Business Maverick


Presidential powers in National State Enterprises Bill flagged as a threat to SOE reforms

Presidential powers in National State Enterprises Bill flagged as a threat to SOE reforms
Public Enterprises Minister Pravin Gordhan . (Photo: Victoria O'Regan) | President Cyril Ramaphosa. (Photo: Gallo Images / Alet Pretorius)

Investment experts say the draft law creating a new company to manage state-owned enterprises is full of flaws.

In terms of a proposed new law, the President will be the sole representative of a holding company that will house state-owned enterprises (SOEs) and will have the power to appoint its board. This has alarmed the investment community, which is worried about political interference in SOEs.

There is growing scepticism among South Africa’s investors about the proposed legislation, which is purportedly aimed at strengthening the governance of SOEs and stopping their decline by reforming their ownership model.

The legislation in question is the draft National State Enterprises Bill, which was recently published for comment and has largely been trashed by prominent players in the investment sector for being an empty shell and an exercise in rearranging the deckchairs on a sinking ship.

The key proposal of the Bill is to shift some SOEs under a single state asset management holding company (holdco) instead of retaining them under the Department of Public Enterprises (DPE), which is likely to be closed after next year’s elections.

The Bill does not mention which SOEs are earmarked to be moved.

It is expected that the Industrial Development Corporation, Sentech, Safcol and the Development Bank of Southern Africa will be first in line to be transferred.

Basket-case SOEs such as Eskom, Transnet, Denel and the SABC are only expected to be added later, but will move to their line ministries as an interim measure. For example, Eskom will go to the Department of Mineral Resources and Energy, and Transnet will go to the Department of Transport.

Public Enterprises Minister Pravin Gordhan has defended the Bill, saying it follows international best practice of separating the state’s ownership of SOEs from their operational and regulatory functions.

Gordhan said the Bill would also “minimise the scope” for political interference in the operational affairs of SOEs from their line ministries — a common occurrence, according to the complaints of several board members and executives appointed to the entities. Ironically, Gordhan himself has been accused by former board members of Eskom and Transnet of meddling in their day-to-day affairs.

The holdco that will house the SOEs will have a board of directors and a CEO, and the Bill stipulates that the state will be the holdco’s sole shareholder. The President will be the sole representative of the holdco and will have the power to appoint its board.


This has alarmed the investment community, which has argued that the Bill is counterproductive as the President’s power to appoint a board means political interference is unlikely to be stopped and the SOE universe will not be depoliticised.

Futuregrowth Asset Management, one of South Africa’s biggest institutional investors in the debt of SOEs, has warned that, in the absence of oversight or limits, the President’s powers in the bill are “potentially dangerous.

“We believe that this concentrates an ill-considered amount of authority and influence in one individual,” Olga Constantatos, head of credit at Futuregrowth Asset Management, said in a note to investors.

“The presidential role is a political one, and we fail to understand how this action would prevent some of the challenges experienced by many of our SOEs — challenges which, by the government’s own admission, include inappropriate political interference,” she added.

Futuregrowth has been a leading voice in the call for better governance at SOEs since it announced in August 2016 that it would temporarily suspend funding for six SOEs: the Land Bank, Development Bank of Southern Africa, Industrial Development Corporation, Sanral, Eskom and Transnet.

Rona Bekker, a senior policy adviser at the National Employers’ Association of SA, which represents more than 8,000 businesses (some of whose fortunes depend on SOEs), agreed with Constantatos, saying the Bill requires more guidelines on the President’s role in the holdco.

“The holdco will need a level of independence from its political masters. It will need to make operating decisions that ensure the financial performance of the SOEs, and it should have budgetary autonomy,” Bekker said.

“Its legislation should give it full authority over the operating and financial affairs of the SOEs,” she added. For the holdco to work, it also needs a board of accomplished, experienced professionals with extensive corporate expertise and “not political cronies”.

“It must have authority over boards it appoints to manage SOEs to monitor performance and ensure delivery,” Bekker said.

More unanswered questions

There are concerns that the Bill does not mention how SOEs will be improved, ensuring that they are well run and governed, or how they will stand on their own without frequent taxpayer-funded bailouts.

The Bill allows for minority strategic equity partners to be brought into the SOEs, with the state retaining the majority stake. However, it is not clear how the new ownership model will make private participation in SOEs any easier.

A source close to business investments and government processes described the transfer of SOEs to a holdco  as “a deckchair-moving exercise”. 

The holdco is widely viewed as a “Department of Public Enterprises 2.0 [and] the Bill says precious little about what this new thing is actually meant to do, any different from the DPE”, said the source.

“We are deeply sceptical that this is anything more than a deckchair-moving exercise and it will have no better go at things than the DPE. The draft Bill actually has nothing in it about ensuring SOEs are well run and sustainable. Overall, this is a rather weak and odd piece of legislation that addresses none of the underlying problems.”

Another point of confusion is the legislation that will govern the holdco. The Public Finance Management Act and the Companies Act will apply to its operations. Constantatos said some of the provisions in the Bill were in conflict with the Companies Act, mainly the shareholder of the holding company (the President) being able to appoint an administrator to take control of the holdco in instances where there is “material and persistent failure to meet objectives and targets”.

