An over­haul is needed

Finweek English Edition - - THE OPTIMIST’S GUIDE: PARASTATALS -

gov­ern­men­tis go­ing to have to roll up its sleeves and get down to some hard work if the coun­try’s state-owned en­ter­prises (SOEs) are go­ing to end 2017 in a bet­ter po­si­tion than they were in 2016.

The dire state of South Africa’s SOEs came into sharp fo­cus dur­ing 2016, par­tic­u­larly af­ter the release of for­mer Pub­lic Pro­tec­torThuli Madon­sela’s State of Cap­ture re­port.

Over the past few years, SAA, Eskom, the Post Of­fice, Denel and Prasa have reg­u­larly made head­lines as a re­sult of their sham­bolic fi­nances and al­le­ga­tions of ques­tion­able pro­cure­ment and gov­er­nance.

Trea­sury is con­stantly sound­ing alarm bells come na­tional Budget time, stress­ing that the grow­ing gov­ern­ment ex­po­sure to guar­an­tees pro­vided to paras­tatals is a risk that the coun­try can’t af­ford to bear.

The State of Cap­ture re­port

While the find­ings in Madon­sela’s re­port were not de­fin­i­tive, the for­mer Pub­lic Pro­tec­tor did call for a ju­di­cial en­quiry to take the in­ves­ti­ga­tion fur­ther. Pres­i­dent Ja­cob Zuma is now legally chal­leng­ing the re­port, which means that the cloud from the scan­dal is set to hang over gov­ern­ment and the SOEs for some time to come in 2017.

This is un­for­tu­nate as the sooner the mat­ter is dealt with, the sooner de­ci­sions can be taken about the lead­er­ship of im­pli­cated SOEs. In a best-case sce­nario for the coun­try’s paras­tatals, the al­le­ga­tions of state cap­ture will be dealt with swiftly.

Once this has hap­pened, gov­ern­ment needs to pros­e­cute any­one who has bro­ken the law and re­place boards and ex­ec­u­tives who were de­ter­mined to have been tainted by state cap­ture.

Gov­ern­ment also needs to be­gin re­struc­tur­ing the coun­try’s SOEs, de­vel­op­ing ap­pro­pri­ate business plans to turn the strug­gling paras­tatals around and stop the drain on the na­tional fis­cus. It should also en­sure that SOEs are trans­par­ent and ac­count­able, so that they re­gain pub­lic and mar­ket con­fi­dence.

Razia Khan, chief econ­o­mist for Africa at Stan­dard Char­tered, says it has sim­ply be­come too easy to fill SOE boards with peo­ple who are po­lit­i­cally con­nected, but not nec­es­sar­ily qual­i­fied for the job.

Khan says that ad­dress­ing this is seen as a “key re­form” by the global rat­ing agen­cies and that the State of Cap­ture re­port has shone a spot­light on what poor gov­er­nance and a lack of ac­count­abil­ity can lead to.

SOEs’ com­mer­cial and de­vel­op­men­tal roles

While many SOEs have a com­mer­cial and a de­vel­op­men­tal role, it needs to be ac­knowl­edged that they can­not per­form this role ef­fec­tively if pa­tron­age net­works are in place.

A 2015 PwC re­port that looks at mod­els for SOEs glob­ally, states that SOEs need to be “trans­par­ent” and “ac­count­able” so that they can build trust with cit­i­zens. The re­port also sug­gests that there is a need for a new score­card to mea­sure their per­for­mance, one that takes into ac­count their com­mer­cial roles and their de­vel­op­men­tal roles.

In 2012, the presidential re­view com­mit­tee on SOEs drew up a re­port that pro­posed mea­sures to re­form SA’s paras­tatals. These in­cluded a frame­work for ap­point­ing boards, a clar­i­fi­ca­tion of the roles of paras­tatal ex­ec­u­tives, clear ap­proaches to fund­ing mod­els, the ex­pan­sion of pri­vate sec­tor part­ner­ships with paras­tatals and im­proved mon­i­tor­ing and eval­u­a­tion. It also

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