SOEs play a key role despite being failed by politics

From apartheid capitalism, an indecisive developmental state, to a decade of billions of rands being siphoned off in the state capture project which is being probed by Deputy Chief Justice Raymond Zondo, South Africa’s state-owned enterprises (SOEs) have gone through challenging times in evolving political economy, with many loss-making SOEs reduced to becoming begging bowls.

In a study, sustainable development experts Mark Swilling and Nina Callaghan of Stellenbosch University conceded that despite SOEs having been failed by politics, they remain large-scale institutions responsible for managing capital-intensive infrastructure and investments, playing a key role in the national economy.

According to 2019 statistics, 25 of the largest SOEs accounted for a fifth of South Africa’s capital stock – a seventh of annual total investment in the economy and about 1% of employment.

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Swilling and Callaghan argue that internationally, SOEs are not in decline, despite a global wave of privatisation.

There are 58 listed and 1 617 unlisted SOEs in the Organisation for Economic Co-operation and Development countries that collectively have assets equal to 32% of GDP.

They maintain that SOEs “have the ability to shape industrial policy, the potential to transform economies by investing in the provision of basic services and stimulate new industries”.

“SOEs have played a crucial role in the evolution of the SA political economy,” they said.

“These included the lowering of the cost of doing business by providing low-cost infrastructures, investing in high-risk knowledge and capital-intensive industries, providing finance via development finance institutions, to priority industries that private banks stay away from.

“How these entities are deployed is a critical indicator of a state’s directionality.

“The current crisis of SA’s SOEs are a signifier of political leadership that has made a series of ideological missteps, amid a legacy of rent-seeking behaviours.”

With SA Airways rescued from collapse, SABC, Eskom and Denel among the poorly performing state-owned companies, what went wrong with SOEs?

Swilling and Callaghan argue that during Nationalist Party rule, SOEs were used as “the levers to power and racial dominance, helping to embed structural inequality in SA’s economy – creating the obdurate conditions for the minerals-energy complex (MEC).

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“The apartheid state enjoyed its most economically successful era between 1948 and late 1960s. It was during this time that the axis upon which the economy turned was clearly defined as the minerals-energy complex.

“There were powerful alliances between finance, mining, energy and its associated industries. These were locked in the key political, economic and energy arrangements of apartheid SA.”

SOEs like Iscor, Eskom, Sasol and other chemical and mineral beneficiation industries grew to dominate the MEC landscape, with an estimated domestic investment in the steel and chemical sectors at nearly 50% of total investment in the economy in the 1970s.

SOEs “served to buttress the MEC, allowing a core set of industries and institutions economic advantages, to the detriment of the growth of other industrial sectors and more diverse actors”.

“They also became apartheid’s lifeline during tightening international sanctions and disinvestment in the 1980s.”

When the ANC came to power in 1994, the new administration was tasked with unravelling over 300 years of structural inequality in which the gains of industry were divided between Afrikaner capital and foreign capital.

“Their answer to this overwhelming task was to open the doors to the market – favouring privatisation and liberal trade. Neoliberalism is characterised by a rejection of the interventionist state.

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“The ANC came to power without a clear-cut economic policy framework. Then, president Nelson Mandela introduced the first general developmental policy – the Reconstruction and Development Programme (RDP) between 1994 and 1996.”

The government intended to use SOEs for redress, to fund transformation. But between 1994 and 1999, many were operating at a loss.

“The RDP was abandoned in favour of the Growth, Employment and Redistribution Strategy (Gear) from 1997 to 2005. By then, several lesser SOEs had been restructured, an approach intensified during GEAR to attract foreign investment.”

In this configuration, SOEs were not positioned as part of a nation-building project to build inclusive capitalism.

In Jacob Zuma’s presidency, the focus shifted to heavy dependence on use of SOEs procurement systems.

“This meant repurposing the SOEs to become primary mechanisms for rent-seeking at the interface between the constitutional and shadow states – the Guptas and Bosasa – to finance deals and the transformation of the ANC into a compliant, legitimating political machine.”

– brians@citizen.co.za

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