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
- 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.
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.