Failed SOEs equal a failed state

It’s the toxic gift that promises to keep on giving grief to South African taxpayers for many years … the government’s issuing of guarantees amounting to R466 billion for the debt, actual or potential, incurred by SA’s catastrophically bad state-owned enterprises (SOEs).

The guarantees are, in the view of some economic experts, reckless on the part of government, because they give licence to those running the SOEs to continue in their incompetent and wasteful ways … because they know there is, ultimately, a financial safety net.

That mountain of actual and potential debt will also scare away any potential bidders for these companies, should they ever be privatised. The fact that the SOEs have massive government guarantees is confirmation that many of them have increased their debt burdens extensively in the past 10 years (the era when Jacob Zuma was in charge) and, because of that, their long-term financial viability is now in question.

President Cyril Ramaphosa acknowledged as much when he said this week it would be impossible to privatise South African Airways because of its significant losses and huge debt commitments.

While it is true that rapid global technological changes may have played a role in harming the business of some SOEs because they disrupted traditional trading models, the reality is that mismanagement, corruption and looting are the major reasons most of our SOEs are basket cases.

There can be no denying there is need for reform of these institutions. Privatisation must be one of the options on the table. But, at the same time, privatisation works more in favour of those who buy state companies than the customers of those companies, or the workers, who are often the first victims of restructuring and cost-cutting when the concerns go private.

The bottom line: failed SOEs equal a failed state.

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