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ANALYSIS

Why the ANC’s recent proposal on SOE reallocation might not take off

Why the ANC’s recent proposal on SOE reallocation might not take off
Illustrative image | Sources: SABC Building in Auckland Park. (Photo: Veli Nhlapo) | Flickr | Getty Images | Rawpixel | Wikimedia

The timing of the ruling party’s proposal to move state-owned enterprises into their respective departments is curious.

Within ANC policy circles, debates about the future of state-owned enterprises (SOEs) and what to do with them have always been contentious.

Among the hot-button issues about SOEs is whether they should be used by the government in strategic sectors to grow the economy, create employment and spur development.

Also hotly discussed is whether SOEs should continue enjoying taxpayer-funded bailouts and whether their ownership models should be overhauled to pave the way for privatisation.

But a recurring debate that has featured at ANC policy and leadership elective conferences for many years — but has hardly been adopted — involves the governance of SOEs and whether they should be moved into their respective government departments.

This debate featured again in December 2022 as a policy proposal during the ANC’s elective conference, where party president Cyril Ramaphosa secured a second term. But the policy proposal was never adopted and the ANC National Executive Committee is yet to decide on when to do so.

The timing of the ANC’s proposal to hive off SOEs to their line departments is curious, as it is at odds with Ramaphosa’s plan on how to manage and reform such entities.

The governing party’s proposal might not even take off for several reasons.

The main reason is that the proposal has caught several policy and government officials by surprise because Ramaphosa, as early as 2020, initiated a process to look at how to reposition SOEs and strengthen their governance structures and financial situation.

In doing so, Ramaphosa appointed an SOE council that sits within his Presidency office and includes experts from big business, state organs and academia.

The council’s work is still ongoing and its members cannot speak publicly about it because they signed confidentiality agreements with the Presidency office.

Another challenge is that its mandate is wide as the members have to explore the state of SOEs — all 700-odd of them — and no deadline was given to the council’s work when it was assembled by Ramaphosa.

Sidestepped by the ANC

Two individuals close to Ramaphosa’s council and canvassed by DM168 say the ANC’s proposal to move SOEs to the line departments has caught some of the council’s members by surprise because it is out of kilter with what has been discussed by the council in the past three years.

The individuals say council members have neither considered moving SOEs to line departments nor weighed up the merits of doing so. They have, instead, explored mechanisms through which SOEs can financially stand on their own and not continually rely on taxpayer-funded bailouts for survival. 

They have also discussed the need for the government to pare back its degree of ownership of SOEs by either selling some or introducing private sector players into their ownership model.

The Presidency and National Treasury have already endorsed the model of increasing private sector participation in all areas of the economy, especially those affected by inefficiency in SOEs, such as energy, ports and rail.

The government also sees the private sector as a partner in delivery.

“The ANC, through its proposal, is still struggling to loosen its grip and control of the economy. It still believes in playing a big role in SOEs, which is different to the approach taken by Ramaphosa and his SOE council,” says one individual familiar with the work of the SOE council.

Big moves, big problems

Moving SOEs to their line departments could create governance and conflict of interest problems.

It would mean that crucial SOEs such as Eskom and Transnet would be moved from the Department of Public Enterprises to the Department of Mineral Resources and Energy, and the Department of Transport, respectively.

It would be a step change considering that the Department of Public Enterprises was specifically created in 1999 to house SOEs to drive their success and accelerate their restructuring, professionalisation and good governance.

Some SOEs already report to line departments, including the SABC and SA Post Office, which account to the Department of Communications and Digital Technologies, and Prasa and Sanral, which report to the Department of Transport.

Alarm bells

The ANC’s proposal of having more SOEs reporting to line departments has created concerns about a conflict of interest considering that a government ministry is a shareholder of an SOE while also being responsible for industry competition and regulation.

This conflict is already happening, but more of it would sound governance alarm bells. For example, Khumbudzo Ntshavheni, the Minister of Communications and Digital Technologies, is responsible for the governance affairs of the SABC while also overseeing SA’s policy of migrating from old-style analogue television broadcasting to digital broadcasting, which will affect the SABC’s operations.

Wayne Duvenage, CEO of the Organisation Undoing Tax Abuse, argues that the focus should not be on moving SOEs to their line departments, but on reforming their ownership structure to involve the private sector.

“For instance, the private sector does a far better job at flying, maintaining and servicing the aircraft and its customers when compared to state-run airlines, which is why almost every country has abolished [its] state-run airline policies or introduced significant private equity partnerships to manage these entities,” Duvenage said.

Cabinet reshuffle

The private sector, which funds the operations of SOEs to the tune of billions of rands, isn’t rattled by the ANC’s proposal. After the ANC announced the proposal on SOEs in December 2022, Nic Borain, a political analyst for investment banking firm BNP Paribas, told clients that the proposal would later be assessed in the context of Ramaphosa’s looming Cabinet reshuffle.

The proposal on SOEs might be another ANC dud that might not see the light of day unless members of Ramaphosa’s new Cabinet lobby hard for it. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.

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