PRESIDENTIAL REVIEW COMMITTEE ON STATE OWNED ENTERPRISES
Position Paper –
Criteria and Framework
for Identifying and
Establishing Priority
SOEs, Relevant Global
Benchmarking and
Global Best Practice
PRC on SOEs: Business Case & Viability
Workstream
Bongani Gigaba
1/21/2012
Table of Contents
1. Executive Summary ………………………………………………..
2. PRC on SOE Problem Statement
3. Focal Point
4. Term of Reference
5. Introduction
6. Background
7. Evolution of Economic Policy in Respect of SOEs
8. International Experience
9. As-Is Analysis
10. Key Findings
11. PRC Recommendations
12. References
Executive Summary
1.1 The purpose of this exercise is to conduct an investigation that seeks to
determine whether a criteria and framework exists for identifying and establishing
priority SOEs taking into account global best practice.
1.2 SOEs continue to occupy significant role in many countries, both developed as
well as developing.
1.3 The current debate on SOEs do not seem to concern any more whether SOEs
have a role to play, but what that role should be and how it should be played.
1.4 A more precise demarcation of which industries and companies the South African
government considers strategically important, and clearer guidelines on how
tightly these companies ought to be controlled, is needed.
1.5 Typically a list of strategic industries and companies tends to be related to
national and economic security
1.6 The BC work stream wishes to propose the following as SA’s strategic sectors:
mineral resources, power generation and distribution, oil and access to liquid
fuels, telecommunications, transport, defence and water.
1.7 The above list of strategic sectors is fairly typical of similar lists of strategic
sectors drawn up by other countries.
1.8 6.5 In SA, major public entities share in the economy i.e. total revenue expressed
as a percentage of GDP is estimated at 8.7%.
1.9 These statistics seeks to confirm the strategic role that SOEs occupy on the
South African economy
1.10 Empirical evidence seeks to confirm that no criteria and framework exists for
identifying and establishing priority SOEs taking into account global best practice
1.11 Our global benchmarking exercise includes the following countries viz.
Singapore, China, Taiwan, France, Norway, Russia and the United States.
1.12 The key findings of our study including global benchmarking seek to confirm
the following:
o
o
o
No criteria and framework exist for identifying and establishing priority SOEs
in South Africa.
In SA SOEs account for a significant share of the economy i.e. total revenues
generated by major SOEs expressed as a percentage of GDP is estimated at
8.7%. According to a 1995 World Bank report, the weighted average of the
share of the SOE sector in GDP in the 40 developing countries it studied was
10.7%during 1978-1991.
SOEs straddle across sectors that could be considered as strategic sectors
viz. power generation and distribution, transport, mineral resources,
telecommunications, oil and petrochemicals, water, defence etc.
1.13 Therefore, we wish to recommend that South Africa should adopt a criteria
and framework for identifying priority SOEs proposed by the PRC on SOEs.
These are:
o
o
o
o
o
o
o
o
Natural monopoly: In industries where technological conditions dictate that
there can be only one supplier, the monopoly supplier may produce at less
than socially optimal level and appropriate monopoly rents e.g. electricity,
water etc.
Capital market failure: Private sector may refuse to invest in industries that
have high risk and/or long gestation period e.g. capital intensive, hightechnology industries in developing countries e.g. steel industry
Externalities: Private sector investors do not have the incentive to invest in
industries which benefit other industries without being paid for the services
e.g. basic inputs industries such as steel and chemicals
Equity: Profit-seeking firms in industries that provide basic goods and
services may refuse to serve less profitable customers, such as poor people
or people living in remote areas e.g. water, postal services etc.
Assess whether State ownership is suitable instrument given the
opportunity cost
SOEs contribution towards the State’s long range industrial policy and
economic growth agenda
Assuming that non-profit objectives are a given, assess whether have a
long-term profit oriented strategy including its alignment to the National
Development Plan Vision 2030
Create globally competitive companies/SOEs
1.14 The Russian experience shows that lists of strategic assets tend to be
modified over time, adding or dropping companies and industries from the list,
depending on changes in political preferences.
1.15 That the State endorses the PRC on SOEs recommendation in respect of the
proposed criteria and framework for identifying and establishing priority SOEs.
International experience seeks to confirm that without such a criteria and
framework, the State would be unable to develop an overarching SOE
strategy/shared vision that is aligned to the Developmental State objectives.
2.
3. Presidential Review Committee on SOEs Problem Statement
How can SOEs optimally contribute to development and transformation of South
Africa while remaining viable and effective?
4. Focal Point
The State should develop overarching SOE strategy/shared vision that is aligned
to Developmental State objectives
5. Term of Reference
Criteria and Framework for Identifying and Establishing Priority SOEs, Relevant
Global Benchmarking and Global Best Practise
6. Introduction
6.1 Since the 1930s and particularly after the Second World War, SOEs continue to
occupy significant role in many countries, both developed as well as developing.
Amongst others, these SOE were expected to address market deficits and capital
shortfalls, promote economic development, reduce unemployment, and/or ensure
national control over the overall direction of the economy. (United Nations, 2005,
p3)
6.2 The SOEs remain relevant in many developing countries, especially in the SubSahara Africa, the principal suppliers of social services, some relevant to the
attainment of the Millennium Development Goals.
6.3 The current debate on SOEs do not seem to concern any more whether SOEs
have a role to play, but what that role should be and how it should be played.
6.4 The approach adopted in this paper is empirical in nature.
6.5 The structure of the position paper is as follows viz. …
7. Initial Assumption
6.1 To determine whether South Africa has the criteria and framework for identifying
and establishing priority SOEs taking into account global best practise.
8. Background
8.1 A more precise demarcation of which industries and companies the South African
government considers strategically important, and clearer guidelines on how
tightly these companies ought to be controlled, is needed.
8.2 Typically a list of strategic industries and companies tends to be related to
national and economic security, and that the government has to maintain
absolute control in these sectors, through either sole ownership or an absolute
controlling stake.
8.3 The BC work stream wishes to propose the following as SA’s strategic sectors:
mineral resources, power generation and distribution, oil and access to liquid
fuels, telecommunications, transport, defence and water.
8.4 The above list of strategic sectors is fairly typical of similar lists of strategic
sectors drawn up by other countries. (Mattlin, 2007)
8.5 In SA, major public entities share in the economy i.e. total revenue expressed as
a percentage of GDP is estimated at 8.7%. (Merafe Report, 2011)
8.6 Transport (28.8 per cent) followed by Energy (27.3 per cent), Communications
(16.2 per cent), Financial services (8.03%) and Water (3.61%) accounts for a
significant percentage of revenue generated by all SOEs by sector. (Merafe
Report, 2011)
8.7 Schedule 2 SOEs share (Revenue percentage contribution to all SOEs by sector)
currently stands at 71.6 per cent. (Merafe Report, 2011)
8.8 These statistics seeks to confirm the strategic role that SOEs occupy on the
South African economy.
