State-owned companies developing a poor reputation: Gigaba

Recent years have seen several worrying developments with regard to state-owned companies (SOCs), with worrying trends of governance failures, corruption, operational inefficiency and the need for government bailouts. This is according to the Minister of Finance, Malusi Gigaba, who made his maiden budget speech to parliament today.

“In this way, SOCs are developing a poor reputation with the public at large, and have become a major fiscal risk to the country due to government guarantees of their debt. SOCs, some of which are among the biggest companies in the country, are powerful levers for the state to directly drive economic transformation.”

Gigaba added that SOCs have played a leading role in the development of world class infrastructure which sustains the country’s economy.

“They provide services to historically neglected communities, invest heavily in skills development and support the development and transformation of upstream suppliers and downstream customers.

“SOCs have played a critical role in the advancement of black professionals, managers and skilled workers, many of whom have gone on to play leading roles in the private sector. Eskom, Transnet and SAA, are multi-billion rand companies by revenue, with enormous value chains.

“We have increasingly begun to use these strategically, incorporating localization and preferential procurement into their operation philosophy and investment plans.

“Thus, for example, at Transnet we established a trend of appointing black accounting firms as external and internal auditors, contracts worth tens of millions of rands annually.

“In addition to the revenue flowing to these companies, it helps advance their growth in making it more difficult for large private-sector companies to exclude them on the basis that they have not proven their ability to service large, complex enterprises.”
Gigaba said the current challenges at some of SOCs obscured the success and progress evident at stable and self-sustaining SOCs such as:

• DBSA which is a leading institution on the continent in infrastructure provision, particularly at local government level;
• ACSA, which has rolled out world class airport infrastructure which has helped position our country as a dynamic regional business and tourism hub;
• and the Land Bank, which plays a key role in supporting emerging farmers, and agricultural development more broadly.

“Government can manage SOCs well, and will act decisively to stabilize those which are experiencing challenges.”

Gigaba added that executives of SOCs are paid competitive salaries for their professional expertise as business managers.

“The public, and indeed government as a Shareholder, are correct to expect a lot of them. As the Shareholder, we are tired of being dragged into crises by those we employ to govern and manage state-owned companies. This must end.

“The trend of SOCs seeking bailouts to finance operational expenditure, inefficiency and waste must also be brought to an end.”
In due course, National Treasury is set to make proposals to make the government guarantee framework more stringent.

Gigaba added that it is imperative that government ensures that the Boards of Directors in the SOCs are properly qualified, ethical and provide the requisite skill sets that will ensure that the SOCs are soundly and profitably run, to properly serve their mandates.

“This needs to be done without delay. If board members do not exercise the leadership, good governance and financial management expected of them, government must act quickly and decisively.”

Last week, government appointed a new board at the SABC, and overhauled the board of South African Airways.
Gigaba said that these entities now have trusted, capable boards “which will be supported and expected to guide their institutions back to healthy and sustainable operating states.”