Ensuring SOEs act in the public interest is the key to renewal


The crisis of SA’s state-owned enterprises (SOEs) is a reminder that state ownership should be limited to situations where alternatives are truly absent. It is a test that most of them fail to pass.

Well-regulated competition is an effective and ethical way of serving the public interest. The government and the non-profit sector intervene when competition is not desirable, feasible or fails welfare and justice. In a private business, management, appointed by the shareholders, acts on their behalf to deliver returns. Competition has failure built into it. Non-performing businesses go under, assets are stripped and reallocated, and clients shift to others.


Without the profit motive and competition, SOEs need mission clarity, impeccable governance and a ruthless incentive structure to perform. These are absent in SA. Key stakeholders act on self-created mandates they pursue at the expense of company and public interest. The government is torn between its roles as shareholder/funder, regulator and policy owner. Management is undermined by interference, even when acting under the strict legal confines of business administration.

Unions veto strategic decisions and operational efficiency. Unreliable suppliers are kept in the name of transformation. SOEs contravene legislation with impunity: the Public Finance Management Act, Companies Act and Competition Act. The crimes of previous management remain unpunished. Where they compete, they distort the market; where they do not, they destroy it.

The government is running out of fiscal space; junk status is around the corner. Parastatals have been “acting commercial” by turning to revenues and debt for cash and capital, thus siphoning off the ever-declining incomes of consumers and businesses. But captured by vested interests, egregiously corrupt, tasked with costly side missions — fostering emergent industrialists — and grossly mismanaged, they throw capital down an abyss of losses.

In these circumstances the state guarantee/debt raising/consumer-sponsored funding model is headed towards the fiscal cliff, emergency loans by state financial institutions included. The government cannot offload the debt burden on its reddened book. Debt can no longer be secured at levels required for recapitalisation. Prices can no longer be increased to fund loss-making operations. The SOEs are insolvent, worth less than the sum of their parts. Resorting to prescribed assets would be utterly irresponsible, instantly shifting SA to economic pariah status.

The SOEs have also thoroughly destroyed their public interest mission: to provide the affordable, equalising goods and services the economy so badly needs. They have been sector-damaging, debt-loading, budget-busting, growth-destructing and welfare-reducing. From whichever angle one examines them — fiscal, financial, economic, social — they are a case study in grievous failure.

Mineral resources & energy minister Gwede Mantashe is correct: no South African should subsidise the holidays or business travel of either citizens or foreigners. Flying the flag on R3bn-a-piece flagpoles is unforgivable hubris in a country where basic human needs go unmet, public service is poor, the youth languish in unemployment and the coffers are empty.

Limiting state ownership to truly strategic public service providers will free scarce resources towards these needs. Let the private sector do its public interest work through reinforced competition law and institutions that harshly sanctions anticompetitive behaviour.

On the critical and urgent question of Eskom — or more correctly, on the critical question of the generation, distribution and sale of electricity — the paramount requirement is for the government to state how the country will do so in future. If through state ownership; if Eskom must be broken up; if debt must be cleared through the pensions of workers; if a second Eskom must be created; then why, how and with what guarantees? If the private sector must remain excluded or marginal, then why?

The government has failed to answer these questions with the urgency, seriousness, proficiency and detail the crisis demands. The tripartite alliance continues to obfuscate resolution with the tired ideology and old self-interests that caused the crisis. No liquidation, no privatisation, no independent commissions, no competition, no job losses, but prescribed assets! These tired prescripts are forced on to the body-politic with undiminished zeal.

Assurances from the government that it will solve the crisis merely through good governance and balance sheet adjustments won’t do. Serious investors no longer bother to listen, and trading partners no longer believe. With good cause: soon this government will be gone and one similar to the preceding may return. After all, not a few of its erstwhile members sit in cabinet, on the ANC national executive committee and in parliament.

SA’s SOEs endanger the economy. How this government deals with the threat is the paramount test of its credibility and the keystone of the country’s future.

• Baissac is CEO of Eunomix, an advisory firm that focuses on sustainable development, strategy and risk in resource-rich countries.


LINK : https://www.businesslive.co.za/bd/opinion/2020-02-13-ensuring-soes-act-in-the-public-interest-is-the-key-to-renewal/

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