Our SOE’s are challenged by more than just State Capture

An Eskom coal-fired power station. Picture: EPA/KIM LUDBROOK

Our State Owned Enterprises (SOEs) seem only to get the spotlight when public representatives want to score cheap political points. Rather what is needed is investment into proper research and analysis of international case studies.

Our state-owned enterprises have recently again come under the spotlight and the major ones have certainly taken a heavy beating. Investigations have been launched, hearings have been held and the minister has come under the spotlight. 

This could possibly be for two reasons. Firstly, it is possible that state owned enterprises, like the security cluster in the lead up to the ANC’s Polokwane conference in 2007, has become the political football used by ANC factions to score political points. We can hardly recall the ANC caucus, at least now back-bencher Pravin Gordhan, ever being this interested in getting our SOE’s in shape. Why now? 

The second reason could be that these state-owned enterprises, concentrating on the developmental goals of South Africa, have ensured that they apply broad-base Black economic empowerment and therefore White monopoly capital has felt the impact of having state business go in the direction of Black business. White capital, in the form of companies such as Glencor, are now feeling the coldness of being left behind and a hard push is made for SOEs to be privatized especially from these quarters.

What we can be certain of is that the mismanagement, corruption and even state capture are not new nor are they unique to the Zuma administration. President Zuma is correct when he suggests that SOE’s, and SAA, has always been a problem. Dudu Myeni is not the problem, she found one at SAA. As a result, this is not the reason why the spotlight is on SOE’s.

Part of this campaign to place SOE’s under the spotlight has been the release of a number of books or academic works in South Africa. Within eight weeks, according to Professor Mark Swilling, heading the State Capacity Research Group, they were able to produce their report, Betrayal of the Promise: How South Africa is Being Stolen.

Another such piece of work is produced by Frans Rautenbach called South Africa Can Work: How a free market and decentralised government will make us a winning nation. It is useful to know that Rautenbach studied law at the University of Stellenbosch in the late seventies just as Margaret Thatcher was elected as prime minister in the United Kingdom. This information is useful because Rautenbach must be the only lawyer still around insisting on Thatcherism and Reaganomics when even the economists at the World Bank and International Monetary Fund dumped these ideas twenty years ago.

Decentralisation and free market economics are as dated as type-writers. Yet his close collaboration with the Free Market Foundation explains the quality of his work and his need to push this ahistorical exploration of the economy of South Africa.

Take for example his chapter on ‘rent-seeking’. Those of us who have studied concepts such as the resource curse and Dutch disease, often where rent-seeking is most common, would know that there exists a whole corpus of scientific literature on the concept and practice of rent-seeking. For example, the very work of Gordon Tullock who developed the idea. Yet Rautenbach instead opts to use a magazine the Economist and an online googled Investopedia to define what rent-seeking is.

As a result of using such flimsy sources and not attempting in the least to interrogate the concept of rent-seeking he then uses examples such as ‘tenderpreneurship’, cadre deployment, state capture, crime and gangsterism, asset inflation by central banks and black economic empowerment to identify rent-seeking in South Africa. 

If a project is conceptually weak, so will its case studies be too. The work is not useful in the least, especially as far as thorough research is concerned.
South Africa may rightfully be described as a nation of navel gazers. We are not often interested in looking to other countries to learn how they have dealt with and resolved similar problems to ours, especially in respect of institutions of the state.

China, for example, the world’s leading economy has 102 central government owned companies besides those companies owned by provincial governments. It continuously has to deal with challenges of cadre deployment, public goods versus profits, corporatization, financial sustainability, among many other challenges faced by our own government with regards to SOE’s as well.

In study done by Wendy Leutert in 2016, for example, titled Challenges Ahead in China’s Reform of State-Owned Enterprises she points out that the Xi administration has viewed SOE’s as a fundamental pillar of the ‘structural transformation of China’s economy’. Lawyers such as Rautenbach would not be interested in the structural transformation of South Africa’s economy.

In other words, never mind that we are learning from the Chinese about SOE reform, we could also learn the cardinal role played by these enterprises in restructuring our economy; an economy that is at present unsustainable.

Yet Leutert in her study points out three challenges for the reforms of Chinese SOE’s. Firstly, space for marketisation versus market instability. In other words, is it possible to balance reliance on the vagaries of the market, such as competition and controlled privatization, but at the same time ensure stability through state intervention, through monopolies and state ownership? Rautenbach, of course, relies solely on the market; a practice that was abandoned during the nineties with the rapid rise of the Asian Tigers, among others.   

Secondly, how do we strike a balance between incentivizing our executives, on the one hand, but ensuring their performance on the other? We want the best skilled persons to manage our SOE’s yet we must be able to match private sector salaries but at the same time ensure that we are receiving value for money. 

While private sector salaries for executives remain an enormous challenge as these are often unjustifiably astronomical, again a phenomenon not unique to South Africa, a sense of patriotism and commitment to serving their country must be distilled by these skilled executives. In other words, can we as a nation by proud of our SOE’s and therefore guarantee top executives that it is actually an honour for them to serve in these enterprises?  

Thirdly, Leutert points out the challenge of corporatisation. We want to have efficient and effective SOE’s. We do not simply want to continue bailing them out when they need financing. This is about the only thing we ever get to hear about SOE’s from our representatives in parliament. 

In this respect of corporatization, the Chinese classified their SOE’s into ones that are to be profit driven and those which must simply ensure the delivery of quality and effective public goods and services. For example, in South Africa, SAA Cargo should be profit driven whereas Eskom should primarily ensure the effective and efficient provision of a public good, electricity. Often we forget that transport is a public good and therefore SAA, as an SOE, should be concentrating on delivery cost-effective public transport.

Currently though, the Chinese are reviewing even these classifications once again because, as is usual, challenges are continuous. If one does not have challenges then there will be no need to improve. Sadly, in South Africa it seems that we have the same challenges happening continuously. We never seem to learn about how we can get our SOE’s out of this morass. But we simply remain in this vicious cycle because our public representatives, on both sides of the House, remain stuck in partisan approaches to dealing with some of our fundamental challenges as a country. 

Cheap political point scoring through investigations without any investment into proper research and analysis will land us in the same mess come ten years from now. While some have little confidence in SOEs, it is justifiable to suggest that we may have no confidence at all in our representatives in parliament or in academia to make us proud of our SOEs.

Wesley Seale teaches Politics at Rhodes University in South Africa