TK POOE: How to fix South Africa’s broken SOEs

South Africa’s debate over state-owned enterprises (SOEs) remains mired in ideological gridlock. The ANC defends SOEs as tools for transformation despite governance failures, while the DA pushes privatisation as a cure-all.

Both sides overlook global evidence and pragmatic solutions, risking economic instability akin to Russia’s 1990s collapse or the UK’s privatisation pitfalls. To avoid disaster, South Africa must pursue evidence-based reforms that leverage SOEs as engines of innovation, regional integration and inclusive growth.

The ANC-DA divide reflects a false binary. The ANC clings to SOEs as symbols of state control, ignoring systemic mismanagement and political capture. The DA advocates privatisation, assuming markets guarantee efficiency, yet ignores risks such as monopolies, loss of public oversight and service deterioration as witnessed in UK utilities.

Neither engages sufficiently with data. The International Monetary Fund Technical Report for 2023 stresses that SOE failures stem from bad governance, not ownership itself. Successful models — from Singapore’s Temasek to China’s SOEs, which are driven by research & development (R&D) — demonstrate that state ownership can work with accountability and strategic vision. South Africa’s debate must shift from “state vs market” to “how to reform effectively”.

Russia’s perestroika process of the 1990s offers a cautionary tale. Hasty privatisation led to oligarchs, asset stripping and economic collapse. Conversely, China’s SOEs invested more than 1-trillion yuan in R&D in 2022, driving global leadership in renewables and technology. South Korea’s state-backed chaebols, though private, highlight the role of strategic industrial policy. Even the UK, a privatisation poster child, is now debating renationalising strategic assets such as steel and water amid security concerns and inefficiencies.

For South Africa, the lesson is clear: privatisation is no panacea. Strategic SOEs in energy, transport and water must be retained and reformed, while noncore entities can be divested transparently. The goal is not ownership dogma, but functional institutions aligned with national imperatives.

SOEs such as Transnet and Eskom hold untapped potential to drive regional integration. Transnet’s rail and port networks could anchor trade in the Southern African Development Community, while Eskom’s expertise might secure energy access across Southern Africa. Similarly, Denel and Eskom could spearhead R&D in defence technology and renewables — sectors where South Africa’s private sector underinvests.

China’s state-led innovation model proves that SOEs can catalyse technological leaps, yet South Africa’s SOEs lack R&D mandates. Eskom, for instance, could transition from crisis management to pioneering green energy solutions, positioning South Africa as a continental leader.

Prof Isaac Khambule’s 2025 study “State Institutions and Development in South Africa” underscores SOEs’ dual potential: reducing inequality vs enabling corruption. Reforms require categorising SOEs as “strategic” (energy, water) or “noncore”. Strategic entities need governance overhauls: insulating boards from political interference, tying funding to performance, embedding R&D mandates and strengthening whistleblower protections. South Africa’s new SOE reform unit and legislative frameworks offer tools to enforce these reforms.

Noncore SOEs should be divested cautiously to avoid Russia-style oligarchy. The ANC’s 2024 manifesto vows to “reform, not privatise”, but without governance fixes, this remains empty rhetoric. The DA’s privatisation push risks sacrificing long-term sovereignty for short-term gains. Both must move beyond dogma: the ANC to embrace accountability, the DA to acknowledge state ownership’s strategic role.

South Africa’s SOEs have exacted a heavy fiscal toll, according to the Centre for Development & Enterprise, with bailouts exceeding R400bn and an estimated R2-trillion losses in economic output since 2010 due to inefficiencies and disrupted service. This underscores the urgency of reform.

A robust competition framework is essential to balance SOE mandates and private sector participation. The Competition Commission and the department of trade, industry & competition must work together to prevent monopolistic practices while allowing SOEs to fulfil strategic roles. This nuanced approach is critical to fostering a dynamic economy that leverages both public and private strengths.

The ANC’s ideological attachment to SOEs as symbols of state sovereignty often blinds it to the need for deep governance reform and accountability. This has allowed corruption and political interference to flourish, undermining SOE performance.

Conversely, the DA’s market-centric ideology assumes privatisation is a cure-all, neglecting evidence that privatisation without strong regulation can lead to new monopolies and loss of public value. Both parties fail to imagine SOEs as dynamic institutions that can foster innovation, regional integration and inclusive growth.

President Cyril Ramaphosa’s 2025 state of the nation address called for an inclusive national dialogue on SOE reform, but a better approach would be to simply update and implement the 2012 presidential review committee of state-owned entities alongside his established presidential state-owned enterprises council insights.

South Africa’s SOE crisis demands urgency and pragmatism. The ANC and DA must abandon their ideological trenches and adopt lessons from Asia’s state-led growth and the West’s privatisation regrets. Prioritising governance reforms, regional integration and R&D will transform SOEs into catalysts for development. This is not about state vs market; it is about building institutions that serve South Africa’s people, economy and African leadership ambitions. Delay risks collapse — the time for strategic action is now.

Pooe is associate professor of political science and governance at the Wits School of Governance