Time to reconsider a new deal for state companies
Finance Minister Nhlanhla Nene’s unfortunate incident at the SABC many years ago was resurrected this week in a cartoon published in Business Times’s sister publication Business Day.
It will be a decade in October since Nene — then an ordinary ANC MP — fell off his chair during that embarrassing interview.
In the cartoon Nene, now the fourth finance minister in two years, is again perched apprehensively on a multilegged stool that treacherously seems about to crack.
The satirical effect of the cartoon is powerful.
In effect Nene again finds himself on a faulty seat — the South African economy resting on four cracked legs: Eskom, Transnet, Denel and SAA.
These massive state-owned enterprises are crucial to keeping the wheels of the economy turning. Yet all four find themselves at various points on the spectrum of dysfunction.
Civil society has often called for the privatisation of SOEs.
Trade union Solidarity is forging ahead ambitiously with an application to have SAA placed in business rescue. The airline will require R20-billion to break even in 2021, Deputy Finance Minister Mondli Gungubele told parliament last month.
Many SOEs occupy dominant roles in key sectors of the economy. Eskom is a monopoly in the energy sector, Telkom remains a backbone for many communications systems in the country.
The Airports Company South Africa is critical to enabling business, leisure and tourism travel in the country, but its management is in shambles.
State-owned companies historically accounted for at least 20% of fixed capital investment in the economy.
But these days they are more of a contingent liability that has inflated the risk premium on government’s debt and are red-flagged at every assessment by international ratings agencies.
Through the Budget Review, the National Treasury cautioned about the impact of troublesome SOEs and said that while they had a developmental mandate, they were also required to be financially stable under the Public Finance Management Act.
In a previous Budget Review, the
Treasury suggested “government’s twin objectives of economic growth and transformation would be well served by a shift from monopoly control to wellregulated, competitive markets that are open to new entrants”.
The government needs to seriously reconsider its position on the privatisation of some state assets.
The combined return on equity for SOEs has declined.
It is likely that the investors President Cyril Ramaphosa hopes to attract are closely monitoring developments with state-owned companies.
This investment could boost economic growth, which the IMF this week reaffirmed as 1.5% for 2018 and 1.7% in 2019.
If Nene is to steer economic policy and the fiscal framework in a credible direction, he requires SOEs to contribute to public finances and be pillars for the economy, and not the rickety legs on a broken stool that they are now.