Restructuring SA’s state-owned enterprises (SOEs) is one of the cornerstones of the state’s long-overdue commitment to structural reforms that would help alleviate pressure on a desperate fiscus and breathe some confidence into the economy. The cabinet’s approval for the rationalisation of three of the country’s oil and gas firms into one company, the National Petroleum Company, is a step in the right direction.
We need more steps.
Last week’s move follows President Cyril Ramaphosa’s statement in February’s state of the nation address — an event that seems so long ago now given how the Covid-19 pandemic has turned our lives upside down — when he called for “greater and more effective attention of operational efficiency, integrity and functionality of our SOEs, and ensuring that people who are fit for purpose are appointed to various positions”.
PetroSA, the Strategic Fuel Fund and iGas, were merged into the National Petroleum Company but they are just three of the 740 SOEs that face some or other form of existential crisis.
As a going concern, question marks have been asked about PetroSA in particular, with the auditor-general raising doubts about its ability to operate in future. So perhaps this merger doesn’t promise much, but at the very least it could prove to be the start of a rationalisation drive we have long called for.
SOEs have been battling to find a competitive footing or to even justify their relevance. Talk of their restructuring always ignites the age-old ideological debate about privatisation in the governing party and its alliance organisations. In days of old, we could perhaps give attention to these theoretical debates, but the Covid-19 pandemic and the economic crisis that it has unleashed across the globe has brought a sense of urgency to this matter.
With so many competing forces within his party, Ramaphosa’s administration was always set for a tough battle in reshaping some of the larger SOEs such as Eskom, that have weighed so heavily on our prospects. Notwithstanding these pressures, we are encouraged that the public enterprises department and Eskom management have moved forward with plans to break up the 97-year old giant into three companies: generation, distribution and transmission.
In normal times, we would have expected this corporate restructuring to have been derailed or delayed by party politics by now, so these are positive signs because we simply can no longer afford to keep some of our most troubled institutions on life support. While Eskom has been the biggest weight on our economy’s prospects, there are also desperate situations at many other SOEs. Over the past 12 years, the state has given about R162bn to its financially distressed portfolio of assets.
There has to be a change in approach to SOEs and in the rationalisation of the state’s oil companies, and with the restructuring of Eskom, there are positive signs of commitment to one of the cornerstones of the reform agenda. Which brings me to the appointment last week of members of the Presidential State-Owned Enterprises Council that include some top businesspeople.
Such a council has been touted for some time but is now being formed at a time of much greater uncertainty in finding a funding future for these institutions. Given the urgency of the situation, we urge that the council, in tandem with the public enterprises department, hit the ground running in assessing the strategic importance of the different SOEs and their mandates. It’s only with clarity on their futures that the state can begin to attract capital into SOEs that in some cases may have to come through equity sales.
We are at crisis stations and one only hopes the council gets to its task immediately and is not set up to meet quarterly to just deliver advisory notes to the president. That would merely further delay the review of SOEs, some of which are already at the Treasury’s door seeking aid. Too much energy and attention have been on the travails of SAA and Eskom, sometimes losing sight of a moribund economy.
It’s time to deal with the reality of the situation, there can be no holy cows or fragile egos.
There is an argument that SA’s economic troubles over the past decade were a natural consequence of a shift in investor sentiment towards developed countries and the US in particular, and away from emerging markets. There’s some merit and evidence to support this, such as the strengthening of the US dollar over much of the past decade.
But we can’t ignore what we’ve done as a country to keep SA’s investment case at the bottom of the pile, namely state capture, spearheaded by the Gupta family. As such, the reform of our SOEs becomes ground zero if SA’s investment case is going to climb higher in a global economy where every country will be putting its best foot forward to attract capital in a post-Covid-19 world.
The rationalising of the state’s oil companies and acceleration of Eskom’s restructuring plans are positive signs, while the SOE council could provide further impetus. That’s only if it is allowed to do so and, perhaps more importantly, is protected from the internal party politics of the ANC.
This opinion piece was first published in Business Day