9. Empirical Analysis and Results
9.1 Empirical evidence seeks to confirm that no criteria and framework exists for
identifying and establishing priority SOEs taking into account global best practice.
9.2 Historically, various reasons have been used to justify State’s involvement in the
economy. These range from economic self-sufficiency to industrialization to
security of supply etc. For further details, see Appendix A: Evolution of Economic
Policy in Respect of SOEs
9.3 The following countries were used as case studies in this exercise viz. Singapore,
China, Taiwan, France, Norway, Russia and the United States.
9.4 The results of our empirical analysis including global benchmarking could be
summarized as follows:
Table 1: Criteria and Framework for Identifying Priority SOEs
Criteria
Natural
monopoly:
In
industries
where
technological
conditions
dictate that there can be only
Recommended Option
or “To Be” – Global
Best Practise

Reference Option or
“As-Is” – South
Africa
No official criteria exists
one supplier, the monopoly
supplier may produce at less
than socially optimal level
and appropriate monopoly
rents e.g. electricity, water
etc.
Capital market failure: Private
sector may refuse to invest in
industries that have high risk
and/or long gestation period
e.g. capital intensive, hightechnology
industries
in
developing countries e.g.
steel industry

ditto
Externalities: Private sector
investors do not have the
incentive
to
invest
in
industries which benefit other
industries without being paid
for the services e.g. basic
inputs industries such as
steel and chemicals

ditto
Equity: Profit-seeking firms in
industries that provide basic
goods and services may
refuse to serve less profitable
customers, such as poor
people or people living in
remote areas e.g. water,
postal services etc.

ditto
Assess
whether
State
ownership
is
suitable
instrument
given
the
opportunity cost

ditto
SOEs contribution towards
the
State’s
long
range
industrial
policy
and
economic growth agenda

ditto
Assuming that non-profit
objectives are a given,
assess whether have a longterm profit oriented strategy
including its alignment to the

ditto
National Development Plan
Vision 2030
Create globally competitive
companies/SOEs

ditto
9.5 Table 1 above seeks to confirm that it is imperative that South Africa adopts the
criteria and framework as proposed in the recommended option, which is
informed by global best practice.
9.6 However, the Russian experience shows that lists of strategic assets tend to be
modified over time, adding or dropping companies and industries from the list,
depending on changes in political preferences. (Mattlin, BICCS Asia Paper Vol.
4(6))
10.
International Experience
Asia
10.1
Singapore
10.1.1 Singapore’s domestic SOE sector comprises two main groups. These are
Government Linked Companies (GLCs) and Government Statutory Boards.
GLCs are entities in which the wholly-owned government holding company,
Temasek Holdings, directly holds a controlling share as well as subsidiaries
and associates of those entities. Statutory Boards include the Public Utilities
Board, Economic Development Board, Housing Development Boards etc.
Over time, the Government has converted many Statutory Boards into GLCs
10.1.2 Temasek Holdings directly owns majority shares in the following enterprises:
100% of Singapore Power (Electricity and Gas) and of PSA International
(Ports), 67% of Neptune Orient Lines (Shipping), 60% of Chartered
Semiconductor Manufacturing (Semi-conductor), 56% of SingTel
(Telecommunications), 55% of SMRT (Rail, Bus, and Taxi Services), 55% of
Singapore Technologies Engineering (Engineering), and 51% of SemCorp
Industries (Engineering). It also owns a controlling stake in the following
enterprises: 32% of SembCorp Marine (Shipbuilding) and 28% of DBS (the
largest bank in Singapore). Ha-Joon Chang (2007, p9)
10.1.3 According to a 1995 World Bank report, the weighted average of the share of
the SOE sector in GDP in the 40 developing countries it studied was 10.7%
during 1978-1991. In 2001, the Department of Statistics estimated that GLC’s
accounted for 12.9% of GDP in 1998, with the non-GLC public sector
accounting for another 8.9%, giving a total public sector/GLC share of 21.8%.
The Department used a tighter definition of GLC as those companies in which
the government has an effective ownership of 20% or more. Ha-Joon Chang,
2007, p9)
10.2
Taiwan
10.2.1 Ha-Joon Chang (2007, p11) argued that Taiwan achieved its economic
miracles with a large SOE sector. Between the 1960s and 1970s, the SOE
sectors share in the economy increased, from 14.7% in 1951 to 16.9% in
1961 to 16.7% in 1971 before coming down to 16% in 1981.
10.2.2 Although the Taiwanese government allowed the private sector to grow, the
SOE sector occupied the “commanding heights” of the economy, controlling
the banking sector and key upstream inputs industries, such as steel and
petrochemicals.
10.2.3 In 1996, the government started privatizing its SOEs, relinquishing majority
shares in SOEs in banking, insurance, petrochemicals, transportation, and a
few other industries. However, Taiwan’s privatization has been a controlled
one, as the government still has a controlling stake (average 35.5%) and
accounts for 60% of board members in the 18privatized SOEs.
10.2.4 The government is allowed to own the “golden share” (i.e. the veto over
important decisions) when privatizing SOEs in defence or public utilities.
10.3
China
10.3.1 Despite three decades of economic reforms in the People’s Republic of China
(PRC), restructuring of large state-owned enterprises has proceeded at a
slow pace.
10.3.2 The founding of the State Assets Supervision and Administration Commission
of the State Council (SASAC) in 2003 under the State Council launched a
process of redefining the relationship between central government and the
so-called ‘central enterprises’ – the key SOEs that have been selected by the
government to form the basis from which China’s future top global companies
will be created.
10.3.3 SASAC at the national level handles the state’s ownership interests as well as
regulation and supervision of central enterprises, while the Ministry of Finance
retains overall responsibility for all state-owned enterprises as well as the
financial matters of non-corporate entities, such as agencies. SASAC’s
mandate does not cover financial organisations. (Mattlin, BICCS Asia Paper
Vol. 4(6))
10.3.4 One hundred and thirty six (136) central enterprises out of a total of 120,000
SOEs fall under SASAC. Central enterprises account for the bulk of SOE
profits (circa 70%, equivalent to 20% of government revenues) and around a
quarter of SOE corporate investment. (Mattlin, BICCS Asia Paper Vol. 4(6))
10.3.5 The combined value of the assets of central enterprises amounted to circa 1.2
trillion Euros in 2006. (Mattlin, BICCS Asia Paper Vol. 4(6))
10.3.6 SASAC considers the following sectors as strategically important to China, as
they are related to national or economic security, and that the government
has to maintain absolute control in these sectors, through either sole
ownership or an absolute controlling stake. The seven sectors are: defence,
power
generation
and
distribution,
oil
and
petrochemicals,
telecommunications, coal, aviation and shipping. (Mattlin, 2007)
10.3.7 It was suggested that the Chinese government was in the process of drafting
a set of key central enterprise subsidiaries, whose sale (or privatization) was
also not allowed.
