We don’t need another layer of interference in functioning of SOE boards
New SOE council, like its predecessors, is focused on how to fix the SOEs, when it should be finding ways to dispose of them instead
State-owned enterprises (SOEs) play an important role in the SA economy. Since 1994 they have been positioned as a key cluster for achieving economic growth and poverty reduction. They were geared to address market failure and deliver the key infrastructure services such as energy, transport, water and more that allow the economy to grow while ensuring equity through access and quality of social services to all citizens.
It is common cause that our key SOEs have failed miserably in delivering on their mandate. They have, moreover, been almost single-handedly responsible for driving SA Inc to the very edge of the fiscal cliff.
Many are bankrupt, mired in mismanagement and steeped in corruption. Instead of addressing market failure — as was their purpose — they represent a comprehensive public-sector market failure in the provision of public goods at a more optimal level and price.
This was the state of SOE affairs in 2010 when the president established a presidential review committee (PRC) on SOEs. It was still the case when the presidency’s 2015/2016 annual report noted that then deputy president Cyril Ramaphosa “continued the important work of implementing the PRC on SOEs, and to support SOEs in distress, such as Eskom, the SA Post Office and SAA.”
The PRC’s committee comprised luminaries from the private sector, academics, Development Bank of SA professionals, international business people and politicians. It’s 21 terms of reference were categorised into four themes: development and transformation; governance and ownership; business case and viability; and strategic management and operational effectiveness.
Now we have President Cyril Ramaphosa’s announcement of the appointment of members of the new Presidential State-Owned Enterprises Council. Meanwhile, the situation has, if anything, worsened. The government has, over the past 12 years, allocated R162bn to financially distressed SOEs, of which Eskom accounts for more than 80%.
Undeterred, a statement from the presidency affirms that the council will support government in repositioning SOEs “as effective instruments of economic transformation and development”. Uppermost among its responsibilities will be developing a stronger framework for governing the country's SOEs, signalling a decade-long effort to fix the same problem — a mandate not dissimilar to the PRC of yore.
The council's mandate, as expressed by the presidency, represents the same old wine in new bottles and will extend to a review of the role and mandate of SOEs to ensure a positive socioeconomic contribution and alignment to the national development agenda.
It will also review SOE corporate plans to ensure alignment to government priorities and ensure appropriate systems are in place to monitor implementation of such plans, as well as the operational and financial performance of the companies, while reviewing business models, capital structures and sources of financing for SOEs, and will monitor and mitigate risks — a familiar refrain if ever there was one.
Moreover, the council’s composition mirrors the old PRC’s committee — individuals drawn from the private sector, ANC deployees, academics, Development Bank professionals and investment bankers/economists.
Carol Paton, writing in Business Day in June 2013, described the PRC's long list of recommendations as being “so general and diverse that the summary did not leave a clear impression of what the committee believed the vision for SOEs should be.” She suggested that the vagueness was partially intentional “given that the role of SOEs is a hot political issue”.
Will Business Day deliver a similar verdict on the council as Paton did in 2013? Will SA finally run out of fiscal space as “new capital structures and sources of financing for SOEs” deplete the Public Investment Corporation and the Government Employees Pension Fund? Time will tell. The trouble is, time has all but run out.
The problem here is that the council, like its predecessors, is focused on how to fix the SOEs, whereas they should be investigating how to dispose of them given the long, expensive and painful market failure.
Will council members have the latitude to say what they really think if they are diligent and rigorous in the execution of their task — liquidation, sale, privatisation? Can they manage upwards — as the newly appointed CEO of Eskom tries but fails to do? Or will they be co-opted to lend yet another veneer of credibility to a systemically hopeless task?
And then there’s the small matter of potential conflict of interest if those on the council have access to market-sensitive information and engage down the line in investments into SOEs via their own or related companies. It has happened in the past. What’s to prevent it from happening again?
What we don’t need is yet another layer of interference in the functioning of SOE boards and executive management. Who will guard the guards? The phrase in its original Latin, from the poet Juvenal, has universal and timeless application to concepts such as corruption and over-reach — notions that aren’t unfamiliar to this government and its predecessors.
• Cachalia is DA shadow public enterprises minister.
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