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Rethinking South Africa’s SOEs

The state-owned business model is not working, has not worked, and is a complete failure.
It’s time to discard the mistaken belief that SOEs are essential for the kind of development programmes that only a government can provide, argues the author. Image: Moneyweb

I have to state a fact that will be very offensive to many in the tripartite alliance, especially those who advocate for economic development propelled by instruments of the late Argentine economist Raúl Prebisch’s famous import-substitution strategies that include state-owned entities.

A fact based on evidence is that in the South African context, the state-owned enterprise (SOE) model is not working, has not worked, and is a complete failure.

The country is rapidly approaching a turning point regarding its SOEs, if it hasn’t already.

The top two reasons are obvious:

  • Firstly, the funding model. SOEs will bankrupt the country. Relying on money provided by National Treasury for their operations is no longer an option.
  • Secondly, from inception, they have been mired in politics. This has made it impossible for them to function adequately or be governed properly.

The political aspect has defined how resources are allocated, and on what projects they are used. Power struggles within the ruling party have created an environment where ‘special interest groups’ (cliques) use their political influence to maintain the concept of the centrality of the state in establishing national companies as a way of development, creating jobs and reducing dependency on other countries. But the funding model for SOEs is unsustainable and their repeated failures have plunged most of them into a debt crisis.

Now, those faithful to Prebisch’s vision of domestically nurtured industrialisation may resent the analysis that, aside from crony capitalism, SOEs in developing regions such as Africa have additionally entrenched a political elite that manipulates funding to serve their needs.

Furthermore, money that is meant for infrastructure and services that are for the public good has over time been siphoned, looted or squandered (see my fellow columnist Barbara Curson’s must-read article: Prasa has shown itself to be the ultimate gravy train).

Many of the shortcomings of SOEs can be seen in the political interference that blocks potential efficiency – because failing maintains the status quo. And that guarantees permanent funding, which preserves the ability to use SOEs for self-enrichment while claiming to champion economic development programmes.

I believe it is time for South Africans to demand a national consultative conversation about the ailments of the SOEs.

Leaving the decision about their future to politicians and advisors (often including expensive international consulting firms) will be a mistake and a hindrance to the country’s progress.

As we see presently, these entities have shown that legislative mechanisms are not sufficient to ensure:

  • Adherence to good governance
  • Accountability
  • Depoliticisation of the management of SOEs.

Moreover, in a country with a depressed and stagnant economy that is struggling to recover, the persistent crises in SOEs adds to the waning investment opportunities. For example, an entity that cannot provide the power needed to get the economic engine running discourages investment from industries that require an uninterrupted supply of power, such as mining.

It should be obvious that economic growth that is accompanied by job creation is essential for the country to improve its condition and the lives of its citizens. However, government spending on SOEs has not translated into public spending that has benefitted the whole of society.

There are, however, those who will disagree; the faithful believer who will say that the breakdowns and disasters in SOEs is subjective and must be understood in a socialist perspective instead of capitalistic one. They will argue that there has been a social transfer and that the money pumped into SOEs is part of necessary government expenditure on development.

I would counter that it is not. The public spending supporting these companies has created a bad habit of entitlement in bailing out bankrupt SOEs while adding to the dire fiscal position of national government. Consequentially, this eats up more national revenue – which is already unable to keep up with other demands such as national health, education, transport and water infrastructure.

Read: Eskom and SAA: The SOE project has failed 

Looking more closely at Eskom, Denel, SAA, the SABC, Prasa and other entities, the prognosis on the current projection of SOEs is not good when considered against an evolving capitalism. This has put South Africa in an untenable situation. The pace of change, globalisation, and the shifting of the world economy means the country must discard the mistaken belief that SOEs are essential for economic growth and societal development. In particular, we must abandon the idea that they are the sort of development programmes that only a government can provide.

In democratic South Africa, nothing else has demonstrated so well the ineffective public funding and spending that is meant to have positive social transfers yet has failed to overcome the damaging effect on SOEs’ financial crises and failures.

As a matter of common sense, and for the greater public good, they must be discontinued. 


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Agree 100 percent.

The SOE’s can offer far more value to he country- from a fiscal, development and employment perspective – if they are able to stand on their own feet.
Ironically the goals desired by Socialism can best be achieved via a capitalist model.

And SOE’s that cannot continue to operate without state support can then be liquidated and clesr the way for someone else to give it a shot.

These things have no value to the SA citizen. But are immeasurably important to politicians.

Nope I don’t agree completely,

No mention of BEE incopetance in this. Name and fix the problem, not replace the whole system!

Privatizing large capital intensive utilities only leads to higher costs and not the “salvation” .

Just look at California happening now going through rolling blackouts from a private utility!!

No but more PC to ignore the problem, BEE and incompetence..

SOE’s are the piggy bank of the corrupt Elite.

Without them, these civil servants/politicians wouldn’t have pocket money to live their lavish lifestyle or even to buy their favorite chicken.

Their R2 mill a year salary just ain’t enough

I agree on the SOEs which don’t provide essential services to citizens. Government should not be running airlines, or telecoms companies, or mines for that matter.