10.3.8 SASACs stated objective is to reduce the number of central enterprise from
140 to circa 30 to 50 globally competitive companies. Hence, where possible,
mergers are encouraged to achieve a scale at which they can compete
globally.
10.3.9 The criteria and framework, which the Chinese central government has used
is, amongst others, informed by the following objectives:
o
Aim to retain significant ownership control over key SOEs and, by
extension, over a major part of the domestic economy. In 1994, the
Company Law was promulgated, providing a legal framework for SOE
reforms. The guiding principles of the SOE reform strategy became
the expression ‘zhua da, fang xiao’ or, ‘grasp the big and let go of the
small’.
o
Enhance central government control over SOEs capital allocation
Europe
10.4
France
10.4.1 The head of the APE, Commissioner of State Holdings, reports directly to the
Minister for the Economy, Industry and Employment.
10.4.2 The entities in which the French government invests are conceived of as part
of a clear, long-range industrial and economic growth strategy that reflects
both the need to optimise the value of the Government’s assets and the
specific purpose of each investment. (APE 2010 French State as a
Shareholder)
10.4.3 All companies even partly owned by the Government are required to review
on a regular basis the country or regional breakdown of investment,
employment, value added and procurement/subcontracting so that the
contribution of each entity to France’s industrial growth can be assessed.
10.4.4 The 2009 portfolio of government holdings comprised 57 entities, up from 55
in 2008. These entities operate in the following sectors: Defence, Transport
Infrastructure, Energy, Media, Financial Services, Services, Real Estate etc.
10.4.5 The French Government’s portfolio of listed shareholdings had a market
capitalisation of Euro88 billion as at 1 September 2010, down from Euro95
billion a year earlier. Its value represented 6.9% of aggregate market
capitalization on the Paris stock exchange.
10.5
Norway
10.5.1 The State plays a key role in the development of Norwegian industry. The
interaction between a competitive and innovative industry and an actively
participating State is a central aspect of the Norwegian social model.
10.5.2 Norway (a member of the OECD but not of the EU) has an extensive portfolio
of state owned enterprises reflected in the fact that 33% of stocks held on the
Oslo stock exchange are those from SOEs. Nearly 66% of these SOE stocks
are, in turn, generated by seven or eight SOES. Some 80 SOEs exist in
Norway. However the ministry's focus is on broad policy issues towards 52 of
these SOEs (the new White Paper only applies to these 52 entities). The
Ministry's active ownership role is even more narrowly focussed on 23
entities. The remainder, 28 entities, are not listed and report to sectoral line
ministries. The aggregate market value of these 80 SOEs is worth some
$100bn. Government shareholding in the six major SOEs across various
sectors range between 34% and 100%. (International Benchmarking Report:
European Cluster, 2011)
10.5.3 Norway classifies its SOEs into four categories. These are:
o
Companies with fully commercial objectives. Examples include are
SAS and Mesta. Of the nine companies in this category, three are scheduled
to be privatised since the government has recognised that the state is not the
natural home for them.
o
Companies with commercial objectives with their national
headquarters in Norway. These companies, which include Statoil, Hydro,
Telenor and BnBNor, are regarded as "big national champions" in that they
also operate internationally. They, like the above group of SOEs, also operate
on a fully commercial basis. They are regarded as strategic national assets:
reflecting this, government shareholding will not be reduced below 34%. It
was argued that this ownership policy did not reflect an ideological position
towards state ownership: rather it was a national, inter-party consensus,
stimulated by the historically small private sector in Norway. The advantages
of national Norwegian headquarters were justified on the grounds that it
helped to stimulate local expertise in the supportive services sector and
a local research and development sector. SOEs can move from the first
category to this one: this had happened with a fish farming company.
o
Companies with commercial objectives and other specific goals.
Examples include a power company, an export promotion company, a
university internet provider, a television company and the national rail
company.
o
Companies with sector-political objectives. These companies are
mostly infrastructure in nature - including an electricity generation company,
the railway and the government wine monopoly. It was argued that these
companies were not regarded by the public as a tool of the government.
10.5.4 The purpose of this classification, introduced in 2006, follows from an
acknowledgement that the Norwegian state has different objectives behind its
ownership of individual companies - the classification assists in clarifying the
objectives of state ownership (WP, p10-11).
10.5.5 Thus, one of the key aims behind the State management of companies in
Categories 1–3 is to "maximise the value of the State’s shares and to
contribute to the positive industrial development of the companies." The
State’s shares in these companies had a value of around NOK 504 billion at
the end of 2010.
10.5.6 With respect to SOEs in the last category, the White Paper notes: "Although
the sectoral policy companies do not primarily have commercial objectives,
financial results and efficient resource use are nevertheless pivotal
considerations for these companies. The financial results of these companies
must be balanced against sectoral policy goals. As owner, the State aims to
achieve the relevant sectoral policy and social goals as resource-
efficiently as possible." (International Benchmarking Report: European
Cluster, 2011)
10.5.7 Figures from 2003 estimate the value of companies in Norwegian industry to
be NOK 2,700 billion. Of this, the State’s ownership accounted for
approximately 33 per cent, while privately owned companies accounted for 30
per cent. The rest of industry was owned by foreign capital (28 per cent),
cooperative organisations (7 per cent) and foundations (2 per cent).
(International Benchmarking Report: European Cluster, 2011, p20)
10.5.8 Figures for shareholdings on Oslo Stock Exchange indicate a transition from
public ownership to foreign ownership during the period 2003 to 2010. During
the period from the end of 2003 to the end of 2010, public sector owners and
companies reduced their shareholdings on the stock exchange from 42 per
cent to 35 per cent, whilst the proportion of foreign owners increased from 28
per cent to 35 per cent. Other owner groups have collectively remained at
around 30 per cent. (International Benchmarking Report: European Cluster,
2011, p20)
10.5.9 In Norway, by way of convention, a White Paper on SOE governance issues
is produced every four years. The White Paper is not a strategy document as
such but rather sets out state objectives towards the SOE sector
10.5.10
Among others, the 2011 White Paper notes the following, “…This
report assesses the need for more flexibility within State ownership. The
State shall be a professional and long-term owner that contributes to
the profitability and industrial growth of the companies. At the same
time, like good private sector owners, the State must also be a dynamic
owner. State ownership must reflect the company’s development and the
owner-related resources that are required. The ownership must be
assessed in the light of whether State ownership is a suitable
instrument for fulfilling relevant social tasks ..." (International
Benchmarking Report: European Cluster, 2011, p21)
10.6
Russia
10.6.1 Gati (2008, p2) argues that the Russian government’s federal list of strategies
enterprises and strategic joint-stock companies was established by President
Decree on 4 August 2004, in large part to prevent some strategic entities from
going into bankruptcy or being privatized. The initial list of Russia’s strategic
entities was included 514 state owned enterprises and 549 joint stock
companies where the Russian government had a controlling stake. Some
companies /organizations have since been removed from the list, while others
have been added. The prerogative of the President to manage the list has
served as a tool for restricting or granting access to state assets.
