Gordhan’s bill ‘won’t rescue SOEs’
Critics say proposed holding company will do nothing to stop corruption or cadre deployment
● Public enterprises minister Pravin Gordhan’s National State Enterprises Bill suffers a critical flaw — it does not address cadre deployment which turned once-thriving public companies into dysfunctional, indebted entities, critics say.
It fails to create the independence necessary to ensure state-owned entities (SOEs) are not managed politically, as the president or a delegate is empowered by the bill to appoint the whole board of the new company, Free Market Foundation head of policy Martin van Staden said this week.
“This is more of [what] we have been used to under the current public enterprises department dispensation. A fundamental reform would have been to give the official opposition, whoever they may be, or the business cluster in Nedlac [the National Economic Development and Labour Council] a veto over any board appointment,” he said.
Without a veto balance from individuals not beholden to the executive, political interference, corruption and ineptitude will reproduce, Van Staden said, adding that only privatisation of SOEs offers a long-term solution.
“The ANC wants to be able to appeal to a ‘reform’ that looks ‘commercial’ without actually divesting itself of political control. A real commercial entity responds to market forces, which leads to the efficient allocation of resources.”
There are no provisions that ensure true independence from political actors and for the power of the market to discipline inefficiencies, Van Staden said.
The bill, released by Gordhan last week, seeks to establish a “state asset management” entity as a holding company in terms of the Companies Act. It would be governed by the Public Finance Management Act (PFMA). It also seeks to transfer the shareholding of schedule A state enterprises to the holding company for supervision and to ensure the uniform governance and commercial stability of the holding company and its subsidiaries.
The bill says the president is the sole representative of the company, but may transfer administration of the act to another member of cabinet in terms of the constitution.
The holding company will act through its board and the PFMA and Companies Act will apply to its operations. Its memorandum of incorporation will be registered with the Companies and Intellectual Property Commission.
The government has held on to stateowned companies believing they will generate revenue for the state. Instead, they have cost the government an estimated R478.5bn in bailouts and account for much of the estimated R1.5-trillion South Africa has lost to corruption, according to this year’s budget documents and last year’s medium-term budget policy statement.
Sandile Swana, African Media Online CEO and governance and risk specialist, said many of the bill’s provisions find their legislative authority in the PFMA and Companies Act, which are inadequate in stopping mismanagement.
“The PFMA and Companies Act have not protected Eskom, Transnet or other SOEs because there has been [large-scale] cadre deployment. A lot of unsuitable people have been appointed to these companies through cadre deployment and this bill does not cover that,” he said.
Certain versions of cadre deployment took hold, especially after the ANC’s 2007 elective conference in Polokwane, and this changed the calibre of once-thriving companies, he said. This will go back to the ANC’s deployment committee and the SOEs will be back to square one, Swana added.
“The public has no clear picture of how it benefits from this in terms of operational, financial improvements for these companies [or] how much new capital these companies will need, and how much shareholding will need to be sold to raise that.”
Pan-African Capital Holdings chair Iraj Abedian said the bill also falls short in proposing concrete plans to professionalise the operations and management of South Africa’s troubled SOEs.
“It’s something Pravin Gordhan has been talking about for a while. Instead of addressing competence and management, they are putting another layer of bureaucracy in the system. It is not going to address corruption and mismanagement which have affected the country’s SOEs,” he said.
Azwimpheleli Langalanga, a fellow at the Mandela Institute at Wits University, said it is unnecessary to create a state asset management company as it will make complex an already messy SOE situation and will not address political interference.
“South Africa already has an excess of SOEs. To add an extra, mega SOE to govern myriad SOEs strikes one as ill-advised. These SOEs are in various sectors and would generally require specialised skills to govern them,” he said.
The appointment of politically connected people as board members and CEOs, with blatant disregard for their capabilities, is not addressed by the bill, said Langalanga, adding that in it the government misdiagnosed the main challenges facing SOEs.
“The main challenge will be the centralisation of dozens of SOEs, dealing with different sectors. That is a mammoth task that is bound to fail, especially if the SOEs, being subsidiaries, are not well managed.
“There is a high chance that the state asset management company will not be immune to political interference and cadre deployment, which will undermine its effectiveness.”
Langalanga added that if SOEs are trimmed to below 10, others privatised and the state asset management company well capacitated, centralisation could work well.
He warned, however, that there is insufficient time to pass the bill considering it will be subject to the public commentary period and that parliament goes into recess in March.