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Dec 06, 2010

Gigaba signals yet more taxpayer support for State firms

Newly appointed Public Enterprises Minister Malusi Gigaba speaks about government's plans for State-owned enterprises. Camerawork: Nicholas Boyd, Editing: Darlene Creamer.
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South Africa’s newly appointed Public Enterprises Minister Malusi Gigaba has signalled that government was likely to have to make further direct investments, loans and guarantees into State-owned enterprises (SoEs) in order to ensure that the infrastructure investments needed to double the rate of economic growth are made.

As an “activist State”, government perceived the role of SoEs in dealing with the prevailing infrastructure backlogs as critical to addressing the urgent challenges of poverty and massive joblessness.

Speaking at a seminar hosted by the Presidential review committee (PRC) into SoEs, Gigaba also indicated that he and his department were preparing to play a far more hands-on role in guiding the governance of the country’s key SoE’s, many of which are considered to be underperforming against their mandates.

Last week, Business Unity South Africa (Busa) voiced its concerns around the underperformance of public enterprises and noted that increased use could be made of public private partnerships (PPPs). Currently, South Africa only makes use of about 3% to 4% of such partnerships, but Busa deputy CEO professor Raymond Parsons said that this could be increased to around 25%.

There is also general public disquiet about the quality of leadership and many of these corporations, as well as at the level of executive remuneration.

However, Gigaba promised guidance on project funding structures, on executive remuneration governance structures, as well as on the recruitment, appointment and performance of board members.

He also said that he would be probing the accounting and general reporting framework for SOEs, their relationships with relevant policy departments, dividend policies and whether the SOEs need to be governed by a different statute other than the Companies Act.

The ambitious infrastructure investment programme, he argued, was a powerful instrument at government’s disposal. In fact, Gigaba told Engineering News Online that he expected investment to increase in coming years, as reaffirmed in the recently released New Growth Path.

The document, which was released by Economic Development Minister Ebrahim Patel in late November, called on government for continued and increased investment to create and develop infrastructure and to decrease the cost of doing business in the country, while stimulating the manufacturing sector, developing skills and, ultimately, creating jobs.

The South African government had also previously committed itself to spending some R800-billion on infrastructure in the next three years, of which about 40% had already been allocated to one of South Africa’s biggest SoEs, Eskom.

Gigaba lamented the decline in public sector investment over the past three decade, noting that, between 1976 and 1994, public investment in infrastructure dropped from 16% of gross domestic product (GDP) to about 4% to 5%, mainly owing to a shift towards the privatisation of these entities.

Even after 1994, investment by the SoEs into infrastructure remained low at around 5% between 1994 to 2004, when State-owned power utility Eskom and rail parastatal Transnet announced their investment plans.

This reduced spending led to a significant “funding gap”. “Had we consistently been investing in infrastructure at about 10% of GDP between 1994 and 2010, we would have invested an additional R1,5-trillion in today’s currency, which would have had a major impact on job creation and rescued million of South Africans from poverty and their reliance on social grants.”

This year, government has managed to up public investment in SOEs to about 9% of GDP.

But the poor performance of many SoEs remains a concern and also led President Jacob Zuma to establish the PRC in May, which has been appointed to review and propose ways of strengthening the enterprises.

Currently, it is estimated that South Africa has about 300 SoEs, nine of which fall under the DPE. In recent years, two of its larger enterprises, including Eskom, were bailed out, while another, the Pebble Bed Modular Reactor Company, was closed down.

The entities had also been struggling with transparency issues, appointing qualified and suitable board members, and determining and distinguishing the different roles of government when it comes to SOEs.

Also speaking at the seminar, National Planning Commission member professor Anton Eberhard pointed out that the country’s SOEs were often known for their underperformance, while also being more expensive than their competitors. “It has been shown that while access to Durban’s port is only half that of its competitors, rates are three times that of its competitors. South Africa is also significantly more expensive than any of its international competitors in the information communication and technology sector.”

He noted that it was important for the new PRC to consider such facts and to identify reforms that would speak to such realities and would be able to change the political economy of SoEs.

Meanwhile, the PRC chairperson Mangwashi Piyega assured that the committee was considering all the different challenges of SoEs in South Africa and noted that it would submit its reform recommendations to the President at the end of September 2011.

“The review by the PRC seeks to define the SOEs and their role in the developmental State, while investigating the state of SOEs in relation to the objectives of government, looking at governance and ownership, business viability, and strategic management and operational effectiveness,” she concluded.

Edited by: Terence Creamer
Creamer Media Editor
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