An overhaul is needed
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
Eskom’s Grootvlei power station