Issued by the FW de Klerk Foundation on 22/12/2023

In December 2023, a critical juncture unfolded in South Africa as Cabinet approved the National State Enterprises Bill, heralding a potential transformation in the governance of state-owned enterprises (SOEs). Entities like ESKOM, PRASA, and Denel, among others, find themselves immersed in a dire state of financial uncertainty, a predicament attributed to cadre deployment, pervasive corruption, abysmal mismanagement, and a stark absence of fair competition and business standards. This Bill, initially perceived as a beacon of hope to address these systemic issues, unfortunately falls short, neglecting crucial areas that demand attention. As the nation stands on the brink, the viability of South Africa’s SOEs and, by extension, its economic future, hangs in the balance.

Introduced in the National Assembly in September, the SOE Bill aims to confront the entrenched challenges haunting South Africa’s strategic SOEs. This legislative proposal signifies a momentous structural shift, advocating for the dissolution of the Department of Public Enterprises, the current overseer of these entities. In its stead, the Bill envisions the establishment of a new state-owned holding company, the State Asset Management SOC Ltd, tasked with overseeing the management of SOEs and their finances. Crucially, the State is positioned as the sole shareholder of this holding company, solidifying its control over various state enterprises.

One central question revolves around the government’s strategic rationale for consolidating SOEs under a single holding company, a proposal outlined in Section 2 of the Bill. The establishment of the State Asset Management SOC Ltd, with the state as the sole shareholder, is designed to provide a unified structure for overseeing and managing various state enterprises. This move appears to align with the government’s aim to improve coordination, streamline oversight, and enhance overall governance. However, concerns persist about whether this structural transformation can effectively address the intricate challenges faced by SOEs, given that the Bill does not explicitly outline mechanisms to tackle the specific crises, such as financial mismanagement and corruption, afflicting these entities.

A critical consideration in evaluating the effectiveness of this restructuring is the role of the proposed holding company in addressing the operational and financial challenges outlined in Section 3(3) of the Bill. The Bill aims to empower the President as the sole representative of the holding company, with authority over board appointments, directing activities, and managing the transfer of entities. The lack of explicit safeguards against political interference and mechanisms to ensure merit-based appointments raises doubts about whether the holding company would indeed be better than the existing Department of Public Enterprises.

Additionally, the question of why the holding company would be any more effective than the Department of Public Enterprises is crucial, particularly when examining the Bill’s provisions related to governance. Sections 7(2)(a)-(f) grant extensive powers to the holding company board, allowing it to potentially usurp the powers and responsibilities of subsidiary company boards. This raises concerns about the clarity of accountability and the potential contravention of fiduciary responsibilities, as Section 7 does not explicitly address the fiduciary responsibilities of directors, leaving room for interpretation.

Furthermore, the exclusion of private sector involvement, reflected in the Bill’s emphasis on the state as the sole shareholder, raises constitutional questions. While the Constitution does not explicitly mandate private sector participation, principles of fairness, openness, and encouraging private enterprise are constitutional imperatives. Sections 3(5) and 6(2)(f) of the Bill, which contemplate the application of the Public Finance Management Act (PFMA) and the Companies Act, respectively, do not provide clear guidance on managing potential conflicts between these legislations, contributing to the lack of clarity in the Bill.

In essence, the critical inquiries surrounding the proposed restructuring of SOEs into a state holding company find their foundation in the legislative provisions outlined in the National State Enterprises Bill. The effectiveness of the proposed State Asset Management SOC Ltd in addressing the specified crises will depend on how well these legislative provisions align with the overarching goal of improving governance, transparency, and operational efficiency within South Africa’s state-owned enterprises.

Furthermore, the Bill’s failure to address deep-rooted issues of corruption and state capture is a significant oversight, echoing concerns raised by Ghaleb Cachalia, the Democratic Alliance’s Public Enterprises spokesperson. The absence of robust anti-corruption measures leaves the door open for the persistence of issues that have plagued SOEs for years, contradicting the constitutional imperative of good governance and the prevention of corruption, principles deeply embedded in the Constitution.

The recent approval of the SOE Bill by Cabinet brings to the forefront concerns about the government’s commitment to tackling foundational issues within South Africa’s SOEs. The proposed dissolution of the Department of Public Enterprises, intended to separate ownership functions from policy and regulatory functions may be seen as a positive step toward depoliticising SOEs. However, the potential influence of political considerations in key appointments raises valid concerns, as noted by Cachalia. This potential compromise on efficiency and proper governance underscores the missed opportunity for a more transparent and merit-based approach to appointments.

Looking beyond South Africa, various countries have adopted different models for managing state-owned enterprises. Some nations have successfully integrated private sector expertise and investment through public-private partnerships, leading to increased efficiency and financial success. These international models serve as instructive examples, revealing fundamental flaws in the approved SOE Bill.

For instance, in countries like Singapore, public-private partnerships have played a vital role in state enterprise management. These collaborative ventures allow the government to leverage private sector resources, expertise, and capital while retaining control and oversight. This approach capitalises on the strengths of both the public and private sectors, fostering innovation and improving overall efficiency.

In contrast, the ANC’s steadfast insistence on maintaining sole ownership of the holding company limits opportunities for similar public-private collaborations. This rigid stance has been rightfully labelled a “disappointment” by Business Leadership South Africa’s CEO, representing a missed opportunity to create pathways for private investment to flow into the SOE sector, hindering the potential for innovative solutions and enhanced efficiency that could arise from strategic public-private partnerships.

As the SOE Bill progresses through the legislative process, the lack of clarity on the ANC’s stance, particularly regarding its previous resolution for state-owned companies to return to their line departments, adds uncertainty to the Bill’s future. This ambiguity could impede the progress of the Bill, further emphasising the missed opportunity for a unified approach to addressing the myriad challenges faced by SOEs.

In conclusion, the approval of the SOE Bill by Cabinet is undoubtedly a significant step in South Africa’s legislative journey. However, the embedded shortcomings raise concerns about its effectiveness in addressing the intricate issues facing SOEs. The legislative process now provides an opportunity for public input, aligning with constitutional principles of transparency and accountability. As the Bill moves forward, it is imperative to reflect on these missed opportunities, ensuring that constitutional values are upheld in the pursuit of meaningful reform for South Africa’s state-owned enterprises.

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