Rather than getting on with a serious turnaround strategy and reforms, the ANC is fumbling on plans to manage the country’s failing state-owned enterprises.
The latest plan is based on a “Chinese model”, which is the result of a visit at the end of last month to Beijing by the Minister in the Presidency for Planning, Monitoring and Evaluation, Maropene Ramokgopa. If implemented, it would mean that state enterprises would be held by a stock-exchange-listed company, in which the state has a heavily dominant shareholding.
Until the election last May, most of the larger public enterprises fell under the Department of Public Enterprises. This department was scrapped after the election, and the initial idea was that the public enterprises should be transferred to a state holding company. That was called the “Singapore model”, as Temasek Holdings, a state investment company, oversees that country’s public enterprises. A National State Enterprise Bill would have placed the state-owned companies into JSE-listed holding companies.
Then the ANC changed its mind and said it wanted the appropriate ministries with authority over particular industries to oversee public enterprises. Hence, the defence department would have authority over Denel and the Minister of Electricity would be responsible for Eskom. The idea was that ministers in “policy departments” would represent the government as shareholder. But this creates a conflict of interest, as the department would be likely to ensure that the state-owned enterprise for which it is responsible does not face private sector competition. A government department with authority over a monopoly state enterprise would be very unlikely to call for a more competitive industry. This would undermine the performance of its own company.
In recent weeks this idea was abandoned, probably because its implementation could have sparked inter-ministerial rows rather than conflict-of-interest worries. For example, the plan was for Eskom to be taken away from the energy and mineral affairs department and placed under the electricity department.
Drag on the economy
As a good socialist party, the ANC thinks our state enterprises can be a vital source of innovation and growth, even though they have been a drag on the economy since the ANC came to power. Now the centralisation plan is back, but under the guise of the “China model.” This still involves a holding institution for public enterprises like the “Singapore model” but it might sound better for the comrades as a “China model.” Details of the plan are sparse, but according to the Sunday Times, the new state assets management council could be working by January.
The real problem is that the ANC cannot quite figure out what to do with the around 700 or so public enterprises, many of which are in financial and operational distress. With their outsize role in critical areas in the economy, the collapse of the public enterprises shares a large part of the blame for the fall in productivity, the resulting dismal growth rate and the government budget deficit. Over the past 15 years, bailouts to state enterprises have amounted to about R400 billion, roughly a quarter of non-interest government spending this financial year. The Treasury has promised that these have now ended, but one does wonder what will happen in a real emergency.
We have had no power cuts for more than 200 days, but Eskom still faces critical challenges. Transnet remains a bottleneck on imports and exports, Denel is not fit for purpose and has lost orders as engineers have fled mismanagement and lack of prospects, and the state broadcaster, the SABC, is in crisis.
The ANC knows full well that in South Africa, the State just cannot effectively manage the public enterprises. That is because virtually all of them have been taken down by corruption, empowerment requirements, giving into union demands for pay rises usually out of line with what is paid in the private sector, often unqualified management, and an absence of agility due to oppressive bureaucracy.
Basics
The ANC is clutching at straws, thinking that new institutional arrangements rather than getting the basics right can end this drag on the economy.
So now President Cyril Ramaphosa wants a centralised system for managing the public enterprises, copying China’s State-owned Asset Supervision and Administration Commission (SASAC). This was set up in 2003 with the aim of making the country’s public enterprises more competitive and drivers of innovation.
In China, the reform has meant that the government’s role has changed from “managing assets” as in intervening in operations to “managing capital” − to try and ensure its efficient allocation. The number of small public enterprises has been reduced, many have been turned around and only the largest and most well-run have been given new capital. Many now have private-sector shareholders.
According to the Sunday Times, government insiders say they are thinking about selling up to a 25 percent share in some state enterprises. Listing state enterprises on the stock exchange would mean that they would fall under the Companies Act rather than Public Finance Management Act, and this would give them greater agility.
But would investors really want to take up a 25 percent stake in an entity run by the government?
The government would retain control, and it is unlikely that it would uphold the aspect of the Chinese model that involves ‘no interference in operational-type decisions’. No rational investor, without at the least iron-clad guarantees, would become a minority partner of a government which was still able to make decisions on hiring, procurement and investment.
Difficult to see
It is difficult to see SA’s “China model” as a path to reform in SA. Reforms that would involve privatisation, downsizing, extensive re-organisations and dispositions could be done without this institution. The ANC has not mentioned unwinding, breakups and sell-offs of state enterprises. Most holding companies continuously consider these sorts of options. It is really a matter of political will and being prepared to take on the ANC patronage networks.
What the ANC might really be after with this model is to draw on the private sector to recapitalise the state-owned enterprises, rather than draw on management expertise. But it is not giving enough away for this to appeal to investors. So, this is really an attempt to maintain control of a key means of patronage and control for the party, rather than a solution to urgent and critical problems for the economy.
The ANC partners in the Government of National Unity (GNU) should not let the “China model” plan go ahead without knowing what it is really about. So far, it comes across as new packaging around the problem, and little else.
The DA and others in the GNU should actively confront the ANC on state enterprises, as they are central to economic growth.
[Image: Miguel Á. Padriñán and Paul Brennan from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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