What if the state continues to dally?
theworst-case scenario for South Africa’s state-owned enterprises (SOEs) in 2017 is that the rot continues to spread. If the first six months of 2017 do not see a dedicated effort from government to turn around the many ailing parastatals, they will likely face further credit rating downgrades, which will make it harder to deliver on their shareholder mandate.
The 2016 medium-term budget saw National Treasury admitting that mismanagement at a number of SOEs, including Eskom and SAA‚ has cost taxpayers and the economy dearly, and poses a risk to the country’s finances.
Treasury has identified future bailouts and guarantees for parastatals as one of three key threats to SA’s fiscal future and in 2015 added a new chapter to the budget review document titled Financial Position of Public-Sector Institutions.
It signalled a radical change from the days when bailouts and government guarantees were hidden deep in the departmental budget votes in the estimates of national expenditure documents that accompany the review.
The private sector has taken notice. In August, Futuregrowth Asset Management took the unprecedented step to halt any new funding to six of the country’s largest SOEs, citing governance concerns.
Futuregrowth cited reports at the time which “strongly hint of conflict between branches of SA’s government, the possible machinations of patronage networks, and a seeming challenge to the independence of the National Treasury”.
Following discussions with the affected SOEs, Futuregrowth has since lifted the suspension on three of the six involved. At the time of writing, suspensions remained in place on Eskom, Transnet and Sanral.
Another concern for 2017 is that the political fallout from the Public Protector’s State of Capture report, which highlighted alleged procurement irregularities at Eskom, is felt throughout the year without the matter being addressed.
If the current lack of transparency and accountability at many of the country’s SOEs continues into 2017, then those who want to do questionable business with the parastatals will carry on doing so unimpeded. This will result in more wasteful and fruitless expenditure and could have dire financial implications for the country in years to come.
Already it has been suggested that the nuclear deal, which Eskom appears hellbent on pursuing, could potentially cripple SA financially.
In essence, the country is at a crossroads, where SOEs need to be protected from predatory private sector players and patronage networks for the sake of future generations.
But the job doesn’t end there. Once the patronage networks have been neutralised, the SOEs need to be strengthened in terms of their culture of governance, transparency and accountability so that no one can take advantage of the system to the detriment of the country’s citizens in future.