Opinionista Xolisa Phillip 12 June 2019

National Development Plan’s prophetic call on SOEs deferred

Long before state-owned enterprises entered the financial red zone, there was a roadmap in hand to turn them into tools to aid South Africa as a developmental state.

In exactly a week – on 20 June 2019 – President Cyril Ramaphosa will deliver his State of the Nation Address. But this won’t be a run-of-the-mill affair. The president has had a good practice run in the hot heat, having taken over as head of state at the start of 2018.

Common threads that have run through his past State of the Nation Addresses are the economy and state-owned entities (SOEs). On the economy, he appointed respected economist Trudi Makhaya to advise him.

In addition, President Ramaphosa hired National Treasury luminaries and high-profile business people as envoys to preach his investment gospel. In the process, he not only declared but also signalled, that South Africa was indeed open for business. Makhaya and her team duly delivered the Investment Conference in the latter part of 2018. And since being hired, the envoys have crisscrossed the globe, spreading the word about South Africa being a good place in which to invest. They have done the same domestically, too.

The fruits of those efforts became apparent at the start of 2019, when final 2018 gross domestic product (GDP) figures were announced and showed that the country had avoided a recession.

However, South Africa is not hitting the GDP sweet spot of at least 5% growth, the estimate at which the country could conceivably begin to make a dent on its myriad economic challenges.

We now know that the economy contracted in the first quarter of 2019 and that the unemployment outlook remains bleak. These factors constitute a huge poser for President Ramaphosa and by extension Makhaya and the envoys, among whom are a former finance minister and an erstwhile deputy finance minister.

The former deputy finance minister gave a talk at the Gordon Institute of Business Science (GIBS) in 2017 about the fiscal fundamentals that would have to be in play for South Africa to start making inroads on its issues.

One of the touchpoints was macroeconomic stability and ensuring that the state generated more revenue than it was spending. The overall sentiment was that the country was not creating new wealth or assets to reduce its inequality. Instead, the growth experienced in the early 2000s had served to reinforce existing inequality patterns by benefiting those who held the majority of the country’s wealth and assets.

Structurally, South Africa’s energy and logistics costs, among others, were too high. SOEs, too, were a huge cost factor for the state.

The country needed new levels of investment, especially fixed capital investment; the state’s monopoly had to be addressed; the conversation around inclusive growth had to be broadened beyond the scope of the ANC and its policy discussion documents; and the trust deficit with the state had to be closed. That was the gist of the talk delivered by the former deputy finance minister at GIBS in 2017. It’s been two years, but those words and sentiments remain relevant.

On SOEs, the National Development Plan (NDP), the economic blueprint brought to us by the former finance minister, gives guidance; specifically, chapter 13, “Building a capable and developmental state”. It states that: “The governance structures for SOEs should be simplified to ensure clear lines of accountability and stable leadership.”

Furthermore, the NDP states: “Three broad sets of reforms will ensure sustainable improvements in the performance of SOEs: a clear mandate; a clear and straightforward governance structure; and deal[ing] with capacity constraints. Other reforms could include improved transparency and flow of information, such as comprehensive annual reports and financial statements; making performance contracts available; and publishing results, investment and coverage plans, prices, costs and tariffs, service standards, benchmarking reports and customer surveys. Information needs to be credible, coherent and timely.”

Again, those insights were released almost 10 years ago, and they have not lost any relevance. In fact, they point towards an oft-expressed view that we know what ails us as a country and what medicine we need to take to remedy it.

However, we have talked ourselves into a state of inertia without figuring out how to take the first steps towards building positive momentum through action.

It is apt that President Ramaphosa appointed an economic adviser of Makhaya’s calibre and included a former finance minister and an erstwhile deputy finance minister among his investment envoys. Now that he has a five-year mandate, a clear majority and the general election is done and dusted, maybe some of the bitter medicine prescribed in 2017 and in the NDP will start to be administered without any trepidation or hesitation. DM

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