SOEs deliver despite challenges

Transnet has upgraded its fuel pipeline from Durban to Johannesburg.

“It’s the economy, stupid.” Those words, on which Bill Clinton surfed to victory in a recessionary United States in 1992, cut through the chaff of a divisive and highly personalized presidential race to succeed Ronald Reagan.

Twenty-five years later an economically struggling South Africa is engaged in a bitter presidential race of its own. Unprecedented resources have been poured into a campaign, fueled by political and business contestation and implemented by media, to persuade South Africans that their state-owned companies are shot through with corruption. Our country is being presented and positioned as a caricature of a corrupt and captured state. 

A year ago former Public Protector Thuli Madonsela published her State of Capture report focusing on alleged malfeasance by a leadership clique at certain state-owned companies and calling for further investigation.

While the wheels of justice turn slower than the printing presses – particularly in the digital age – a number of investigative, disciplinary and legal processes have been instituted, criminal charges have been laid by civil society organisations, and a judicial commission of inquiry is imminent.  In the meantime the media, feeding on conveniently “leaked” information, has thrown the press code out the window and assumed the roll of judge, jury and executioner.

The sooner the formal legal processes lead to convictions and/or exonerations – as appropriate under the rule of law – the sooner we can restore the credibility of our state-owned companies, which are really the spine of our economy. When all is said and done – when the emails stop leaking, investigators complete investigating and the succession race is settled – it will still “be the economy”.

The throbbing issues facing our country will still be inequality, poverty and unemployment. And the only way around these issues, whether we’re comfortable with it or not, is finding mechanisms to change the apartheid pattern of distribution of the country’s wealth. The so-called second phase of our transition.
Due to their size and the procurement budgets they command, state-owned companies can play a pivotal role in giving effect to what has been termed radical economic transformation.

Take Eskom’s procurement of coal, for example. Eighty percent of its annual coal budget of R57 Billion is spent with four companies, who have enjoyed the security – and financial leverage – of long-term contracts for 20 to 40 years. It so happens, that these contracts are coming up for review in the next year or three.  Not only coal; the same applies to Transnet and Denel, where there has been far too little emphasis on the transformation of supply chains. 

It is entirely understandable that there are powerful people out there who have benefitted from the economic status quo and won’t give up their privilege without a fight. But one should not allow these competing forces to break our state-owned companies. Or camouflage successes…

About 10 days ago, Transnet released a set of financial results for the six month period ending in September showing a 13.8% increase in revenue earnings. Profit increased from R1 billion in the previous period to R3.4 billion. These are good results achieved in a very difficult economic environment. They are the outcome of improved operational performance by Transnet – on the back of practical cost-cutting measures such as drastically reducing requirements for over-time work – coupled to increases in mineral production and consumer demand.

The results were not achieved at the expense of developing skills and infrastructure that our nation profoundly needs, by shedding jobs that the nation can ill-afford to shed, or by decelerating Transnet’s expansion into Africa. Announcing the results, Transnet’s Group Chief Executive Siyabonga Gama said there was enough headroom for the company to continue executing its investment strategy, that it had maintained a strong financial position and cash-generating capacity. The results are therefore quite compellingly indicative of a state-owned company fulfilling the expectations of the developing state. 

To say that media ignored this “good news story” would be an exaggeration. At a time when the prospects of growth in the country are not what one would like them to be, the media struggled to let go of the narrative that State-Owned Companies are a drain on the fiscus… 

In a recent column in Business Day recently, political scientist Professor Steven Friedman wrote that, “state owned enterprises are vital to many economies, but are particularly vital to those seeking economic development. This is true in South Africa too. Which makes it odd that the South African government – and much of the policy debate – never sees any value in trying to work out what role they should play in growth and development…”

Professor Friedman is on point. There is insufficient discussion on the role state-owned companies play in the context of government’s economic development programme. Too often, information that links policy to programme is lost in the cracks of a personality-obsessed national discourse.

Durban was recently visited to present on the implementation of Operation Phakisa, a multi-faceted programme to unlock the potential of the ocean economy and contribute to the realisation of the National Development Plan: Vision 2030. It was reported that R24.6 Billion had already been invested in the programme, 60% of it funded by government and 40% by the private sector. Other projects include the KwaZulu-Natal Boatbuilding Park, where a Black-owned company is building a fleet of new super tugs. The R1.4 Billion project has created 600 direct jobs, 2000 indirect jobs and 60 apprenticeships.
The R250 million investment in the KwaZulu-Natal Boatbuilding Park has the potential to deliver approximately 150 vessels per year and is geared towards the export market. An adjacent Marine Skills Development Centre provides practical training to unemployed youths.

Further investment in Durban includes an upgrade to the dry dock. In Port Elizabeth the slipway is being refurbished, lead-in jetties reconstructed and a boat hoist acquired in order to bolster fishing infrastructure. In Cape Town, the tourism industry will benefit from the acquisition of rights by the V&A Waterfront Company to fund, design, build and operate a cruise-liner port. The Burgan Fuel Storage Facility, a private sector investment of over R660 million, will provide fuel and energy to the Western Cape while large investment has also gone to ensuring that Saldanha Bay has the capacity for an offshore oil and gas hub. 

Another R400 million has been set aside to develop 12 fishing harbours, and 15 small, medium and micro enterprises have already benefitted from the expansion of the aquaculture industry. Transnet’s fingerprints, as a provider of regulatory frameworks (as the port authority) and facilitator of investment, are all over these various Phakisa components. 

The point, to get back to that of Professor Friedman, is to make the link between state-owned companies – in this instance, Transnet – not just in the execution of their core business but also in the fulfillment of the policies of the developmental state. There are many other examples… from the building and maintenance of key road and bridge infrastructure by SANRAL, to the construction of power stations by Eskom.

Carrying out giant programmes at a time of economic suffocation may seem counter-intuitive, and that’s precisely the point. There is a need to eradicate malfeasance at state-owned companies, without fear or favour for the sake of the economy.

Lynne Brown is Minister of Public Enterprises and ANC NEC Member