Dec 06, 2010
Gigaba signals yet more taxpayer support for State firmsBack
© Reuse this
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© Reuse this Comment Guidelines (150 word limit)
Creamer Media Editor
Other Economy News
Recent Research Reports
Water 2015: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2015 Report considers the aforementioned issues, not only in the South African context but also in the African and global context in terms of supply and demand, water stress and insecurity, and access to water and sanitation, besides others.
Input Sector Review: Pumps 2015 (PDF Report)
Creamer Media’s 2015 Input Sector Review on Pumps provides an overview of South Africa’s pumps industry with particular focus on pump manufacture and supply, aftermarket services, marketing strategies, local and export demand, imports, sector support, investment...
Liquid Fuels 2015: A review of South Africa's liquid fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2015 Report examines these issues in the context of South Africa’s business environment; oil and gas exploration; fuel pricing; the development of the country’s biofuels industry; the logistics of transporting liquid fuels; and...
Road and Rail 2015: A review of South Africa's road and rail sectors (PDF Report)
Creamer Media’s Road and Rail 2015 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail infrastructure and network, the funding and maintenance of these respective networks, and...
Defence 2015: A review of South Africa's defence sector (PDF Report)
Creamer Media’s Coal 2015 report examines South Africa’s coal industry with regards to the business environment, the key participants in the sector, local demand, export sales and coal logistics, projects being undertaken by the large and smaller participants in the...
Real Economy Year Book 2015 (PDF Report)
There are very few beacons of hope on South Africa’s economic horizon. Economic growth is weak, unemployment is rising, electricity supply is insufficient to meet demand and/or spur growth, with poor prospects for many of the commodities mined and exported. However,...
This Week's Magazine
The BMW Group will invest R6-billion at BMW Group South Africa’s (BMW SA’s) Rosslyn plant to produce the next-generation X3 sports-activity vehicle (SAV) for the local and export markets. Rosslyn will continue production of the current 3 Series through its lifecycle,...
The lack of consequences for poor performance and transgressions on the part of contractors remains a significant hurdle to tackling South Africa’s service delivery challenges, delegates heard at the Consulting Engineers South Africa Infrastructure Indaba, on...
City of Ekurhuleni executive mayor Mondli Gungubele earlier this month officially named the city’s bus rapid transit (BRT) system, Harambee.
About 58% of unstructured data stored by companies is dark data, which means that the value or regulatory importance of the data has not been determined. Subsequently, most of the stored data add costs, rather than increasing revenue or reduce regulatory risks, says...
Effective logistics, import/export and manufacturing consulting services require detailed industry knowledge and experience, but can add significant value to these industries by providing expert advice on various technical elements in their value chains, says...