Constantatos said this is problematic as the Companies Act already has extensive business rescue and insolvency-related provisions, which are either activated by the board or by the creditors of a company.

“Provisions of the Bill, on the other hand, in allowing the shareholder to unilaterally appoint an administrator, would appear to conflict with the Companies Act provisions. No guidance is given in the Bill on how to manage this conflict, or which legislation should take precedence,” Constantatos said.

“This lack of clarity is a significant pitfall — one of many — in the Bill. We believe that the inconsistencies need to be practically examined and clarified in the drafting before there is any move to implement the Bill.” DM


Comments - Please in order to comment.

  • William Kelly says:

    Ditch it.

  • Paul T says:

    Although I have little confidence in any ANC sponsored legislation, the article rubbishes the bill it doesn’t really provide alternatives. If the board is appointed by shareholders and the state is the only shareholder, who is meant to appoint the board? And who appoints those people?

  • Bill Nash says:

    Please excuse my ignorance but this sounds like legalising State Capture?

    • Zamfoot 1 1 says:

      Indeed. Why waste your time trying to control multiple boards when you only need to get to one.
      The experts can analyze and comment on this bill with all the high level speak the can muster, but at the end of the day they only need to answer one question. What would Zuma have done with this had it been in place during his tenure?………exactly!

  • Ben Harper says:

    State Capture 2.0

  • Hedley Davidson says:

    It is astounding that government can not have an honest look at thier track record , realise they should stay as far away from business as possible and privatise as much as possible. 🤔 oh that would mean the cookie jar would close and the self enrichment jig of the elite under the guise of BBBEE would be up.

    • Michael Thomlinson says:

      The reality of the situation in SA at the moment is that a lot of the fuctions of SOEs have already been, passively, privatised: The taxi industry is fast taking over public transport. Road freight has taken a big chunk of Transnet’s business. Courier companies have taken over a lot of the functions of the Post Office. Fly Safair took the business away from SAA and private electricity generation is already taking businesses away from Eskom. It seems like our ministers (esp Gordhan) have their heads in the sand and cannot see this!

  • George 007 says:

    The Rearranging the Deck Chairs on the Titanic Bill.

  • Fanie Rajesh Ngabiso says:

    The road to Hell…

  • Martie Janse van Rensburg says:

    The statement that the concept and structure is based on International Best practise does not hold water with regards to DFI’s such as IDC and Development Bank of Southern Africa as the international precedent is that these type of institutions are regulated by the country’s Central Bank and the shareholder is not the SOE Holdco but government.

  • Jimbo Smith says:

    Here we go again; some hair brained PLAN to save SOE’s which are broken beyond repair. Talk about tinkering on the deck of a sinking Titanic(SA). And Gordhan bleats about ” political tinkering” forgetting he is the very best at the excuse and BS game. Can big business flex its strength and put a stop to this madness?

  • Jennifer D says:

    Is it even possible that we might get rid of the scourge of the ANC at some point and have an improved outlook in this country. We aren’t expecting brilliance and high performance – just a little bit of integrity and a small measure of competence is all we ask for.

  • Gary De Sousa says:

    Tell me Im wrong. Lets assume some private company invests millions in transnet which now falls under this uber socialist new company and its plan requires dismissal of 2000 workers.But wait the head of the company is the president and a board appointed by him?

  • Derek Jones says:

    Also we do not trust this president and may get a worse one down the road.

  • Rae Earl says:

    The President as sole representative? A Zuma type president would have the entire basket of SOE’s for breakfast. Ramaphosa will stutter and dither without ever making decisions. They’ll be left to his ‘collective’ who will plan the shortest route to each of the SOE’s bank accounts.

  • Govt might as well privatize all SOEs since private business will not participate unless they have a say in running a business they’ve invested in

  • David Katz says:

    Jacob Zumas friends the Guptas must kicking themselves for not thinking of this. They could have stolen the entire countries wealth. Perfectly set up for the next dictator or super thief.

  • Betsy Kuhn says:

    and the company will be run by ANC Comrades which is corrupt as well??

  • Hilary Morris says:

    Power will only be removed from the ANC when all is left is their cold dead fingers! Despite absolutely everything they touch turning to ashes, they cling on regardless. What a sad, sick joke they are. Their rallying cry is “It’s mine, I tell you, all mine”.
    The president even made a pathetic attempt to take over the glory of the Springboks win as if it belonged to the ANC. Would love to believe that 2024 will rid us of these losers.

  • Mike Schroeder says:

    Having a DPE 2.0 in the Presidency effectively removes oversight from Parliament — not that that oversight is worth much. But at least that oversight would be public … with it being in the Presidency, there is zero transparency

  • Andre Grobler says:

    I don’t think it is a deck chair moving exercise, i think it merely adds another layer of business to scoop some cream off – for those suitably aligned equals… but first it must be a “proper” company so people can invest in it, and get “taxed” in this way, so you can have a new source of cream to scoop, you see…

  • Francoise Phillips says:

    Legitimising State Capture on Steroids. The ANC is committed in robbing the nation. This is a very clear indication that ‘renewal’ is an ANC election chimera as it sets itself up to truly rob the people of SA while selling off our sovereignty to the highest Russian, Chinese and Iranian bidders with the ANC itself as the BEE partner through criminal ANC investment vehicles that privatise the country to the cadres.

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