What if the state con­tin­ues to dally?

Finweek English Edition - - THE PESSIMIST’S GUIDE: PARASTATALS - Ed­i­to­rial@fin­week.co.za

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.

State cap­ture

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.

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