10.6.2 The Russian federal government has used Russian monopoly and other
security considerations to block proposed foreign acquisitions which would
result in foreign control of important Russian companies.
10.6.3 The May 2008 Law identifies 42 types of activity (or 15 broad sectors or
industries) as strategic and thus subject to more stringent control by the
federal government. Also added to the list are transactions involving Russian
companies with rights to natural resource deposits having federal importance.
10.6.4 The Law requires that any transactions between foreign investors and
Russian companies must be subject to preliminary government approval if the
transaction meets the two criteria simultaneously:
o The Russian company is engaged in activity of strategic
importance to the country’s defence an national security as
defined by the law; and
o The foreign investor’s transaction will result in direct or indirect control
of a Russian strategic company as defined by law or will allow ownership
of a certain stake in a strategic company with rights to natural resource
deposits having federal importance.
10.6.5 The transactions involving Russian state-controlled companies with rights to
natural resource deposits having federal importance are exempt from the
requirement to seek government approval, except when the foreign petitioner
is a government-controlled entity or an international organization.
10.6.6 Foreign governments, international organizations and other organizations
under their control, including those created in the Russian Federation, are
barred from acquiring, either directly or indirectly, a controlling stake in a
Russian strategic company and must seek government approval to acquire
approval to acquire a minority interest.
10.6.7 The Russian government has seven state corporations (in addition to many
state-controlled corporations. These are: Rostech (Industrial and high-tech
sectors incl. defence), Rosnanotekh (R&D in the field of nanotechnologies),
Rosatom
(Civilian
and
military
nuclear
facilities
developer),
Vneshekonombank/Development Bank (a key tool for state investment policy)
10.6.8 In 2007, proposals were put forward to several new SOEs: a state-controlled
pharmaceutical holding, a ‘unified association’ that would include at least twothirds of the fishing industry producers, a state corporation for social
investment projects, state-controlled holdings for defence related goods, as
well as a state road building corporation.
10.6.9 According to the then Deputy Prime Minister Aleksandr Zhukov, the goal is to
use governmental funds to “stimulate private investment in those areas [of
Russian economy] where it would not otherwise go,” or “ where private
business refuses to invest for various reasons”
North America
10.7
The United States of America
10.7.1 Between the mid-19th century and the mid-20th century, the US government
invested heavily in infrastructure, higher education (e.g. land grant colleges),
and R&D (especially in agriculture) with a fair bit of explicit targeting – for
example, the PACIFIC Railways, the mid-western canals, and agricultural
research (Ha-Joon Chang, How to ‘do’ a developmental state, 2009, p3)
10.7.2 From its early days, the US was a pioneer of the developmental state model.
The ‘infant industry argument’ theory was invented in the US. From the
1830s, the US remained the most protectionist country in the world until
WW2. Targeted tariff protection was put in place, it lacked the careful
selectivity of its East Asian counterpart. (Ha-Joon Chang, How to ‘do’ a
developmental state, 2009, p4)
10.7.3 The US has had a strong ‘developmental network state’ as opposed to
‘developmental bureaucratic state’ of East Asian kind, which was focused on
translating cutting-edge technological research into commercial use through
cooperation among a network of people with high levels of technological
expertise – variously situated in state agencies, industries, universities, and
other research institutes. “… During the post-WW2 period, the US has had a
developmental state that is ‘hidden’, limited in scope and had various
limitations due to its ‘clandestine’ nature – lack of legitimacy, unstable
funding, lack of coordination, and excessive commoditization of knowledge
…” (Ha-Joon Chang, How to ‘do’ a developmental state, 2009, p9)
10.7.4 Even after WW2, the US attained industrial supremacy and started
championing free trade and free market, the US developmental state
survived. As testified by the fact that many sectors where the US has
international competitiveness have been developed through public funding of
R&D and public procurement for ‘defence’ (computer, semiconductors,
aircraft’ internet) and ‘health’ (drugs, genetic engineering). The limits imposed
by free-market ideology in the US restricted the scope and the effectiveness
of the US developmental state in the post-WW2 period, although it was still
successful in many ways (Ha-Joon Chang, How to ‘do’ a developmental state,
2009, p9)
11.
Key Findings
The findings of our empirical exercise could be summarised as follows:
11.1 No criteria and framework exist for identifying and establishing priority SOEs
in South Africa
11.2 In South Africa, SOEs account for a significant share of the economy i.e. total
revenues generated by major SOEs expressed as a percentage of GDP is
estimated at 8.7%. According to a 1995 World Bank report, the weighted average
of the share of the SOE sector in GDP in the 40 developing countries it studied
was 10.7%during 1978-1991.
11.3 SOEs straddle across sectors that could be considered as strategic sectors
viz. power generation and distribution, transport, mineral resources,
telecommunications, oil and petrochemicals, water, defence etc.
12.
PRC Recommendations
That the State endorses the PRC on SOEs recommendation in respect of the
proposed criteria and framework for identifying and establishing priority SOEs.
International experience seeks to confirm that without such a criteria and framework,
the State would be unable to develop an overarching SOE strategy/shared vision that
is aligned to the Developmental State objectives.
13.
Reference List
14. Appendix A: Evolution of Economic Policy In Respect of
SOEs
14.1 Between 1880 and 1910, the Afrikaner Republic economic policy centred on
economic self-sufficiency. As a result, the Republic pursued a combination of
economic policies that sought to achieve these objectives. These are viz. import
substitution through the imposition of tariffs, import quotas etc. During this period,
concessions were granted that led to the creation of the first SOE, the South
African Railways. (D&T Report, 2011)
14.2 Between 1911 and 1947, the State resolved to adopt an active role in key
sectors of the South African economy. These developments led to the
establishment of Eskom in 1923. The creation of Eskom sought to address the
natural monopoly, in the form of VFPC (a key electricity generator at the time),
and to be the driving force behind governments industrialization policy. (D&T
Report, 2011)
14.3 In 1928, ISCOR was established in order to address the chronic shortage of
steel, a key input to promote the industrialization strategy and create employment
opportunities for the poor White population. Iscor was granted monopoly status in
the supply of steel to the mines and railways. Furthermore, ISCOR was granted
tariff protection against foreign competition. Its funding was done through the sale
of shares to the public, but the state was to retain ultimate control.
