DRAFT NATIONAL STATE ENTERPRISES BILL: NEASA submits written commentary

DRAFT NATIONAL STATE ENTERPRISES BILL

NEASA SUBMITS WRITTEN COMMENTARY

SAVING GRACE or JUST ANOTHER PLAN FOR FAILURE?

 

By Rona Bekker

 

Dear NEASA subscriber

 

On 15 September 2023, the Department of Public Enterprises published the draft National State Enterprises Bill (SOE BILL) for public comment.

 

The Bill would ensure the following:

 

• establishment of the State Asset Management SOC Ltd;
• provide for the State as the sole shareholder of a holding company;
• consolidation of the State’s shareholdings in state enterprises;
• provide for the powers of the shareholder on behalf of the State;
• provide for the phased succession of state enterprises to the holding company;
• provide for the holding company’s powers as shareholder of subsidiaries;
• provide for the restructuring and management of subsidiaries for developmental purposes;
• provide for appropriate and effective performance monitoring mechanisms over subsidiaries; and
• provide for the corporatisation of those state enterprises that are not registered as companies; and to provide for matters connected therewith.

 

In NEASA’s written submissions on this Bill, the crucial question is posed: will this Bill, when enacted, save South Africa’s disastrous State-Owned Enterprises (SOEs), or is it merely a mechanism of possible abuse and further looting for the ruling party?

 

NEASA analyses and discusses in this submission the following key concerns:

 

• the current performance of SOEs, with reference to their financial outcomes and audits, as well as their service delivery outputs, both of failing and semi-operational SOEs;
• the governance structures, management, regulation and internal controls of SOEs;
• the challenges experienced by SOE governance and regulatory frameworks, including but not limited to:
  • lack of internal controls;
  • lack of transparency and oversight;
  • undue political influence;
  • nepotism and corruption, including cadre deployment;
  • insufficient competition in the area of service delivery;
  • weak capitalisation;
  • multiple and conflicting interests; and
  • abuse of discretionary powers, lack of accountability and execution of discipline; and
  • the National State Enterprises Bill and its provisions.

 

In order to determine whether this Bill will solve or remedy the current issues plaguing SOEs, the Bill must achieve the following:

 

• the holding company will need a level of independence from its political masters, as the State will be the sole shareholder;
• the holding company will need to make operating decisions that ensure the financial performance of the SOEs;
• it should have budgetary autonomy;
• its legislation should give it full authority over the operating and financial affairs of the SOEs;
• the holding company needs a board of accomplished, experienced professionals with extensive corporate expertise and not political cronies;
• it must have authority over the boards it appoints to manage the SOEs and to monitor performance and ensure delivery; and
• it should report to government departments and be held accountable in Parliament.

 

However, from NEASA’s submission, it is clearly proven that the State’s shareholding in national state enterprises is of absolutely no value. The SOEs are horrendously failing and in deep and irrecoverable debt, exactly because of the State being the sole shareholder; and due to the failing of the SOEs and the lack of proper public service delivery, the State can also not argue that any of the basic services, required by its poorest citizens, must continue to be the responsibility of the State.

 

The objects of the Bill should, by implication, ensure that SOEs in South Africa are run in such a manner that they execute proper service delivery, and generate additional income for the state, through its management structure.

 

The problem, however, is that although section 2(d) encompasses the intention to “promote the long-term commercial sustainability of the holding company and its subsidiaries”, nothing in the Bill can ensure this, as it is entirely dependent on the implementation of the governance structures and board appointments.

 

The legislation referenced in the Bill, which is to govern the holding company and its subsidiaries, is the same legislation that has been applicable to the majority of SOEs (which are already registered companies) since their inception. There is no additional oversight mechanism proposed by this Bill. Consequently, NEASA fails to see how this Bill will ensure the proper restructuring of failing SOEs in South Africa.

 

Based on their relevance to the country’s strategic plans, there should be a framework for rationalisation that would need to be adopted to serve as a basis for the evaluation and final decision on each SOE. SOEs exist to address development failures and close gaps where markets or the private sector cannot. Doing away with some SOEs could create more efficiency and more jobs as well as a better environment for businesses. Opening spaces to the private sector would reduce operational costs and improve the quality of services rendered due to increased competition.

 

The evaluation of the strategic SOEs should be repeated periodically to ensure they remain so and nonstrategic SOEs should account for their continued existence through a rigorous parliamentary process. Government should know when to dispose of some non-essential SOEs through liquidation or privatisation. When Government continues to bailout non-essential and incompetent SOEs with a goal to either preserve employment or maintain national brand image, the indirect cost is huge.

 

To read NEASA’s submission, click here.

 

Rona Bekker is the Policy Manager at the National Employers’ Association of South Africa (NEASA).

 

For more information:

NEASA Media Department

media@neasa.co.za