State-Owned Enterprises weak financial position risks economic growth objectives

Minister of Finance Tito Mboweni assembly where he delivered the Mid Term Budget. Photographer: Phando Jikelo/African News Agency(ANA)

South African State-Owned Enterprises (SOE’s) are in a weak financial position, and this is a concern, as some of the entities are critical to the country’s economic growth objectives. This vulnerable financial position of some of these entities is posing a critical risk to the government. These entities’ weak financial performance has resulted in numerous calls to or not to review the salaries of the heads of these state-owned entities.

The biggest question to put forward is whether we are currently getting value as the country from people who lead these institutions. When considering that some of these entities are in a weak financial position and are continuously asking for a government bailout, this raises another question about the entity’s performance. If it was a private listed company, will the shareholders approve paying high salaries to those underperforming companies Heads or Directors?

Recently, the Minister of Finance, Tito Mboweni, raised this vital question “Is the high pay justifiable for the heads of the state-owned entities. ” I would think that is a difficult question to answer, especially when considering the salaries currently paid to these entities directors.

Firstly, to answer the above question, it is crucial to understand that SOEs are established for various reasons. Some are for-profit and others, not for profit. The remuneration, measurement, and recognition tools will not be the same in my view. Though those entities established with the profit objective in mind, their remuneration and performance measures for those heads of entities should be closely aligned to the private sector. The motivating reason will be that those individuals will typically be the same talent that the private sector is keen on poaching.

We cannot expect to recruit the industry’s best talent if the salaries or the remuneration benefits are not market-related. The market-related salary requirement will need to be comparable with their counterparts in the private sector space. In my view, an important question to ask these days is what value do we get as a society from those appointed to head those entities.

In closing by a quote from the Ugandan economist and author, Elly Twineyo-Kamigusha, “When you discover that you are riding a dead horse, the best strategy is to dismount, bury the horse and get a living horse.”