New mandate to stabilise SOEs
THE review of state-owned enterprises (SOEs) that has been led by Deputy President Cyril Ramaphosa since 2014 has proposed sweeping measures, aimed at stabilising parastatals’ finances, reforming their boards and management and encouraging greater private sector involvement.
The government has conveyed the contents of the review to ratings agencies to persuade them of the progress SA is making to fix its SOEs, whose ailing finances Moody’s Investors Service and Fitch Ratings said were problematic and posed a risk to fiscal stability.
Treasury director-general Lungisa Fuzile said on Monday that part of the new measures would include introducing guidelines on the costing and financing of SOEs’ developmental mandates.
This was designed to “take out the mischief where stateowned companies think development means loss-making and inefficiency gets masked”, Fuzile said.
The framework will require the state and parastatals to agree upfront on the terms and on who will pay if these companies have to do any activity where return is sacrificed to pursue a developmental objective. There are also guidelines on private sector participation and on governance and remuneration.
The cabinet approved the measures earlier this month.
This may have helped to reassure ratings agencies that SA was making progress in reforming its SOEs.
The framework on mandates and that on private sector participation came from the Treasury, while the Department of Public Service and Administration compiled the one on governance, appointment and remuneration.
Though the government has long talked of allowing the private sector to finance public infrastructure, and has done so in cases such as the renewable energy programme and the national toll roads, Fuzile said the new framework would remove the tentativeness so that parastatals would not hesitate to enter partnerships.
“If government is targeting to lift investment as a percentage of GDP, it makes sense to think about investment differently from investing on the back of state-owned entities’ balance sheets, so that the pace of investment does not depend on the balance sheets of these entities,” Fuzile said.
The government was looking at complementarities between parastatals and the private sector so that it could leverage the balance sheets of the private sector and take advantage of the strong cash resources in the private sector.
Teams from all three ratings agencies have visited SA as part of reviewing the country.
Fuzile said growth was their most important concern, followed by the risks parastatals pose and political noise.
“They wanted to get a sense of when we will move towards normality to where policy discussions can reach conclusion,” he said. — BDLive