A sad tale of South African SOEs that should be privatised

• Published date: 19 December 2023
• Author: gary moore
• Publication title: Star, The (Johannesburg, South Africa)

The Organisation for Economic Co-operation and Development (OECD), a rich-country club, has observed that many of South Africa’s significant state-owned enterprises (SOEs) are characterised by chronic underperformance, with poor returns on government investment and continuous reliance on government support, whether in the form of explicit government guarantees or subsidies

The shortcomings can be attributed to major corporate governance failures, including weak managerial accountability, excessive politicisation and unclear objectives.

To address the weaknesses in South African SOEs, the OECD has recommended that:

◆ The government should set realistic profitability objectives which SOEs should meet.

◆ SOEs’ governing structures should be professionalised and the government should refrain from short-term political interference.

◆ SOEs in markets with a sufficient degree of competition, such as telecoms, should be privatised.

◆ Competition should be promoted by re-evaluating the prominent position of SOEs which hampers the entry of new firms and increases the costs of intermediate products.

◆ In “network industries”, which provide fixed infrastructure for the delivery of goods or services to end users (such as telephone or electricity cables and wires, rail track, or airport runways), independent regulators should be charged with ensuring non-discriminatory third-party access.

A recent draft legislative measure (described below) to deal with SOEs has been criticised as a deckchair-moving exercise. The planned partial privatisation of one SOE is being investigated for probable corruption. Shortcomings affecting certain SOEs are also described below.

The South African government has a minister and a Department of Public Enterprises. They oversee several SOEs, including Eskom and Transnet. The SOEs operate in the energy, resources and transport fields, which the department describes as “core” or “strategic” sectors of the economy.

The department’s lofty vision for the SOEs is to create an enabling environment in which they “add real economic value” by focusing on “operational excellence and commercial viability”, which will “drive developmental objectives and job creation”. The department states, ambitiously, that its mission is to seek to ensure that the SOEs are “financially sustainable” and “operationally robust” and that they provide “reliable, high-quality and cost-effective services” to industry and citizens.

Despite the department’s ambitions about the...