SOES: Mission-led or mission impossible?
Reforming governance has proved to be a Sisyphean task. If done right, a new state holding company could be the final push
This week marks three months since the National State Enterprises Bill was approved by the cabinet and released for public comment. If given the nod by parliament, the legislation — which sets out the establishment of a holding company for the country’s beleaguered stateowned entities (SOES) — will be a coup for Public Enterprises Minister Pravin Gordhan, who has spent the past five years struggling to reform governance at parastatals.
There is some consensus that the holding company, which has been mooted for well over a decade now, has merit. But state capture’s legacy has left some fearing that its promise of better governance is an empty one.
Since the bill was published, we’ve received details here and there about the government’s thinking about the holding company.
Last month, for example, we learnt, through a written response to a question by Democratic Alliance MP Farhat Essack, that the department of public enterprises is refining the bill to address its biggest possible pitfall — that it will fail to insulate SOES from political meddling.
In its current form, the legislation envisages that the president will be the sole representative of the holding company. The president will thus also appoint its board.
At about the time the bill was published, associate professor at the Wits School of Governance William Gumede said in an interview with the Mail & Guardian: “If it’s just going to be another state-owned company, with the people running the company appointed by the state, it is going to cause even more chaos.”
A month later, asset manager Futuregrowth expressed a similar concern, noting that the bill confers “limitless powers to the president”.
In response to Essack’s question, the department said it “aspires to codify a board appointment process that embodies the principles of transparency, equity and fairness”.
“By emphasising these core values, the department aims to instil a robust and accountable mechanism that stands as a testament to the commitment to good governance and stakeholder inclusivity,” the department added.
The department further noted that the envisaged processes for appointing board members are expected to be comprehensive and designed to uphold transparency, fairness and meritocracy.
“The government maintains vigilance in refining and improving existing processes to address challenges and enhance efficiency. Continuous efforts are made to draw lessons from experiences, both domestic and international, adapting best practices in governance.”
You’d be forgiven for thinking that this still sounds pretty vague. I suppose time will tell whether the department’s refinements will satisfy the bill’s critics.
For now, we have another glimpse into how the holding company might work, this time through a policy brief authored by celebrated economist Mariana Mazzucato and her colleague at University College London, Simone Gasperin, whose expertise lies in policy governing SOES.
In 2019, Mazzucato was appointed by President Cyril Ramaphosa to serve on his Economic Advisory Council.
Writing about Mazzucato in 2020, Gumede noted that her connection to South Africa had been forged by Gordhan, who tracked her down after reading her 2013 book The Entrepreneurial State: Debunking Public vs Private Sector Myths.
Minister of Trade and Industry Ebrahim Patel was another early convert, according to Gumede.
Muzzucato’s influence comes through in other recent efforts to drive structural transformation. She is quoted, for example, in the draft version of the Freight Logistics Roadmap, which envisages Transnet’s future.
In their policy brief, published late last month, Mazzucato and Gasperin write that by creating “a mission-oriented state holding company … the South African government can realise the full potential of its SOE portfolio”.
They distinguish between two theoretical models for the relation between the state and SOES.
One is the state shareholding model, in which the government is a passive financial shareholder and through which SOES operate separately from one another.
The other is the public entrepreneurship model, in which the public shareholder is active in defining the policy mandate and business strategies of individual SOES, which also interact to create industrial synergies.
A transformational, missionoriented state holding company should lean towards the latter model, according to the policy brief.
Contrary to an earlier view held by the South African government, the pair note that privatising the country’s SOES “would deprive the South African state … of a key policy instrument for driving and orienting economic and technological change”.
“Without a patient long-term owner, these companies could eventually disappear or continue to exist under a self-defeating governance that favours the short-term financial interests of the new shareholders over the general public purpose of other stakeholders in the economy,” the policy brief reads.
A holding company has the potential to better insulate SOES against political interference, while also having certain economic advantages, according to the policy brief.
For instance, a holding company could retain financial surpluses generated by profitable state-owned entities and reinvest them within the portfolio of SOES.
The policy brief goes one step further by outlining a possible governance structure for the holding company, with the caveat that this does not necessarily reflect the government’s plans.
A compelling suggestion is that, while the holding company is to be managed by the board — which would interact directly with the management of the SOES under its control — it would also have a stakeholders’ council.
The council, which would include SOE executives; academics; labour and civil society representatives and senior civil servants, would play a supervisory role and have the power to veto the board on certain matters.
By bringing the likes of labour and civil society into the fold, this model could go a long way towards creating greater accountability and transparency among SOES. In doing so, we could ensure they work in the interests of the public and not a parasitic political and economic elite.