Gigaba faces ghosts of SOE past
The new finance minister must confront the risks posed by key public enterprises to state finances
Rewind seven years. Malusi Gigaba lands the daunting job of public enterprises minister after the widely respected Barbara Hogan is shuffled out the door. Mere days after his promotion from deputy minister of home affairs, he begins media engagements, making clear statements about the role he sees for state-owned entities and their place in a developmental state.
In an interview with the Mail & Guardian at the time, he cut the same lean, intent figure as he did this past Saturday at his first press conference as the new finance minister.
In the interview, given a day before he had met his senior staff at public enterprises for a full briefing, he laid out his strategy for the country’s largest state-owned enterprises (SOEs), including Eskom and SAA.
“We are going to play a much more hands-on, robust, strategic leadership role,” he said.
His attitude was a marked departure from Hogan, who espoused board independence and reduced state intervention in SOEs.
There was a tendency to conflate robust leadership “with interfering in the operations of these organisation”, he said, but parastatals were “not private entities, they are stateowned enterprises; they must implement the vision of government”.
Back in 2017, Gigaba will be haunted by the parlous financial state of SOEs, including ones he once oversaw — specifically because of the contingent liabilities they pose to the government’s finances.
This was highlighted by S&P Global in its decision to downgrade South Africa’s credit rating to junk earlier this week. Since his time at public enterprises, SOEs, and specifically SAA have been placed directly under the treasury’s management.
S&P Global cited the state’s contingent liabilities
— namely the guarantees it has provided to public enterprises — as a key reason for the downgrade.
Referring to the Cabinet reshuffle and the threat it posed to policy continuity, S&P said it had “reassessed South Africa’s contingent liabilities”.
“This reflects the increased risk that nonfinancial public enterprises will need further extraordinary government support,” the agency said.
According to the 2017 budget, the state’s contingent liabilities were more than R775-billion in 2016-2017, with guarantees amounting to over R445-billion of the total.
The agency estimated that by 2020 nonfinancial public entities would have utilised about R500billion, with Eskom dominating this.
In the October 2016 medium-term adjustments budget, Gigaba’s predecessor, Pravin Gordhan, outlined in an unprecedented “fiscal risk statement” the danger that major SOEs posed to attempts to stabilise national debt and ensure the sustainability of government finances.
The country’s large SOEs, with their big procurement budgets, have become central in the battle over state capture. The axing of Gordhan and his deputy, Mcebisi Jonas, has been seen as a direct response to their unyielding commitment to good governance and an unwillingness to let government procurement channels be used to dispense patronage. Nomura analyst Peter Attard Montalto has described the reshuffle as an “open attack on the treasury’s institutional integrity”.
At Gigaba’s maiden press conference he appealed to sceptical media, opposition parties and members of the public not to judge him on “speculation and rumours” but rather on his actions in the coming months. He also stressed his experience as a member of the national executive.
“I am not a newcomer to the economic sector,” he said. “I have vast experience in government [across] the security and economic sectors.” He referred to his credentials again in a briefing with the South African Revenue Service that followed on Monday. The country’s parastatals faced many challenges long before Gigaba arrived at public enterprises, but questions remain about whether he left the portfolio in a better state than when he started.
At public enterprises, he lived up to his promises to shake things up: in less than a year he had replaced Eskom’s and Denel’s boards, and made several executive appointments at the key parastatals. Gigaba has said he instituted “rotating” boards at the parastatals as part of his efforts to enhance governance, but when he began these they immediately raised concerns.
Appointments under Gigaba included Brian Molefe. He was appointed as Transnet chief executive in 2011 and would later be seconded to Eskom by Gigaba’s successor, Lynne Brown.
He resigned after being named in the public protector’s State of Capture report, linking him to the influential Gupta family. Other appointments linked to the Guptas included the likes of Colin Matjila at Eskom and Iqbal Sharma at Transnet.
It was also under Gigaba’s watch that most of the SAA board, led by Cheryl Carolus, resigned in 2012, claiming a lack of shareholder support.
In the aftermath, Gigaba would go on to name Dudu Myeni as the chairperson of SAA in December that year. It was speculated that a clash between Myeni and Gigaba eventually led to his being reassigned to the home affairs portfolio after the 2014 elections, though this was denied by the presidency.
Under Myeni’s watch, SAA has continued to flounder, and the latest financial figures provided to Parliament reportedly put its losses at R4.5-billion for 2016-2017. Despite her poor performance, Myeni, who is seen to be close to President Jacob Zuma, has survived not only Gigaba but also former finance ministers Nhlanhla Nene and Gordhan.
Eskom faced enormous difficulties while Gigaba was minister. These included delays in the construction of Eskom’s coal-fired power stations Medupi and Kusile. Poor performance by two major contractors, Alstom and Hitachi, plagued the project.
Although Alstom was replaced, Hitachi, which had been awarded the job after taking on the ANC funding arm Chancellor House as a black economic empowerment partner, stayed in place.
A recently leaked investigative report by the law firm Dentons highlighted the “inconsistent treatment” of contractors.
But Gigaba’s spokesperson, Mayihlome Tshwete, said there was “an easy answer — no” to any suggestions that Gigaba put pressure on Eskom to retain Hitachi to protect the ANC’s interests.
Tshwete said Gigaba, during his tenure at public enterprises, put SOEs such as Denel and Safcol back on a path to profitability, and he oversaw a move towards better coordination between the private sector and the SOEs.
The appointment of executives and members of SOEs’ boards were made on the basis of their expertise, Tshwete said, and the insinuations that appointments were made because of associations with the Guptas had “nothing to do with his [Gigaba’s] decisions”.
The SOEs’ governance remained