MESSAGE FROM THE TREASURER GENERAL

 

In his address to the 4th South Africa Investment Conference President Cyril Ramaphosa reiterated that; like the rest of the world, South Africa is transforming its approach to state owned companies. The goal, he said, was to ensure that SOEs are better able to fulfil their vital social and economic functions.

It is a well-established fact that SOEs play a key role in the economy. These are companies that are wholly-owned by the state, or the state is a majority or part shareholder in them. Many SOEs are strategically located in key sectors of the economy – mainly in the network industries. These are industries that have forward and backward linkages with other industries across the economy, and are a vital part in ensuring economy-wide efficiencies and productivity.

Failure or inefficiencies in SOEs can have a negative impact on large parts of the economy. When electricity supply cannot be guaranteed; when railways, public transport and ports are inefficient; when innovation is held back by a telecommunications sector that does not respond to the needs of our people and the economy such as making available affordable and reliable data; and when water quality deteriorates, companies are reluctant to invest, the economy cannot function properly, jobs cannot be created and quality of life deteriorates.

In his address to the Investor Conference President Ramaphosa also alluded that; over the years, our SOEs have been a huge drain in the fiscus. According to the National Treasury, R 308 billion has thus far been directed towards bailing out failing state-owned enterprises. These are resources which would have otherwise gone to other spending priorities such expanding the provision of basic services, social protection of the most vulnerable and skills development.

Over the Covid-19 period, the performance and financial viability of several state-owned entities has continued to deteriorate. The average return on equity, or the profitability of SOE's, has deteriorated to -14.6%, compared to -9.8% in 2019/2020.  The implication here is that many of our SOE's have either missed their capital investments or their loan repayments. Consequently, infrastructure spending by SOEs has nearly halved, from R86.2 billion in 2016/17 to R44 billion in 2020/21. 

This overall poor performance is cause for serious concern, given that several of the SOEs are critical in the provision of an enabling environment for much-needed investment as well as supporting economic reconstruction and recovery. Well run SOEs and entities, therefore, are essential to the success of our country and our economy. They are catalysts to inclusive economic growth, industrialization, innovation, trade and investment.

Government relies on SOEs and entities as its implementing agents of its economic priorities. SOEs, therefore, form an integral part of the ongoing effort to strengthen the state’s capacity to deliver services efficiently and effectively. They are at the center of our vision of a capable developmental state that will work together with a dynamic and agile private sector, towards common goals.

For SOEs to function well, they require a capable state that positions them strategically to drive development, upskill the nation and grow the economy to meet the needs of the people.

Noting the important role that SOEs play in the economy, the ANC has set as one of its priorities stabilizing the finances of SOEs and returning them to operational and financial viability.

It is our view that the approach towards transforming SOEs cannot be a one size fits all. Its needs to be determined on a case-by-case basis.

The 54th National Conference resolved on the rationalization of some SOEs and entities, which includes merging some of them. Conference further resolved on reviewing the multiplicity of SOEs, including Municipal Entities, and their alignment with departments and accounting authorities.

In line with the Mangaung Conference resolutions, the 54th National Conference also resolved that the State-owned mining company must be strengthened, so that it can play a significant role in the mining sector. Conference further resolved on the need for the establishment of a State Pharmaceutical company. 

Our resolutions which inform our approach to the restructuring of SOEs are consistent with concepts of “Flexibility” and “Balance of Evidence”, elaborated upon in the Ready to Govern document of our movement.

We are also united in saying that the process of rooting out corruption in SOEs must proceed without fear or favor. The restructuring of SOEs must also include engaging strategic partners to assist in turning around these entities. This is the case with SAA, where an equity partner has been secured.

SOEs must have both a commercial and a developmental mandate. These mandates should be clearly defined. We want our SOEs to have greater operational efficiency and they must be managed with integrity. The right people with the requisite skills and competencies must be deployed to manage our SOEs.

There is also agreement that political interference on operational matters of SOEs must be avoided.

This, summarizes the ANC’s strategic posture to SOEs and entities. We look forward top a day when SOEs will take their rightful place as catalysts to inclusive and sustainable growth, better service delivery and improved quality of life among the citizenry. If we work together, as various stakeholders, this goal is within reach.

 

Ends   

 

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