14.4 In 1940, the Industrial Development Corporation (IDC) was established,
whose primary objectives are to contribute to the generation of balanced,
sustainable growth in Africa, and the economic empowerment of the SA White
population. Through joint ventures with foreign investors, the IDC established a
significant number of new enterprises. Amongst others, the IDC played a key role
in the establishment of Sasol and Foskor.
14.5 In 1951, SA government committed funds to SASOL, a coal to liquid fuels
venture, through the IDC. The security of supply of liquid fuels had become a
strategic priority.
14.6 The discovery of large phosphate deposits in Phalaborwa, a key input in the
manufacture of fertiliser, proved strategic for the Nationalist government. At the
time, SA was a net importer of phosphate.
14.7 Between the 1950s and the early 1980s, the key role of SOEs was perceived
as to contain the cost of production in SA. Hence, artificially improve the country’s
competitiveness.
14.8 The economic sanctions of the mid-1980s, internal political developments,
escalating fiscal and current account deficits (the ‘twin deficits’) and pressure to
privatize led to a situation where the ‘strategic’ role of SOEs in SA economy was
revisited.
14.9 In 1994, the South African government announced a process of ‘belttightening’ aimed at releasing public sector resources to fund redistribution and
economic growth. A key element of this process was the redirection of
expenditure priorities in budgets of all levels of government and of parastatal
institutions.
14.10 In 1996, the Mandela administration began to reintroduce South Africa into
the global economy by implementing a market oriented economic plan known as
Growth, Employment and Redistribution (GEAR). Amongst others, GEAR sought
to, “… speeding up the restructuring of state assets to optimise investment
resources …” Its key objective was to introduce, “… the implementation of the
public sector asset restructuring programme, including guidelines for the
governance, regulation and financing of public corporations, and leading off with
the sale of non-strategic assets and the creation of public-private partnerships in
transport and telecommunications…”. GEAR, the neo-liberal economic strategy
to cover 1996-2000, had mixed success. It brought greater financial discipline
and macroeconomic stability but failed to deliver in key areas. Formal
employment continued to decline, and despite the ongoing efforts of BEE and
signs of a fledgling black middle class and social mobility, the country’s wealth
remains very unequally distributed along racial lines.
14.11 In 2000, the general feeling was, “… the establishment of SOEs in apartheid
South Africa created the conditions for skewed development aims, irregular
infrastructure and service delivery, and a host of structural problems. Since 1994,
these have limited the ability of SOEs to adjust to new requirements and new
policies …” (An Accelerated Agenda Towards The Restructuring of State Owned
Enterprises: Policy Framework, Ministry of Public Enterprises, August 2000, p15)
14.12 In fact, there was a realisation that, “… despite their difficulties, the major
SOEs represent massive financial, investment, labour, technology and
infrastructure resources in the South African economy. They also dominate subSaharan Africa’s transport, communication, power and defence-related
technology sectors … The restructured South African SOEs can lead the way in
promoting the African renaissance in their respective sectors, providing worldclass expertise, resources, services and infrastructure to a developing continent,
often in partnership with enterprises in other African countries …”
(An
Accelerated Agenda Towards The Restructuring of State Owned Enterprises:
Policy Framework, Ministry of Public Enterprises, August 2000, p14)
14.13 SA government was of the opinion that, “… the current structure of SOEs is
the outcome of a long period of isolated development in which narrow ‘strategic’
interests had preference over broader economic and social development.
Investment decisions that were not always efficient or in line with development
needs have left a legacy of poor SOE performance and infrastructure backlogs.
In addition, some SOEs do not have access to global technology and skills, which
makes them uncompetitive in a rapidly changing world economy. Given the role
that they play in providing economic infrastructure for other sectors of the South
African economy, this situation is making our integration into the global markets
all the more difficult …” (An Accelerated Agenda Towards The Restructuring of
State Owned Enterprises: Policy Framework, Ministry of Public Enterprises,
August 2000, p35-36)
14.14 At the time, “…the government recognises that the location and composition
of state assets may not be optimal and has begun an audit to dispose of those
assets not relevant to the RDP …” (Reconstruction and Development
Programme, 1994, p15)
14.15 “… We have adopted the view that the real conditions of everyday life require
a strong democratic developmental state … part and parcel of the developmental
state are the SOEs … our SOEs do not operate in a vacuum – they engage in
economic activity and provide essential services that traverse even our borders
… we have found that, in many instances, their traditional methods of operation
and business management, human resource development, and even their
targeted constituency base were inappropriate in a democracy. Furthermore, they
command large procurement budgets, social and human resources and some
they dominate in economic sectors they operate … In particular, our country has
become an important agent towards the realisation of the African Renaissance. In
this context, the accelerated restructuring of SOEs to meet these combined
challenges has become a matter of urgency …” (An Accelerated Agenda
Towards The Restructuring of State Owned Enterprises: Policy Framework,
Ministry of Public Enterprises, August 2000, p3)
14.16 “… Recognising this need, Government, at a Lekgotla on the 29th November
1999, directed that a detailed and coherent policy framework be prepared to
guide the restructuring process into the 21st Century … “ (An Accelerated
Agenda Towards The Restructuring of State Owned Enterprises: Policy
Framework, Ministry of Public Enterprises, August 2000, p3)
14.17 At the Lekgotla, Government confirmed its vision as, that is, “… This vision
sets out the continued role of the state in the economy … It is generally accepted
that South Africa employs a mixed economy to address the legacies of apartheid.
The state’s role is dynamic, shifting emphasis to meet the changing
developmental needs of society…” (An Accelerated Agenda Towards The
Restructuring of State Owned Enterprises: Policy Framework, Ministry of Public
Enterprises, August 2000, p13)
14.18 “… In summary, Government’s policy with regard to SOEs is more properly
referred to as a restructuring programme, and not in the more simplistic terms of
privatization. The programme was and remains designed around a multiple array
of strategies, or mixes of options, that are designed to ensure the maximum of
shareholder interests defined in economic, social and development terms. Thus
restructuring refers to the matrix of options that include the redesign of business
management principles within enterprises, the attraction of strategic equity
partnerships, the divestment of equity either in whole or in part where
appropriate, and the employment of various immediate, turnaround initiatives …”
(An Accelerated Agenda Towards The Restructuring of State Owned Enterprises:
Policy Framework, Ministry of Public Enterprises, August 2000, p4)
14.19 “… Government as the primary shareholder in many instances, will ensure
that the restructured SOEs will continue to play a responsible, proactive role in
the development agenda …” (An Accelerated Agenda Towards The Restructuring
of State Owned Enterprises: Policy Framework, Ministry of Public Enterprises,
August 2000, p5
14.20 Amongst others, ASGISA cited deficiencies in state organisation, capacity
and leadership as one of the key binding constraints on achieving its objectives.
