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State’s promise to clean up SOEs rings hollow amid continued financial woes

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Xolisa Phillip has had quite an adventure as a journalist in the roles of subeditor, news editor, columnist and commentator. She pretends to be Olivia Pope during the day, while still maintaining a presence in journalism – a passion project she cannot shake away. Journalism keeps finding Phillip no matter where she is and somewhat manages to hold its own space no matter where she is professionally.

The turnaround of state-owned companies has long been promised. Results are elusive, while failure is commonplace. The Department of Public Enterprises has detailed in its latest annual performance plan for 2021-22 how it will aid the cause of these companies, most of which are in financial distress. But change is a slow process. Positive progress is hard to come by, and employees at these companies are feeling the pinch during a down economy.

The promise of a better tomorrow is often undermined by a lack of visible and quantifiable results which demonstrate progress being made towards attaining such an end. With each passing year when a better tomorrow is not achieved, hope wanes and gives way to heightened scepticism. The Department of Public Enterprises has been promising for quite some time now that a better tomorrow will be delivered for state-owned companies. Rightly so.   

The variables currently at play, however, make that goal seem improbable. Flowery rhetoric from the department aside, the record reflects a miserable existence for most state-owned enterprises (SOEs) and a dismal near-term outlook. In terms of tangibles such as management and operations, the SOEs have not fared well. These, in turn, reinforce intangibles including lack of trust and credibility. Also, the paucity of SOE success stories makes the promise of a better tomorrow all the less convincing.   

“Most … state-owned companies are under financial strain,” the department readily admits. “The department will strengthen monitoring [of] … finances,” it counters. In addition, the department is setting up an Anti-Corruption and Integrity Unit “to ensure that adequate attention is placed on consequence management being implemented”.  

The department has expressed these sentiments on various forums, including at a recent review of its 2021-22 annual performance plan in Parliament. But the lay of the SOE land makes such statements doubtful. Moreover, at surface level, although these plans look sound, a key flaw is that government departments are not set up to be crime-busting or anti-corruption units or institutions. Of course, that is not to discount the value of risk monitoring and mitigation. However, starting an entire anti-corruption unit from scratch seems a rather misplaced effort.

Perhaps focusing that energy on inculcating a culture shift and better financial performance might be more appropriate because that is the purpose of oversight. Effective oversight entails targeted influencing and encouraging of better outcomes without being overbearing on internal SOE matters. This is a fine line. Oversight includes fostering transparency and accountability while giving SOEs breathing room to perform their duties. 

The Office of the Auditor-General is there to guide and assist on effective consequence management. It has also already taken over the external audits of some SOEs. The law enforcement agencies exist to complement consequence management. It is hard to imagine how an additional layer of bureaucracy, such as an anti-corruption unit, will assist in encouraging a culture and performance change. 

Admittedly, there are other initiatives and endeavours that the department plans to undertake to help SOEs do better. These include making appropriate board and management appointments within a well-defined and aligned framework. That is to be commended. 

Furthermore, there are plans to introduce a dividend framework, and to ramp up local content and preferential procurement spend by SOEs. The former shows faith in the department’s plans, but forms part of that elusive promise of a better tomorrow. 

Alexkor and Denel are being restructured. The latter’s situation is dire, and has been well-documented in the public domain. South African Airways has been sliced and diced. The rail and freight entity needs more competition to encourage efficiency and better pricing. The list goes on.

Fit-for-purpose operating models have been promised for Alexkor and Denel. More private sector players will be roped in to the freight and rail, and ports space. 

But such change is slow, and SOE employees are suffering now. That contributes to the scepticism around a better tomorrow for SOEs. The department was given the “mandate to stabilise, reposition and restructure” SOEs in 2018 by the head of state. 

Notwithstanding the present challenges, the department has set a target to have the draft Government Shareholder Management Bill adopted into law by 2023. The Dullah Omar Institute at the University of the Western Cape has done a lot of work about how such a law would be beneficial in the governance of SOEs. For starters, it would help in setting a single framework for SOE oversight and would constitute a move away from the current fragmented, and confusing, terrain. 

Some of the department’s plans appear appropriate and reasonable, while others raise questions. The aspect that is cause for concern is the unspoken, but known, risk of political instability. The department is planning for the long term, but the success of its plans hinges on the political principal in charge at the ministry. The department is no exception in that regard.  Perhaps that is the missing link in SOE governance – de-linking and de-risking these entities from politicians. DM

*The writer has previously been invited by the Dullah Omar Institute to workshops and a paid speaking engagement about the topic of SOE governance. This article is not sponsored by the institute, although it does draw on some of its insights.

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