Fix the failing state institutions before starting new ones

The penchant of ANC leaders to create parallel government institutions, policies and projects to do the same things, rather than fixing the failing ones, is only compounding existing problems rather than solving them.

This is among the reasons why public services, state-owned enterprises and public agencies have so quickly proliferated, with little benefit to the public, yet sucking up public resources, providing sheltered employment and diverting critical funding from where it is needed most.

This has meant that the public-sector wage bill has ballooned to just under 40% of government expenditure, without any increase in productivity or public service delivery.

A case in point is the three “new” institutions that have been recently mooted: a state bank, sovereign wealth fund and infrastructure fund. It is not these funds that are the issue — it is that existing institutions are not very effective.

There are a number of state “banks” at national, provincial and municipal level: the Postbank, development finance institutions such as the Land Bank or the Development Bank and related state finance institutions. The existing Public Investment Corporation (PIC) could be argued to be some kind of “wealth fund”.

Many state “banks”, such as the Postbank, are ineffective. Many ordinary citizens who are not politically connected struggle to access finance from them.

Money often goes to politically connected political capitalists with no business skills, no new green shoots bricks-and-mortar projects, and to “fixers” and middlemen and -women between established and foreign companies, importing rather than manufacturing products here. And even more ironically, in many cases mainstream businesses that could easily get finance from commercial banks are bigger beneficiaries of these state “banks” for the poor.

The creation of a sovereign wealth fund may be useful. However, there has to be an honest assessment of why the PIC, with all its massive resources, has not been used more strategically to finance catalytic industries, development projects and start-ups.

Very little analysis has been done to explain why existing state financial institutions have been failing.

At the heart of the problem is that ordinary South Africans struggle to access finance for housing, new businesses and development projects.

In the public sector this is because of inefficiencies, incompetence and corruption. The private sector would provide easier finance for a car rather than a business — which has a higher development impact but demands traditional collateral such as property when the vast majority of South Africans do not have this. This can be fixed with political will, rather than creating new state institutions.

For over a decade now there have been announcements of R800bn-plus infrastructure funding, with former president Jacob Zuma in his 2010 state of the nation address having “launched” a grand infrastructure funding initiative. There has been very little public feedback on where these funds are now, what impact they had, or how the new infrastructure fund is going to be differently managed.

The new institutions will be confronted with the same problems undermining existing SOEs. The danger is that all three institutions will become sinkholes for public money, with very little return.

Having public-private ownership, management and boards may help, although fixing existing institutions would be cheaper, more effective and have greater development impact.

Nevertheless, it appears that many in the ANC and the government have run out of ideas, do not have answers to the current problems, and neither the courage to genuinely tackle ineffective institutions, fire incompetent people or embark on policies which are necessary but will face populist, ideological and factional opposition within the ANC family.

The danger is that new banks and funds will become sinkholes for public money

Gumede is associate professor, School of Governance, University of the Witwatersrand; and author of Restless Nation: Making Sense of Troubled Times (Tafelberg)