Certain weaknesses in the way government is organised, in the capacity of key
institutions, including some of those providing economic services, and
insufficiently decisive leadership in policy development and implementation all
constrain the country’s growth potential. (ASGISA, 2004, p9-10)
14.21 “… Barriers to entry, limits to competition and limited new investment
opportunities. The South African economy remains relatively concentrated,
especially in upstream production sectors such as iron and steel, paper and
chemicals and inputs such as telecommunications and energy. In some cases,
market structure negatively influences the possibilities of downstream production
or service industry development. Competition law and industrial policies need to
be strengthened to counteract these factors…” (ASGISA, 2004, p9-10)
14.22 “… Electronic communications as a key commercial and social infrastructure
will be one focus of priority attention…” (ASGISA, 2004, p10).
14.23 “… Other strategic interventions in the infrastructure arena include further
development of the country’s research and development infrastructure, and
further improvement in the modalities for public-private partnerships in the
development and maintenance of public infrastructure …” (ASGISA, 2004, p10)
14.24 Three sectors were identified for special priority attention: Business process
outsourcing (BPO), tourism, and biofuels. The general feeling was that the
targeted sectors are labour-intensive, rapidly growing sectors worldwide, suited to
South African circumstances, and open to opportunities for Broad-Based Black
Economic Empowerment (BBBEE) and small business development. (ASGISA,
2004, p10)
14.25 The following sectors constituted the next rank of priorities viz:
o Chemicals
o Metals beneficiation, including the capital goods sector
o Creative industries (crafts, film & TV, content and music)
o Clothing and textiles
o Durable consumer goods
o Wood, pulp and paper (as mentioned in provincial projects)
14.26 “…We have planned on the principle that institutional interventions are costly
and should be kept to a minimum, and that, where possible, existing institutions
should be levered into new functions and responsibilities … Government is
committed to reviewing the functioning of the development finance institutions,
which include the IDC, the Land Bank, the DBSA and the National Development
Agency. These are powerful institutions that can be more effectively employed in
our developmental efforts and support social mobilisation and active participation
of civil society …” (ASGISA, 2004, p18)
14.27 “… South Africans are agreed that the weaknesses cannot be put right
through the spontaneous agency of the market. Nor can they be successfully
addressed by one sector of society acting apart from others. To succeed we need
a partnership between public and private sectors, leadership in development by
the State, and an active citizenry from whom the State and the Government
derive authority and legitimacy …” NPC Green Paper, 2009, p 6
14.28 “… the ideals enshrined in our Constitution – straddling political, social,
economic and environmental areas of human endeavour – cannot be pursued in
an ad hoc manner …” NPC Green Paper, 2009, p6
14.29 “… As elaborated in the Fifteen Year Review, published by government in
2008, our economy has been largely pedestrian. The structure of our economy
has not changed significantly in a hundred years. It is still dominated by extractive
and related industries. Even the five years of faster growth (i.e. 2003-2008)
exposed systemic weaknesses. Structural unemployment sees many young and
unskilled people unable to find jobs. When it comes to electricity, water and
transport, our infrastructure is insufficient and inefficient. Our manufacturing base
has been weakening; private sector has not responded adequately to domestic
and global opportunities; we have a persistently low savings rate and we rely too
much on short term capital flows …” (NPC Green Paper, 2009, p7)
14.30 “… For our society to achieve the ideals in our Constitution, it needs a
coherent plan that can shape its programmes, priorities and budgets. But it needs
more than that it needs a capable and effective state, sound institution, an active
electorate and strong partnerships between social actors. In other words, we
should aim to build a developmental state with strategic political, administrative
and technical capacities to lead the nation in social development …” NPC Green
Paper, 2009, p8
14.31 “… Countries that have developed rapidly have had three critical
characteristics which any development plan would have to deal with:
o Rapid economic growth
o Education and skills development of high quality
o Strong and credible public and private institutions …” (NPC Green Paper,
2009, p8)
14.32 “… Markets on their own cannot initiate and lead such fundamental change.
The State has to play a leading role in reshaping the economy so that it is better
able to meet the needs of the majority. This has to be done in partnership with all
social forces …” NPC Green Paper, 2009, p 8
14.33 “… if we are to change the structure of our economy, several issues would
have to be navigated and critical choices would have to be made:
o How do we increase national savings and investment in the long term?
o How do we reduce levels of poverty and inequality in a comprehensive
and integrated manner?
o How do we create jobs for the millions of – mainly young – people many
of whom have a poor set of skills?
o How do we minimize the risks that the global economy poses for our
development?
o How do we take full advantage of opportunities it may present?
o How can the State be more effective in intervening to address market
failures or guide private sector activity?
o How can we minimise the impact of government failure on our
development path? …” NPC Green Paper, 2009, p 9
14.34 “… There is growing consensus that creating decent work, reducing inequality
and defeating poverty can only happen through a new growth path founded on a
restructuring of the South African economy to improve its performance in terms of
labour absorption as well as the composition and rate of growth. To achieve that
step change in growth and transformation of economic conditions requires hard
choices and a shared determination as South Africans to see it through …” NGP,
2011, p1
14.35 “… The global economic crisis means that South Africa must re-think
historical patterns of trade and investment. In the past two years, slow growth in
our traditional partners in the global North has been offset by the rapid recovery
of growth in China, India and Brazil …” NGP, 2010, p4
14.36 “… The upswing from the early ‘00 to 2008 built on South Africa’s traditional
strengths, as booming international commodity prices combined with high global
liquidity to foster significant short term inflows of capital … It also resulted in what
has been described as consumption-led growth that was not underpinned by a
strong production base, with rapid growth in retail, the financial sector and
telecommunications and comparatively slow expansion in manufacturing,
agriculture and mining …” NGP, 2010, p4
14.37 “… In addition to high unemployment, the growth phase in the ‘00 pointed to
fundamental bottlenecks and imbalances in the economy, especially:
o Dependence on the minerals value chain, …
o Weaknesses in the state’s use of commodity-based revenue for economic
diversification and skills development, …
o A persistent balance-of-trade deficit funded with short term capital inflows
…
o Bottlenecks in logistics, energy infrastructure and skills, which raised
costs across the economy. A particular concern arose from energy
shortages that resulted in part from weak investment in new generation
capacity as well as high demand spurred by low prices for much of the ‘00
o Continued economic concentration in key sectors, permitting rent seeking
at the expense of consumers and industrial development …” NGP, 2010,
p5
14.38 “… The crucial steps to achieve our targets for infrastructure are to maintain
high levels of public investment with a sustainable step change in investment by
general government and public sector corporations, backed by investment in
skills development and measures to prevent non-competitive pricing by
contractors; to strengthen local procurement of inputs in order to maximise the
multiplier effect, including through the development of new industries to provide
for renewable energy; to use labour-based production methods where
appropriate; and to target infrastructure provision to support broad-based growth
and rising competitiveness linked to a coherent and sustainable strategy on rural
development …” NGP, 2010, p11
14.39 “… In line with the focus on job creation in President Jacob Zuma’s 2011
State of the Nation Address, the Department of Trade and Industry (the dti) will
continue to build on its industrial development efforts, at the core of which is the
Industrial Policy Action Plan (IPAP 2).
