Our SOEs fail us from bad decisions

SA’s economy is the big loser

RUDDERLESS and cashstrapped.

That’s the state of South Africa’s biggest state-owned enterprises, known as SOEs, after the government failed to heed warnings from its advisers about a lack of leadership, oversight and strategic vision. The companies supply about 95 percent of electricity to Africa’s most-industrialised economy, run railways and ports and operate the national airline and postal services.

“Too many bad decisions have been taken regarding certain SOEs, leading to critical business performance failures,” Raymond Parsons, a professor at the North West University Business School in Potchefstroom and a former head of the country’s biggest business association, said.

“The government has either been unwilling, or unable, to take the tough decisions needed.”

SAA, oil and gas firm PetroSA and the Post Office collectively lost more than R20 billion in the past two financial years, while Eskom is failing to meet demand for power, which has resulted in rolling blackouts almost every second day on average this year.

The four companies, along with the Passenger Rail Agency of South Africa, have acting chief executives.

South Africa’s state entities are central to the success of the government’s 20-year development plan to boost growth and cut a 25 percent unemployment rate.

State companies are set to invest R362bn over the next three fiscal years to help spur an economy that has battled to gain momentum since a 2009 recession.

Inadequate

“To a large extent the ability of South African industries to compete globally is influenced by the effectiveness of our SOEs,” Mark Cutifani, the chief executive of Anglo American, said in a July 30 speech in Johannesburg.

“We are being constrained by expensive, yet inadequate and unstable electricity supply and by capacity limitations on state-run rail links.”

While a panel appointed by President Jacob Zuma in 2010 to review their performance recommended a strategy over- haul, new rules for appointing board members and a clearer funding approach for state companies, the government took no immediate action and the management oversight of several of them has deteriorated.

SAA, which last made a profit five years ago and is surviving on government guarantees, has had five chief executives in the past three years.

Eskom, battling to plug a R191bn funding gap, has had six chief executives in a decade. Its last permanent leader was replaced in March after six months in the job, while the chairman resigned two weeks later.

Governance failure

Keeping the companies under state control has given the ANC a greater influence over the economy and the appointment of key personnel.

The management flux was “a huge governance failure,” Lumkile Mondi, an economics lecturer at the University of Witwatersrand who served on the state review panel, said.

“Where you have short-term appointees, you are basically saying to the private sector ‘don’t make long-term decisions’,” he said. “The biggest loser is our economy.”

PetroSA’s loss widened to about R15bn last year after making the biggest impairment so far by a government company.

Its chairwoman Nonhlanhla Jiyane quit in July, a month after chief executive Nosizwe Nokwe-Macamo and chief financial officer Lindiwe Mthimunye-Bakoro were suspended due to the company’s poor performance.

Transnet, the rail, ports and pipeline operator, is an exception, having been profitable for more than a decade. Its chief executive, Brian Molefe, and chief financial officer Anoj Singh have been seconded to run Eskom.

Laws are being drafted that will regulate how state company chief executives are appointed, according to Public Enterprises Minister Lynne Brown.

Stable management was required as a matter of urgency, said Shaun Nel, a spokesman for the Energy Intensive Users Group of South Africa, which represents 31 of the country’s largest electricity users. – Bloomberg