Notes on the Final Report of the Presidential Review Committee on State Owned Enterprises
Background
The PRC was established in May 2010 by President Zuma during the Presidency Budget Vote Debate in Parliament. Cabinet accepted the Final Report on 30 April 2013.
President Zuma established the PRC, inter alia, to respond to the need to improve SOE policy and strengthen the role that they play in the economy. As part of this mandate, the PRC was to examine the macro-policy environment and report on the role SOEs play in delivering the developmental state aspirations of the South African Government.
The PRC mandate included an examination of the role that SOEs can play in (economic) transformation. The PRC was to review SOEs and to provide recommendations and reforms on these entities across all spheres of government. The goal was set to:
“achieve a balance between national developmental and transformation objectives, improved governance, improved performance, and improved service delivery as well as to achieve sustainable viability of SOEs in alignment with the developmental state aspirations.”
The 21 terms of reference for the PRC were categorised into four themes:
- development and transformation;
- governance and ownership;
- business case and viability; and
- strategic management and operational effectiveness.
The PRC was chaired by Riah Phiyega, now the South African Police Force National Commissioner. She headed up a committee of 11 other members supported by a professional secretariat. The Human Sciences Research Council (HSRC) was the primary research advisor to the PRC.
Given that there are approximately 715 SOEs in existence, the PRC opted for a macro-policy analysis covering all SOEs. The PRC also conducted an in-depth, broadly representative, analysis of a micro-sample of the SOEs. This was done with the technical guidance of the HSRC. The study involved national and international benchmarking processes as well as public consultations with relevant industry experts [1].
Recommendations
The PRC made 31 recommendations to the government concerning the future of SOEs. Whilst not responsible for the implementation of its recommendations, it presented a timetable for the short-, medium- and long-term phases, beginning now until 2025, with identifiable outcomes that should be achieved within the respective.
The recommendations of the PRC are wide ranging and include some notable interventions, including:
- that the Government should develop a long-term strategy for SOEs including the promulgation of a single ‘SOE Act’ that should apply to all SOEs across the government as a whole;
- standardisation of appointment and remuneration processes for all SOEs, as well as standardising development and delivery goals;
- enhancing the role of SOEs in (economic) transformation especially with respect to procurement deals;
- a re-examination of financing of SOEs (striking a better balance between equity and debt financing);
- strengthening the political accountability of Ministers over SOEs so as to ensure better line-function management.
Given the enormity of the task that the PRC faced, the recommendations are commendable to the extent that it represents the first serious attempt by any post-1994 administration to properly establish SOEs within the state framework and rationalise the role that they play in the South African economy.
However, despite the lofty ambitions of the recommendations, the reception of the PRC’s recommendations has been less than unanimous [2].
Reactions to the PRC Recommendations
There has surprisingly been little reaction to the Report.
DA MP Natasha Michael, Shadow Minister of Public Enterprises, welcomed the move to “rationalise” the state’s holdings of SOEs. Michael did express concern, however, that the further centralisation of the SOEs under the control of Minister Gigaba “needs to be stopped.” [3]
Carol Paton, in Business Day, wrote that “by expressing a long list of recommendations in vague terms the Presidency has avoided controversy.” She went on to explain that “the recommendations… were so general and diverse that the summary did not leave a clear impression of what the committee believed the vision for state-owned enterprises should be.” She suggests that “the vagueness was partially intentional” given that the role of SOEs is a hot political issue [4].
Comments
Two striking observations arise out of a reading the Executive Summary of the Report.
First, not a single mention is made of National Development Plan (NDP). Given that the NDP has resulted in fissures within the ruling tripartite alliance, one might speculate that this resulted in it being omitted from the Report. It is of great concern that there seems to be no attempt to reconcile the recommendations of the Report with the overarching recommendations of the NDP.
This is evidenced by the Report’s continued reference to the “developmental state” whereas the NDP refers to a “capable state.” This is not just a difference in nomenclature but rather illustrates a difference in thinking between the two key documents. Whereas the NDP acknowledges that the market has certain limitations in delivering public goods, it also equally identifies that the state suffers from implementation problems. The NDP thus argues for, in the first instance, the state playing a limited role in the economy which centres on creating an environment which is conducive for private enterprise to flourish. Where that is impossible, in the second instance, it argues that the role of the state is to ensure it stronger role in implementation.
In accepting the “developmental state” model, which presupposes a central role for the state in the economic affairs of the country, the Report seems to contradict the stance taken by the NDP. Where the NDP sees the state playing a role in the delivery of public goods such as education, health and social infrastructure, the Report argues that the status quo, i.e. widespread state economic activity that is not necessarily directly linked to its mandate, is acceptable.
A clarification of the complementary nature of these plans, and ironing out any differences – if any – between them, is essential.
Secondly, the dreaded “p word” (privatisation) is not at all mentioned in the 20 page Executive Summary. Rather, the issue is skirted around and substituted with vague terms such as “rationalisation of its holdings.” Whilst privatisation is not necessarily the silver bullet that pro-marketeers believe it to be, the fact that privatisation is not properly and directly considered is a cause for concern. The PRC’s acceptance of the wisdom of the “development state” as the model for South Africa, as a fait accompli, potentially means that privatisation has been crowded out as a viable way of managing SOEs.
This is especially the case as all of the measures proposed by the Report are underpinned by a common problem-solution theme: the perceived problem is that the state is failing to properly run and utilise the economic potential of SOEs and the proposed solution is to “enhance capacity” and standards in how the state manages them.
What the Report does then, is propose a symptomatic treatment of a serious underlying problem. There is a great body of literature which argues convincingly, especially since the fall of communism in 1989, that, for sound political and economic reasons, the state should not be a central economic player in any economy. The Report itself identifies government ownership and involvement in the economy as being problematic for a variety of reasons. Its proposal, therefore, of greater centralisation and control by the government, i.e. more of the same, is as much a non-sequitur as it is dubious.
Given that SOEs are publicly funded and represent a significant expenditure of revenue, the need to manage SOEs to be economically viable and productive actors is compelling. The fact that the Report urges more state involvement for the same lacklustre economic performance experienced to present, should be of great concern.
Conclusion
The Report has now been accepted by the Cabinet and awaits coordinated implementation. There is still significant opportunity for flexibility in implementation. The HSF urges government to give the most serious consideration to how this should best be done, in the national interest and to ensure that public resources are spent optimally.
References
[1] This section summarises the introductory remarks of the PRC’s Report. http://www.thepresidency.gov.za/ElectronicReport/downloads/volume_1/volume_1.pdf
[2] Ibid. The summary of the recommendations come from the Report.
[3] http://www.da.org.za/newsroom.htm?action=view-news-item&id=12348
[4] http://www.bdlive.co.za/business/2013/06/03/news-analysis-clarity-lacking-in-report-on-state-owned-firms
Kameel Premhid – kameel@hsf.org.za
Intern
Helen Suzman Foundation