OPINION PIECE: National State Enterprises Bill: Not the solution to our SOE problems

Feb 18, 2025

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NATIONAL STATE ENTERPRISES BILL

NOT THE SOLUTION TO OUR SOE PROBLEMS

NEASA submits commentary

Opinion Piece

by Rona Bekker

One of the key reasons for South Africa’s exceptionally low economic growth rates has been the ongoing operational and financial turmoil that has plagued the State-Owned Enterprises (SOEs) for decades. State-controlled central planning, corruption, state capture and maladministration have been responsible for the downward spiral in the SOE sphere. Around R400 billion has been spent bailing out SOEs since 2008. These financial survival injections come from taxpayers one way or another and means that the fiscus is drained and funding is diverted away from other necessary government priorities – all of which is paired with dismally insufficient service delivery by these SOEs.

On 24 January 2024, the Minister of Public Enterprises introduced the National State Enterprises Bill B1-2024 (‘the Bill’) before the National Assembly. The main goal envisioned by the Bill, is the establishment of the State Asset Management SOC Ltd (‘the Holding Company’), with the state as the sole shareholder. The Holding Company will hold the ownership interests in thirteen key national government commercial subsidiary enterprises, such as Eskom Holdings, Transnet, the National Roads Agency, the Airports Company South Africa, the Central Energy Fund, South African Airways and the Post Office among others.

Although Government may allege that this Bill aims to save, turnaround, transform, and grow SOEs by providing for the development of a national strategy for them, as well as separating ownership from management, this Bill should be treated with extreme circumspection.

The legislation referenced in the Bill, which is to govern the Holding Company and its subsidiaries, is the same legislation that has applied 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.

This Bill would have been beneficial if its sole focus was to create pathways through which private investment could start flowing into the SOE sector. However, in contrast to this, the ruling party has, with this Bill, opted for more state control and centralisation of the SOE sector. This will drive away the badly needed private equity investment, leaving these crises-ridden companies exclusively dependent on taxpayer-funded bailouts. Instead of pursuing a systematic reform process that would make them attractive to private investment, the Government is choosing the gatekeeper approach at the expense of the economy.

The powers of the sole shareholder (state) also include the appointment of the directors to the Board of the Holding Company in terms of the Companies Act. Unfortunately, there are no guarantees that the Board will necessarily be competent, independent candidates, protected from the political influence that has been plaguing SOEs and allowed for mismanagement, nepotism, corruption and cadre deployment – despite what any provision in an Act dictates regarding skills and professionalism.

The Bill further requires the Holding Company and its subsidiaries to report annual financial statements within six months of the end of each financial year end. This is ethically and financially commendable, but yet nothing new, and purely in line with accepted norms in corporate reporting. However, it seems to ignore the reality that many of our SOEs have not had a good track record with reference to timeous financial reporting.

What should be most alarming of the latest version of the Bill, is the complete removal of the section in the 2023 version of the Bill, which provided for the powers and actions of the shareholder (state) should the Holding Company materially or persistently fail to meet its objectives and targets.

The Bill’s attempt at ensuring economically sound and financially viable outcomes through overly state-infused management structures, without simultaneously implementing mechanisms to ensure the achievement of these outcomes, and without clear punitive mechanisms to punish and rectify mismanagement, is an exercise in futility.

A clear counterargument will be that a more ethical and capable government, with ownership removed from operational management, can oversee the SOEs. The issue with this type of reasoning is that it overlooks the fundamental concerns around and the nature of government as an institution. Government is not equipped to engage in the private sector since it does not have profit-driven or even sustainability incentives.

It lacks motivation to operate institutions effectively since its main aim is to deliver public goods rather than compete against other market competitors. When it dismantles institutions, it doesn’t cease to exist. As we have seen in our own nation, it rather straightforwardly utilises taxpayers’ resources to save them.

To read NEASA’s full submission, please click here.

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

Image Credit: LinkedIn (Dave Sewell)

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NEASA Media Department

media@neasa.co.za