Comrades may just ignore the SOE inferno
• ANC policy conference’s agenda could crowd out discussion on how to fix governance at state enterprises
Given the crisis at state-owned enterprises (SOEs), the ANC’s discussion documents for its policy conference starting on Friday say remarkably little about companies so critical to the economy.
As the crisis is largely selfinflicted with an overtly political cause — cadre deployment by a family closely aligned to President Jacob Zuma – it is safe to say after examining the ANC’s paper on the economy that this will be the elephant in the room when the party convenes for its conference. Will anyone spot it or will someone try to eat it?
Eskom, Transnet, the Passenger Rail Agency of SA , Denel and the Airports Company SA are at the centre of state-capture allegations, with mounting evidence that executives running these companies were put there by the Gupta family and are working with it to loot state resources. The evidence so far is that even Zuma allies are worried about the heat the Guptas have brought into the ANC.
Several of the party’s provincial chairmen have expressed their antagonism towards the party, including Sihle Zikalala, the chairman of Zuma’s home province of KwaZulu-Natal.
Zikalala said last weekend that the Guptas, who are close to Zuma and are business partners of his son Duduzane, had an “unending appetite for wealth accumulation that has exposed the national liberation movement to unprecedented attacks by factions”.
So SOEs, despite their absence from the policy conference agenda, which is arguably set by the party’s discussion papers, are expected to be a contentious issue.
SOEs, as a component of an efficient developmental state, will be discussed as part of the party’s assessment of economic transformation. The ANC’s policy discussion document on economic transformation talks about the financial viability of SOEs being crucial as several “play an important role in providing the expanded infrastructure needed for inclusive growth and employment creation”.
They are also being touted as one of the enablers of radical economic transformation.
“An effective democratic developmental state and efficiently run public services and public companies are necessary instruments for widening the reach of radical economic transformation,” the discussion document reads.
The reality, though, is quite different. The governance of a number of SOEs has reached crisis point, as they are accused of being used for the looting of the state by people with the right political connections.
The party talks about a “significant leakage of state resources” and of stamping out corruption and wastage — but again, no solution is given.
SOEs have become a clear problem for ratings agencies, which have warned over the past year or two that the debt guarantees for these entities, which appear on the government’s balance sheet as contingent liabilities, had risen alarmingly. According to the Treasury’s budget review, the amount SOEs borrow against their guarantees is expected to rise by R52.5bn.
While the crisis is deep and wide, there will not be too much discussion at the policy conference about the extent of the problems. The “agenda” of the economic transformation discussion is crowded: the commission’s meeting will discuss the economy in its entirety. This will include the politically critical issue of land reform and proposals for a state bank. The status of the Reserve Bank will also be discussed.
As delegates are expected to be frantic to make their positions known on these critical issues that are also proxy positions for leadership battles, SOEs might just be crowded out of the agenda.
In its discussion document, the ANC quotes from the National Development Plan, which recommends that shareholder and policy ministries should jointly appoint the boards of SOEs and that these boards appoint their CEOs. This is to ensure clearer lines of accountability between the government and SOE boards, and between the boards and their CEOs. The issue is whether there is hope of restoring proper corporate governance to SOEs.
Zuma has come under extreme pressure from business, ratings agencies and his allies to tackle the financial difficulties and governance and management deficiencies at these enterprises.
In 2010, he set up a presidential review committee on the reform of SOEs. It compiled a report two years later, but no action was taken.
The full report was finally released in 2016 and it advocated partial privatisation through listings and the sale of equity stakes in some companies, and the establishment of an overarching authority to co-ordinate the government’s big infrastructure-related companies.
Following this, there was behind-the-scenes work on the shape and size of SOEs by an interministerial committee led by Deputy President Cyril Ramaphosa, which Zuma established in 2014. Again, nothing major came of this.
Then last August, the Cabinet announced a decision to form a Presidential State-Owned Enterprise Co-ordinating Council, chaired by Zuma. The move was widely perceived as a power grab by the president.
The review of SOEs led by Ramaphosa in November proposed sweeping measures to reform them and stave off downgrades by ratings agencies.
In an interview with Business Day in November, former Treasury director-general Lungisa Fuzile said these included guidelines on private sector participation in SOE governance and remuneration. This was approved by the Cabinet. Yet again nothing came of it.
Finance Minister Malusi Gigaba, while he was public enterprises minister, and his successor Lynne Brown, have peppered SOE boards with Gupta family associates. This is according to a tranche of leaked e-mails that shows how much influence the family has over state institutions. The most glaring examples are Eskom, Transnet and Denel.
Eskom is to face a parliamentary inquiry into procurement deals; the inquiry recently broadened its scope to probe allegations of state capture. The state power utility has also been hit by several resignations recently, including that of its chairman, Ben Ngubane.
Public Protector Busisiwe Mkhwebane has been asked to investigate alleged corruption and poor corporate governance at Eskom and Transnet. Her predecessor, Thuli Madonsela, reported in 2016 that the board of Eskom had failed in its duty to place the national interest first, and instead performed favours for the Gupta family.
The Council for the Advancement of the South African Constitution wants Mkhwebane to probe the role of Gigaba, when he was public enterprises minister, in the appointments of board members at SOEs. The organisation has also asked her to examine reports that Gupta family associates scored billions of rand in alleged kickbacks to help a Chinese firm win lucrative Transnet tenders.
The Passenger Rail Agency of SA is also facing investigations over R148m irregular and unauthorised expenditure.
State arms manufacturer Denel is entangled in an Asian joint venture with a Gupta associate that has not been approved by the Treasury. The SOE approached the courts in a bid to have this deal approved.
Does SA have too many SOEs? Some would argue yes.
“There are too many SOEs and too many of them interfering with the economy, disempowering local producers rather than enabling them,” says Lorenzo Fioramonti, the director of GovInn at the University of Pretoria.
Some in the ANC have a different view, especially those benefiting either through deployment to SOEs or tenders.
It is unlikely that the ANC’s policy conference will end next week with any clear outcomes on SOEs and ideas on how to fix them. There does not seem to be any political will to do this. However, the ANC has also given its delegates no indication of how the financial stability of these companies can be improved or what policies should be put in place to do this.
THE EVIDENCE IS THAT EVEN ZUMA ALLIES ARE WORRIED ABOUT THE HEAT THE GUPTAS HAVE BROUGHT THERE ARE TOO MANY OF THEM INTERFERING WITH THE ECONOMY, DISEMPOWERING LOCAL PRODUCERS