But the majority of SOEs started life as arms of government providing core services, before they were spun off into standalone companies so that they could become self-funding through user charges, and government could use the tax revenue that previously funded them for something else. It was nothing more than a way to hike tax rates without hiking tax rates, and the preambles of some of the Acts which created these entities admit the purpose openly.

For example, the DTS used to do an excellent job of running road safety, providing great value for the cost to the taxpayer of about R40m a year. 20 years later, we have the RTMC, which is a yawning chasm of incompetence whose accumulated losses are heading towards half a billion Rand.

And do we REALLY need a separate SOE – with a large board, luxury offices and all the trappings of faux-capitalism – to collect Joburg’s refuse when it was previously a department of the council headed by a city employee who kept to a budget?

The whole disaster is best described as rent-seeking by legislation. It adds no value and provides no new service, it just inserts a massively risky cost-and-revenue structure.

The solution for these SOEs is not to privatise them or bring in new management or any other “capitalist” solution. It’s to strip out all the excess costs incurred by the private sector pretensions (boards, AAA-grade office space, etc.) and put them back as they were: arms of government, run efficiently by career civil servants to a strict budget, with direct political oversight and democratic accountability.

On the contrary, the SOEs are behaving exactly as required by the top dogs, a source of pocket money of gargantuan proportions.

This is what RW Johnson refers to as the criminal state.

Very well written and thought through-precise and concise

It is very simple. You can’t but a mouse in charge of a cheese factory and neither can you put an alcoholic in charge of a bottle store. The temptation is simply too big and they just can’t help themselves. The same goes for cadre deployment where the ruling party is guaranteed to win every single election no matter what and it is evident that “accountability” is only a word which exists in dictionaries.

Not only in SOE’s… Moral Hazard, lack of accountability incompetence is everywhere. Corruption is the killer of business. State owned of not, corruption is a cancer that eats away the moral fibre of a nations economy. Steinhof, Tongaat, Aveng, Old Mutual, Cell-C, MTN, Woolies, Sasol, just to mention a few… If we do not get rid of corruption on all fronts and simple focus on SOE’s the battle is far from over.

We don’t need a single SOE. We don’t need any Provincial Government or municipality. We can do better without any of them. They are a drag on progress and excuses for plunder. What about service delivery I hear you say?

Well, who provides you with the most important service? Who provides this essential service with amazing efficiency? Who gives you the best, most essential products at the lowest price without stealing your taxes? Food, clothing and medicine are essential and we don’t receive those from the municipality.

Take a look at Shoprite, Checkers, MrPrice, Clicks, Spar, Tops, the list is long. Unlike Eskom and the municipality, they don’t charge us “availability fees”, “infrastructure fees” or “service fees”. They deliver essential services and products efficiently, and at affordable, competitive prices.

We need to privatise if we want to save this country from bankruptcy/hyperinflation. We have the proper systems, the people, the know-how, the supply networks, the logistics to deliver anything we need at an internationally competitive price.

We choose to use a socialist organisation instead. Then we complain about a lack of service delivery and the unaffordable cost of electricity.

We choose socialism, and then we burn tyres in the streets if socialism delivers a socialist outcome. We are experiencing an implosion of service delivery because this is what “the people” voted for.

Shoprite has a branch in every town. They already have the infrastructure to facilitate the payment of services. It will be simple to take it one step further and to let Shoprite, Spar and Pick and Pay compete to provide municipal services. They already provide more crucial services efficiently.

Honestly, guys, the time to act is now. We cannot afford to be held at ransom by this inefficient and corrupt system any longer.

The question of why we have Provincial govts in a unitary state is a very good one. I mean serioisly apart from jobs for cadres what purpose do they serve?
If we were a federal country then perhaps.

However thats perhaps a different discussion than the points you raised.

On the concept of govt itself — i think people have become so brain-washed at the concept of democracy as it is practised today they dont even consider the alternatives nor question the reason why things exist as they are.

Taxpayers actually dont need govts. The govt needs taxpayerd and the poor needs govt but taxpayers dont.
Taxpayers, or people receiving/ generating own income, can actually “self service” service delivery.
But thats a schlep and theoretically its easier to appoint a govt who can collect revenue and organize mass service on everyones behalf.
In theory.

The SA reality is that taxpayers are left to provide for their own needs anyways — security. Education. Refuse and waste. Electricty today, water and sewage tomorrow.
And if a foreign enemy should invade taxpayers would have to defend themselves anyways
The SA govt offers no value to the SA taxpayer.

they aren’t SOE’s they are members of the ANC’s vote buying and looting programs – they cost the fiscus a FORTUNE each year and give very little back in the form of actually doing their jobs – like fixing broken robots, repairing potholes or just filling actual holes – have you noticed how when a first class african city member digs a hole they dump the sand/asphalt on the side of the road, where it will eventually be dug up thousands of years from now by geologists who will sit and scratch their heads trying to figure that mystery out…. with 700 + SOE’s leaching money from the tax payers, maybe we need a VAT hike to force them to give money back to the economy

End of comments.



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