Moving SOEs from Public Enterprises will fast-track their demise
This opinion piece by OUTA CEO Wayne Duvenage was first published in the Daily Maverick on 12 January 2023
President Cyril Ramaphosa’s recent announcement that the Department of Public Enterprises (DPE) will be closed down and state-owned enterprises (SOEs) moved to different ministries within government, shows a clear lack of foresight and poor strategic advice. Such a move will most likely lead to a quicker demise of these failing entities. More worrying will be the greater decay and ruin of the infrastructure on which many of the SOE services are provided.
The DPE was set up officially in 1999 to accelerate the restructuring, professionalisation, good governance and management of SOEs. The DPE took over from the Office of Public Enterprises (OEP) which was established in 1994. The decision was the right one to take, since there was a definite need for a specialised department to drive success within SOEs. However, the vast majority of the SOEs under the control of the DPE have not been successful and many have dismally failed, largely due to the implementation of ill-advised strategies, political meddling, ineptitude from cadre deployment and bad governance.
The overall SOE strategy driven by the ruling party has been a haphazard and confusing one, with some SOEs being incorporated into the DPE, while others (such as Prasa, Sanral, SABC and SA Post Office and others) remained under the control of their respective government departments (Transport and Communication & Digital Technology).
The history and purpose of the development of SOEs needs to be understood when taking decisions about the future of DPE. Without the infrastructure of railroads, paved roads, powerlines, telephone lines, harbours, airports and more, the economic development of any country is extremely limited. Over the decades, the State’s ability to raise finance using a combination of taxes, borrowings and public-private partnerships, made the much-needed infrastructure for a developing economy possible. However, there have always been two components to SOEs, the first being the responsibility for the infrastructure development and maintenance and the second being the provision of the services that operate on top of that infrastructure.
In earlier years, the business sector was either not permitted or not ready to participate in providing services on the State’s infrastructure. Accordingly, the services were provided by the state, e.g. Transnet, SA Airways, Eskom, SABC Television and Radio, Telkom etc. Over time, the world changed and with deregulation, the private sector moved in to outperform the State and dominated in areas such as the airline industry, telecommunications, postal and freight logistics and others.
It makes financial sense to involve or allow the private sector to take over and deliver efficient services in place of the State, so long as the government of the day knows where and when to let go. And this is where our problem in South Africa lies. For instance, the private sector does a far better job at flying, maintaining and servicing the aircraft and its customers, when compared to state-run airlines, which is why almost every country has abolished their state-run airline policies or introduced significant private equity partnerships to manage these entities.
The same has happened with digital and mobile telecommunications, which saw the fixed-line telephone networks initially set up and managed by governments worldwide, collapse within a couple of decades. Had Telkom not moved quickly to a new predominantly private equity model, it would not exist today. The SABC and the SA Post Office (both of which have social service mandates to fulfil), currently find themselves struggling to survive and losing customers to the private sector every year. The list of similar examples is long.
The time is long overdue for our government to restructure its SOEs into separate entities that manage the services offered under a repurposed DP[S]E, (the Department of Public Services Entities), while the infrastructure on which the services operate, should be managed by the respective government departments. These government departments should focus on enabling those who provide the services (be they state or privately owned), within a regulatory environment that ensures healthy competition, high safety standards, strong anti-exploitation laws and robust oversight.
The world has moved on from governments owning huge, complex businesses that compete with the private sector, especially if the State acts as both the referee and a player, often resulting in the abuse of authority or large-scale bail-outs of these failing state businesses, with taxpayers’ money.
Many private companies die because of vanity and egotistical mindsets that can’t let go of unsound strategies in a changing world, which is a problem that also exists in government when it comes to SOEs. The difference, however, is that in the private sector, the shareholders stop throwing good money after bad and businesses are allowed to close down or be sold off, whereas government has an endless supply of taxpayer’s cash to bail their failed businesses out. Our government is seemingly unable to face the facts of their SOE failures and are generally incapable of managing agile and competitive businesses. Their refusal to let go of failed SOEs becomes a burden for taxpayers, which is generally attributed to two factors: the first being the suitability for these SOEs to meet cronyism and corrupt agendas, or the second, a combination of skewed ideologies, egos and poor leadership (aka the inability to change).
Of course, the counterargument is that business is not squeaky clean and they too fail and abuse their positions. The difference is that when businesses fail, they don’t come at a cost to the national fiscus. In addition, if the private sector is ever allowed to abuse its dominance and exploit the consumer, markets or its employees, this is generally due to the State’s inability to ensure and oversee effective safety, anti-competitive and anti-abuse laws and regulations.
In closing, the ruling party’s plan to move SOEs out of the DPE and into their respective functional departments, requires far more strategic thinking and input from industry experts and others, specifically as to their purpose and functions to the State and society. Where and when the private sector can provide better, cheaper, faster and safer services, the State should merely enable and oversee healthy competition, safety and a non-exploitative business trading environment. That way, more jobs are created and more taxes are collected, with fewer State funds wasted on inefficient or failing SOEs.