14.40 The next iteration of the industrial policy action plan, namely IPAP 2 2011/12
– 2013/14, represents a further step in the evolution of this work and serves as
an integral component of government’s New Growth Path …” (Industrial Policy
Action Plan 2011/12-2013/2014, p9)
14.41 “… Plans for two new transversal interventions, namely skills and innovation
and technology, have been added to those in IPAP 2 2010/11 – 2012/13. Apart
from upgraded action plans across sectors, two new sector-specific programmes
on Boatbuilding, and Oil and Gas, have been included in the follow-up action
plan. Work on Green Industries introduced in the previous iteration of IPAP now
finds expression in significantly scaled-up programmes of action for this sector
…” (Industrial Policy Action Plan 2011/12-2013/2014, p9-10)
14.42 “… In January 2007, Cabinet adopted the National Industrial Policy
Framework (NIPF), which sets out government’s broad approach to
industrialisation, with the following core objectives:
o To facilitate diversification beyond our current reliance on traditional
commodities and non-tradeable services, which requires the promotion of
increased value-addition, characterised particularly by movement into non-
traditional tradeable goods and services that compete in export markets and also
against imports;
o To ensure the long-term intensification of South Africa’s industrialisation
process and movement towards a knowledge economy;
o To promote a more labour-absorbing industrialisation path, with the
emphasis on tradeable labour-absorbing goods and services, and
economic linkages that create employment;
o To promote industrialisation, characterised by the increased participation
of historically disadvantaged people and marginalised regions in the
industrial economy; and
o To contribute towards industrial development in Africa, with a strong
emphasis on building the continent’s productive capacity …” (Industrial
Policy Action Plan 2011/12-2013/2014, p13)
14.43 “… IPAP 2 plays a central role in relation to the recently released NGP, and
focuses on manufacturing and other value-added sectors, with a combination of
high employment and growth multipliers. This includes the co-ordination of
certain value chains where manufacturing mediates the progression from primary
to final goods such as agro-processing and biofuels. It also includes certain
tradeable services sectors such as Business Process Services and IT Software
…” (Industrial Policy Action Plan 2011/12-2013/2014, p16)
14.44 “… The dti will therefore work with the Department of Higher Education and
Training (DHE&T) to introduce the necessary window within the SETA and NSF
system for new Skills Centres based on the needs of IPAP sector strategies. In
addition, a process to transfer existing Skills Centres/Centres of Excellence into
the SETA/NSF system to promote their long term financial and organisational
sustainability will be initiated …” (Industrial Policy Action Plan 2011/122013/2014, p16)
14.45 “… The optimal value chain of activity between the dti and the Department of
Science and Technology (DST), in relation to the development and
commercialisation of technology, lies with DST. DST is responsible for assisting
in technology development and the dti is responsible for assisting in the
commercialisation of technology. Therefore certain activities related to aerospace
will be transferred to DST with the dti focusing on the manufacturing aspects of
the industry …” (Industrial Policy Action Plan 2011/12-2013/2014, p17)
14.46 “…The 2010/11 IPAP identified a range of key constraints to the development
of manufacturing and other value-added tradeable sectors. These remain deeply
relevant:
o An exchange rate that is volatile and generally over-valued;
o The high cost and limited allocation of capital to productive sectors,
particularly the relatively more labour-intensive and value-adding sectors
of the economy;
o Failure to adequately exploit domestic supply opportunities of the public
capital expenditure programme, other large public ‘fleet’ expenditure, as
well as private procurement expenditure;
o The monopolistic provision and pricing of key inputs into manufacturing
and other productive processes, and the concentrated purchasing power
of outputs of these sectors;
o A weak skills system, which does not adequately respond to the needs of
productive sectors; and
o Aged, unreliable and expensive rail and ports systems,”… A further
constraint is becoming increasingly apparent: Higher electricity prices and
the transition to a lower carbon economy in the context of increasing
climate change and environmental concerns … ” (Industrial Policy Action
Plan 2011/12-2013/2014, p22-23)
14.47 “… Despite nominal interest rates at 30-year lows, the underlying real cost of
capital in South Africa remains high relative to that of our main trading partners.
In manufacturing, the cost of capital is even lower in many trading partners due to
subsidies and subsidised credit through development banks and export credit
banks and agencies. For example, Brazil’s Banco Nacional de Desenvolvimento
Econômico e Social (BNDES) plays a fundamental role in extending concessional
credit to productive sectors of the economy, including manufacturing,
infrastructure, mining and innovative service industries…” (Industrial Policy Action
Plan 2011/12-2013/2014, p26)
14.48 “… Despite the recent improvement between 2005 and 2009, fixed
investment has been concentrated in three main areas. First, recent fixed
investment has been driven primarily by public capital expenditure of the stateowned enterprises (SOEs) and government. Second, private investment has
been predominantly concentrated in debt-driven consumption sectors such as
finance and wholesale and retail. Third, investments in production sectors have,
themselves, been concentrated in capital-intensive mineral-and-energy sectors
such as mining, cement and chemicals. With the exception of the automotive
industry, most relatively labour-intensive and value-adding productive sectors
have experienced low – and sometimes falling – rates of investment …”
(Industrial Policy Action Plan 2011/12-2013/2014, p28)
14.49 “… Public infrastructure investment has been a key driver of recentlyimproved investment rates. Public investment of R404 billion was attracted over
the 2006/07 – 2008/09 period, rising to R787 billion for the period 2009/10 –
2011/12 … However, much of the tradeable content of public infrastructure
investment, as well as other large components of public procurement, are being
imported. This has both micro and macro-economic consequences. At the microeconomic level, the failure to adequately promote public procurement represents
an enormous lost opportunity to resuscitate key sectors of the economy, raise
their competitiveness and reposition them as exporting sectors of the future.
