ramaphosa last year over whether the Special Investigating Unit (SIU) had jurisdiction to investigate corruption allegations against it. The allegations were made by a bidder who lost out on a tender that Telkom issued 15 years ago. The SIU was also instructed to probe the sale or disposal of Nigerian subsidiary Multi-Links Telecommunications in 2006 and the subsequent disposal of iWayAfrica and Africa Online Mauritius.
Telkom obtained an interdict blocking the SIU probe ahead of a court hearing in November last year. Judgment is pending.
This case in the Pretoria high court raises the question of whether the president is using the state’s shareholding to interfere in Telkom’s operations, or if he is trying to instil good governance and root out corruption. It will also answer an unsettled question — is Telkom still an SOE subject to regulations governing such entities, or is it a listed company governed by the JSE’s listing regulations?
The court ruling might provide answers.
It is unclear why the government still holds a huge stake in Telkom.
In the past, it created an impression it wanted to position the company as a developmental vehicle to broaden access to broadband internet in poor and remote areas. This has yet to materialise despite Telkom having an extensive fibre and fixed-line network in South Africa.
Although the government partially privatised Telkom and allowed it to list in 2003, the stake it still holds exposes the company to political interference, potentially hampering its growth and performance.
Telkom has been surpassed in scale and success by both Vodacom and MTN.
Other SOEs that were privatised, such as Sasol and Iscor (now ArcelorMittal SA), have gone on to expand globally or become part of global supply chains in their sectors.
It’s time for the government to release Telkom instead of holding it back. There is no strategic reason for the state to remain invested in the company. It could use the proceeds of disposing of its Telkom stake to invest in areas of our economy that require funding — particularly skills development, infrastructure development and new enterprise creation.
The state’s exit from Telkom will allow the company to find a suitable partner with deep pockets and expertise to help it grow its fibre and mobile phone businesses.
The structural reforms the government has been undertaking must include privatisation of nonperforming SOEs if the economy is to create jobs, attract investment and grow.
• Ntingi is the founder of GetBiz
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