Some SOEs worth keeping out of private hands, says economist

Controlled privatisation, outright sale and repurposing of some of South Africa’s strategic state-owned enterprises (SOEs), could be the government’s solution to loss-making SOEs, according to leading economists.

Some are struggling to survive following the billions siphoned off during the decade of the Jacob Zuma presidency – SOEs were seen as cash cows by his allies, the infamous Gupta family.

Despite pushing for controlled privatisation, economist Thabi Leoka has cautioned against wholesale disposal of state-owned entities, numbering more than 720, arguing that strategic rail and logistics company Transnet was too important to the country and the continent.

Leoka said aerospace and military equipment company Denel, which also suffered serious state capture setbacks, could become “a source of technology and technological advancement”.

“Today, a lot of our state-owned entities are not fit for purpose,” she said.

“If we were to look at producing environmentally friendly electrical cars, similar to what Elon Musk is currently busy with in the US, the only entity that has that kind of a capacity in South Africa is Denel.

“Denel should not just be seen as an aerospace and military equipment company, but a source of technology and technological advancement.

“Do we need military equipment in the same way as in the past? I don’t think so.

“I think we should be diversifying and looking beyond where we are – more into technology and being aligned to the requirements and demands of the Fourth Industrial Revolution.”

Turning to Transnet – which lost billions in questionable tenders benefitting the Guptas and their business partners – Leoka said the company was “a lot better than others, with a strong balance sheet”.

“We could privatise rail, but not Transnet, which also plays a strategic role in development – transporting our goods across the continent and linking South Africa with the rest of Africa.

Corruption and state capture had failed to destroy Transnet in the same way it did Eskom, SA Airways (SAA) and Denel.

“It is the biggest SOE with many subsidiaries, which include Transnet Freight Rail.

“To sink Transnet … corruption would have had to take a lot for that to happen.

“I am happy that currently it has a great group [chief executive] Portia Derby, who understands infrastructure, politics and the workings of the [department of public enterprises], where she was [director-general],” she said.

Troubled Eskom would find it “very hard in its current state to turn the corner”.

Said Leoka: “Eskom may be turned around if it is restructured and sells off some divisions, like transmission, to the private sector.

“Its objective is to reach cost reflectivity, it is up to [the National Energy Regulator of South Africa] to award them that.

“On 1 April, they were awarded a 15% hike which is going to cost the consumers at a difficult time.

“They need government help in terms of financial assistance at a time when no one has that assistance to offer.

“Customers are increasingly moving away from relying on Eskom [and] finding other sources of energy.”

SAA, another cash-guzzling SOE, “is trying to turn around in the midst of a pandemic, which is a problem, with international travel having been the most impacted sector.

“Aviation, in particular, has been the most impacted because people are less inclined to travel.

“Over 120 countries have banned travel to South Africa because of the Covid-19 variant that was first discovered in here.

“It is three times harder than usual to try to operate an airline that has not been operating,” said Leoka.

SOEs, “by virtue of their mandate, play a developmental role”.

“Full-scale privatisation may not be aligned to the government’s developmental agenda other than looking at financial benefits,” she said.Some, she said, deserved outright disposal.

“SOEs like [South African Forestry Company Limited] do not need government to be running them.

“Government is also running the Diamond Mining Company, which is doing badly compared to privately owned mining companies, which are doing very well.”

University of Johannesburg associate professor of business and economics Peter Baur said the role of state-owned enterprises were vital, singling out Denel, which he described as “a highly competitive SOE”.

“SOEs are an important part of a mixed economy. They create jobs and often provide goods at a lower price than most private companies could afford, especially if state subsidies are involved.

“Also, there are the issues of generating revenue and some SOEs could be quite important strategically, internationally.

“However, accountability and transparency are two critical ingredients in this mix.” Economist Mike Schussler said:

“SOE efficiencies improved from the 1980s, 1990s and even the 2000s.

“We are going backwards. We need private sector involvement and that split President Cyril Ramaphosa promises three years ago.”

Economic risk consultant Rob Jeffrey agreed that poor management and corruption was behind the collapse of SOEs.

“SAA should have been sold years ago,” he said.

“Government seems to be intent on destroying Eskom, because renewables will kill it – unless one is prepared to spend money on repairs and maintenance.

“Denel and others need to be privatised at a minimum public, private partnerships.”

brians@citizen.co.za

For more news your way, download The Citizen’s app for iOS and Android.