These include the metal fabrication, capital and transport equipment sectors. At
the macro-economic level, high levels of imports have increased the current
account deficit, which can lead to balance-of-payments problems and thus
threaten the sustainability of the capital expenditure (capex) programme itself …”
(Industrial Policy Action Plan 2011/12-2013/2014, p29-30)
14.50 “… Measured through backward linkages, manufacturing and other IPAP
sectors pull through inputs from the primary sectors and other manufacturing and
services sectors, and transform them into higher-value products, thereby
stimulating employment along the entire value chain. They also provide an
additional impetus to employment and growth through forward linkages to
‘downstream’ sectors, predominantly in services. It is in this sense that
manufacturing and other IPAP sectors play the central dynamising role in the
economy, through a combination of direct and indirect effects …” (Industrial
Policy Action Plan 2011/12-2013/2014, 35)
14.51 The Department of Public Enterprise’s Strategic Plan (2011-2014) defines its
role as, “ … to drive investment, efficiencies and transformation in its portfolio of
SOEs, their customers and their suppliers to unlock growth, create jobs and
develop skills …” (DPE Strategic Plan, 2011-2014, p ii)
14.52 “… The DPE is responsible for guiding SOE in our portfolio to become more
financially sustainable entities which contribute positively towards our national
growth and development objectives. SOE, particularly those operating in network
infrastructure industries, are key levers to catalyse growth, and therefore higher
labour absorption …” (DPE Strategic Plan, 2011-2014, p iii)
14.53 According to DPE’s revised mission statement and strategic plan 2011 -2014,
“… The state owned enterprises are strategic instruments of industrial policy and
core players in the New Growth Plan …” (DPE Strategic Plan, 2011-2014, p1)
14.54 “… Government has often taken a sectoral and short-term view that has
hampered development. Taking a long-term and independent view will add
impetus, focus and coherence to our work …” (NPC Diagnostic Report, 2011, p4)
14.55 National Planning Commission Diagnostic Report (2011) identified the
following key challenges confronting South Africa:
o “… Too few South Africans work
o The quality of school education for most black people is sub-standard
o Poorly located and inadequate infrastructure limits social inclusion and
faster economic growth
o Spatial challenges continue to marginalise the poor
o South Africa’s growth path is highly resource-intensive and hence
unsustainable
o The ailing public health system confronts a massive disease burden
o The performance of the public service is uneven
o Corruption undermines state legitimacy and service delivery
o South Africa remains a divided society …” (NPC Diagnostic Report, 2011,
p20)
14.56 “ … The state-owned entities are mandated to give effect to government’s
priorities. The main entities are in energy, rail, roads, ports, water and sanitation.
For several years the largest entities have been investing in key economic
infrastructure necessary to support long-term economic growth. During the
recession, these infrastructure investments helped to stimulate the economy.
(National Treasury’s Budget Review 2011)
14.57 “… South Africa’s development finance institutions are well placed to deliver
on government’s development priorities. The asset base of the major
development finance institutions amounted to R153 billion as at 31 March 2010,
and over the next three years their lending capacity will be an estimated R115
billion. Over the period ahead, these institutions will focus on infrastructure and
industrial development, low-cost housing, rural development and land reform,
financing small businesses and black economic empowerment enterprises, and
supporting regional development …” (National Treasury’s Budget Review, 2011,
p96)
14.58 “… In 2008 government commissioned a review on the role of development
finance institutions. The purpose of the review was to ensure that these
institutions were effectively supporting South Africa’s social and economic policy
objectives, and working within a well-coordinated policy and governance
framework. The review focused on the 12 main institutions.* Its key findings were
as follows:
o
o
o
o
o
o
Mandates: The mandates are broad and lack focus. There is considerable
overlap and duplication in the purpose and function of these entities,
leading to wastage of resources.
Governance: A uniform legal and regulatory framework is required for
these institutions.
Coordination: Development finance institutions are not well coordinated at
central government level. Improved coordination would support efficiency
in service delivery.
Risk management: More emphasis must be placed on risk management
to contain losses. Staff technical skills should be improved, boards trained
and risk management programmes developed.
Development effectiveness: Monitoring and evaluation frameworks are
weak or absent, making it difficult for government to assess the real
impact of development finance activities.
Financial sustainability: The institutions should be able to cover their costs
with their own income. While maintaining commercial loans, a growing
proportion of funds should be directed towards development.
The review recommended that government introduce a more meaningful
performance monitoring and evaluation system to assess and guide delivery on
development interventions. It also proposed the establishment of a Development
Finance Council to coordinate and guide the activities of these entities. The
council is now in place and is overseeing the implementation of the
recommendations made in the review. …” National Treasury’s Budget Review,
2011, p97
14.59 The NDP recognises the role that SOEs could play in advancing key national
objectives, particularly through providing economic and social infrastructure.
6.60
“… In 2030, South Africa needs to be served by a set of efficient,
financially sound and well governed SOEs that address the country’s
developmental objectives in areas where neither the executive arms of
government nor private enterprises are able to do so effectively …” NDP, Chapter
13: Building a Capable State, p393)
14.60 “… These enterprises must deliver a quality and reliable service at a cost that
enables South Africa to be globally competitive …” (NDP, p393)
14.61 “… Asking enterprises with limited capacity and resources to address too
many different priorities at once is setting them up to fail, particularly when they
have to work through complex or unpredictable governance structures. SOEs
need to focus on their main policy priorities …” (NDP, p394)
14.62 “… While considerable attention has been given to the transformation of
SOEs, less attention has been given to the transformative or developmental role
that they can play …”
14.63 “… Given that these enterprises exist to serve the public interest, it is
important that the mandate is precise about the nature of the public good that the
SOE provides and how it serves the public interest. For the large SOEs involved
in economic infrastructure provision, their mandate should also clearly include the
imperative of financial viability and sustaining their asset base and balance sheet
in order to maintain and expend services …” (NDP,p394)
14.64 “… Attention also needs to be given to the range of development institutions.
Greater clarity about their respective niche filled by each development finance
institution and improved coordination between these agencies could help to
maximise their developmental impact …” (NDP, p395)
14.65 “… Review processes should also allow for the possibility that new
enterprises may need to be created to attend to unmet public interests. While
such reviews are important, they should not be done too frequently, as the
activities of many SOEs require predictability to make long-term investment
decisions …” (NDP, p395)
14.66 “… Commercial responsibilities should be clearly separated from social goals
through transparent mechanisms, such as fiscal transfers and subsidies for
service provision to poor households …” (NDP, p398)