SOEs should be run the DA way
It is fair to say that our state-owned entities are in a monumental mess. Many have been reduced to archaic, over-staffed, money-eating monopolies, more fronts for patronage and looting than drivers of development. Their mishandling has pushed the SA government to the brink of financial collapse. State capture (estimated cost R100 billion) has been exposed and some boards have been replaced but make no mistake, our SOEs are by no means out of the woods. They need urgent reform.
SOEs are public entities that use mostly public money and are meant to deliver services to the public: either services that private companies cannot or will not deliver, or services at a lower price than could be delivered privately. In theory, their role is to create an environment of prosperity and opportunity in SA.
In practice, many do the exact opposite. Overall, loss-making SOEs cost the public R53.7 billion in the 2016/17 financial year. The tangible cost to the poor is terrible: hundreds of thousands of RDP houses could have been built; or thousands of black farmers empowered with skills, capital and productive land; or hundreds of thousands of young people put through university; or hundreds new schools built.
Instead, not only service delivery but our economy itself is being sacrificed on the altar of government incompetence, corruption and failed ideology. SOE’s are a massive risk to SA’s economy and a key reason behind its stagnation. A cumulative R466 billion of SOE debt is guaranteed by the government, meaning that if SOE’s are unable to repay loans, the government (ultimately the taxpayer) will be forced to cough up. R300 billion has already been borrowed against these guarantees.
None of which appears to have stopped National Treasury from committing to source another R21.7 billion to keep SAA afloat. Although we, the owners and funders of SAA, can’t be sure exactly what is going on because the whole issue of funding is shrouded in secrecy.
Eskom too is mired in corruption and incompetence to the point that it single-handedly threatens the economy. Eskom’s spiraling costs have mostly been passed on to consumers and businesses in the form of higher electricity tariffs. As Eskom is a monopoly electricity provider, we have no option but to pay up.
This illustrates one of the key problems with SOEs: they don’t have to perform to stay alive. In the private sector, when looted or poorly managed companies can’t pay their bills, they cut costs or go bankrupt. When public companies can’t pay their bills, they either raise prices for consumers as Eskom has done or apply for another bailout. Either way, the people pay the price – both directly in the form of higher prices all round, or indirectly in the form of fewer jobs.
The reality is that SA businesses battle to compete globally because of the comparatively high input prices they must pay due to these inefficiencies. Ironically this leads to less, rather than more, social justice. The broader public pays a very high price for our inefficient, bloated public sector.
Widespread SOE failures point to systemic shortfalls which is why we must demand structural reform that ensures the highest standards of transparency, oversight, and accountability going forward. The DA has a six-point plan to improve the governance and management of our SOEs.
Firstly, SOEs must be depoliticized. The ANC’s policy of deploying loyal cadres to boards and executive management is wholly incompatible with good governance. SOE board members must be politically independent, selected by a properly constituted board nominations committee that can thoroughly vet candidates for political connections and conflicting business interests.
Secondly, boards must be fit-for-purpose, with the right mix of technical and financial skills and experience for each SOE, including an appropriate number of independent professionals. Executive managers must be chosen, promoted and remunerated on merit.
Thirdly, SOE competitiveness must be enhanced through rigorous performance criteria that are aligned to clear social and financial objectives. A continuous drive to improve technical capabilities and continuous measurement against key performance indicators will help build a performance-based culture with excellence at its core. Non-core activities and assets must be assessed and if necessary sold off, outsourced or terminated.
Fourthly, corruption must be fought and performance optimised by setting policies and procedures to enable multiple layers of active oversight. Good governance is based on transparency and this must be achieved by regular and open reporting on financial performance, procurement, remuneration, borrowing and audits. Tender award processes for contracts over a certain value must be made open to the public at the adjudication stage to avoid cases of political interference. A procurement oversight committee must report directly to the board. And effective whistleblowing mechanisms must be in place.
Fifthly, several non-core SOEs must be partially or fully privatized. Greater private sector participation brings in vital cash injections, skills, systems and expertise. And it provides the discipline of the marketplace, placing profit-making as a central objective.
Finally, SOEs must be managed under their rightful departments. Transnet should be run by the Department of Transport, Eskom my Energy, Denel by Defence and so on. This would improve the lines of accountability and communication and better align SOEs with the efforts of their rightful portfolios.
These six steps will go a long way to modernizing our economy and fostering an environment of opportunity and prosperity. South Africans need safe, reliable, affordable public transport, electricity and water. They also need jobs. And businesses will be in a far better position to provide these if they too have access to affordable, reliable services. That’s why SOEs must be run the DA way.