It is too early to tell whether the government of national unity (GNU) will implement much-needed and far-reaching reforms to catalyse economic growth and job creation, but one thing is sure: it needs to send out much bolder signals than it is currently doing. A good example is our state-owned enterprises (SOEs).

South Africa’s growth rate will only move to the higher levels needed once longer-term solutions to the energy and logistics crises have been found. We must achieve a situation where access to reliable and affordable energy is guaranteed; infrastructure has been upgraded to permit the efficient transport of goods; and the state of our ports, rail and roads no longer holds back our exports.

There are a number of reasons for the crisis in our SOEs.

There is confusion over their role and precise mandate. There are myriad commercial crises, including unfunded mandates, non-payment for services, over-spending on capital projects, increases in operational costs and the impact of crime. They are characterised by shareholder interference coupled with weak boards; there tends to be a subverting of procurement processes; and the bodies tasked with regulating our SOEs are weak.

Cost will outweigh benefits 

The National State Enterprises Bill, which is under consideration in Parliament, is not the answer. Not only does it lack specificity, it is not obvious how a holding company, if it is finally established, will address most of the underlying challenges that SOEs face. The cost and effort of setting up this complex new institution will likely far outweigh whatever marginal benefits it may bring.

Some people say that the parlous state of our SOEs is the result of bad governance. But bad governance is enabled by the SOEs’ status as protected monopolies – there are no consequences for poor performance because customers of most major SOEs cannot vote with their feet.

A workable, long-term SOE reform approach should, therefore, subject the major SOEs to increasing competitive pressures.

In the meantime, there are several actions that the president and the GNU should initiate to kickstart reform:

• The work of the Presidential State-Owned Enterprises Council should be made public to maximise informed debate about the future of SOEs. This is too important an issue for critical information to be restricted to a chosen few;

• The president should appoint a high-level team, led by business leaders, to conduct a review of the financial position of all major SOEs to identify solutions to the most pressing challenges;

• SOEs should, for now, be managed from the Treasury. Any move to reduce the protections and market dominance the SOEs have enjoyed will be opposed by many, including by SOEs themselves, and by officials in the line departments they now fall under;

• In the medium term, a small, highly skilled department to manage SOEs should be established, led by people committed to competition and good governance;

• The boards and management of all major SOEs should be reviewed, especially where boards or members have been in place for a significant period of time. Where deficiencies are identified, incumbents must be replaced;

• Once in place, effective boards must commission skilled and independent public and private sector experts to assess whether SOE capital projects are fit for purpose, where the deficiencies are and where corruption is suspected;

• Public-Private Partnerships should be established wherever desirable. To ensure projects are delivered on time and within budget, private partners must bear the risks of any overruns; and

• Ongoing concerns regarding weak regulators and their lack of independence must be addressed urgently.

To solidify and extend these measures, the government should develop an overarching policy, based on a thorough review of SOE-dominated sectors, to identify where competition can be intensified.

The policy should specify the conditions under which the state is to use SOEs to produce goods and services and why, and the manner in which competitive pressures will be used to ensure commercial discipline and focus. This should then guide a review of SOEs across all spheres of government – national, provincial and local.

Ultimately, the approach must be to increase the role of competition between service providers to discipline SOEs, so that they are incentivised to improve and develop their own sustainable solutions.

If we can achieve that, the positive impact on the economy will be profound.

Whether the GNU has the political will to grasp this nettle is a key question that will be answered in the coming months.

– Anne Bernstein is executive director of CDE. This article draws on a new CDE report, ‘Solving the SOE Challenge’, which is the sixth report in CDE’s Agenda 2024: Priorities for a new government series.

This articles was published on News24