State-owned enterprises: 6 ways to fix them


State-owned enterprises: 6 ways to fix them

Yugen Pillay has been involved in auditing state-owned enterprises (SOEs), municipalities and government departments for more than 15 years. ANNELIESE BURGESS speaks to him about how we can fix the rot (he reckons within two years!) and why he thinks the government of national unity could be South Africa's real new dawn.


YUGEN PILLAY is the head of public sector assurance at BDO, a public accounting, tax, and advisory firm that works closely with the auditor-general.

He says fixing SOEs is critical to growing the economy. It starts with understanding the problems and facing them head-on through a collaborative approach between the government and the private sector.

#1 Corruption is the main problem

“The deterioration of state-owned enterprises, such as Eskom, Transnet and SAA, has taken place over a long time, and there was one fundamental driver: corruption. Corruption has flourished over the past eight to 10 years, and we can see that clearly through audit reports highlighting irregular expenditures.

“There was no consequence management. No point at which someone said, ‘Let's address this head-on. Why have we overspent by X amount? Why were so many billions spent irregularly? Why was there so much fruitless and wasteful expenditure?' It was allowed to continue. And it's brought SOEs to the state they're in. If we are going to fix that, a few things have to happen — the most important of which is a culture change across government."

Yugen Pillay
Yugen Pillay

#2 GNU is a new start

“The president has announced that Eskom and Transnet will no longer be part of the Department of Public Enterprises (DPE), which has been shut down. Ideally, you would have wanted those SOEs to remain in one department because you could have had a more strategic approach. These two SOEs are your profit drivers. They are not only the main arteries of the economy, but they also have the potential to generate profit. Eskom now goes back to the energy department while Transnet goes to transport, and you have to assume some of the skills in the DPE will migrate with them. Be that as it may, we have to work in the context of what we have. It will be interesting to see how this plays out over the next few months.

“I suspect the government of national unity (GNU) arrangement will encourage more accountability because you now have an executive representing different parties, which will increase oversight. With oversight comes accountability, the culture change we need across government. It's not like it was previously, where even if you did not perform you still had the majority, so there was no incentive to improve governance and effectiveness.

“And I guess there was also an element of wanting to retain absolute control because, as a government, if things aren't going well, asking for help from the private sector shines a light on the fact that you are not managing something as effectively as you should.

“One would hope that within the new collaborative approach of a GNU, over the next 12 to 18 months we will see issues such as fruitless and wasteful expenditure at an entity like Eskom being dealt with head-on. 

“For this to work, all the political parties will have to be mature enough to consider the needs of South Africa's citizens, find a way to work together effectively, and run the country in the interest of our people.

“If you look at the last time we had a government of a similar nature, it was at the dawn of democracy with President Nelson Mandela's national unity government, but that was by choice, where the ANC said, ‘govern with us, even though we are the majority'.

“This seventh administration is very different because it's not a matter of choice. Now, we are forced into a situation where the ANC must work with the other parties. It's South Africa's first time in this position, and it won't be the last. This collaborative approach will be the norm for the next administration as well, and it will force greater accountability. Now, you will need to account to your fellow cabinet ministers. That's what the country's people are looking forward to. And expect."

#3 Bring back skills

“Apart from the culture change, the other major thing we must consider with SOEs is their skill set. We need to determine whether Eskom and Transnet, for instance, have the skills and the capacity to turn themselves around. Let's make no mistake about it, if you shut down these two SOEs, our economy would halt.

“Reports from the auditor-general over the years point to a lack of skills in managing some of our SOEs. Corruption also erodes your ability to retain skills at the appropriate levels because it takes away the vital funds you need to be able to do that.

“So, we need to regain the appropriate skills in these SOEs. I know Eskom has been trying to regain skills by calling back people who have retired or left. Maybe that should also be applied to Transnet in the short term.

“We need to analyse their capacity, skills, and what funds are available to turn these entities around. It's no secret that our tax base is struggling, and we are borrowing and tapping into our reserves. Financially, the private sector can also be brought in to help. 

“There shouldn't be any reservations about asking the private sector to deal with some areas where we know SOEs are lacking."

#4 Get SOEs to help grow the economy

“The government has had 30 years to take SOEs to the next level, and the opposite happened. We need a new approach.

“If I look at SAA before it went under business administration, it had more than 40 aircraft in its fleet. Today, it has eight. SAA had the pilots and the infrastructure. It could have been one of the major carriers on the continent.

“SAA could have played a major role in supporting tourism, but when it went under we suddenly were dependent on other airlines to ferry tourists. With SAA, we've seen first-hand what corruption and a lack of accountability do.

“The same goes for Eskom. It could have been a major supplier of electricity to southern African countries. Transnet could have been a major port player on the continent and a rail player, and again, we're not there.

“I'm hoping that with the new cabinet and better oversight, we can develop a new vision for SOEs where the private sector is brought in to assist where necessary."

#5 We can fix them in 24 months

“It has been heartening that there has been no load-shedding over the past two to three months, but I am interested in seeing the annual report to understand the cost implications this has had. You don't want a situation where you are burning through money to keep the lights on in the short term. There must be a sustainable plan to keep the lights on long-term.

“Eskom and Transnet are fundamental to the economy and growth of South Africa, and we could turn around both in the next 24 months if there is a concerted, focused effort between the government and the private sector.

“If you look at Transnet and the ports, for instance, the infrastructure is all there; it's just the running of that operation that needs to be appropriately managed. So, once we have stabilised these entities over the next 24 months, we can start growing them to drive economic growth, which will require a five-year plan.”

#6 Government must stop interfering

“The way forward is public-private partnerships (PPPs), which are not new concepts — you bring skills and capital inflows from the private sector where needed. 

“Take the Transnet National Ports Authority as an example. There has been movement in this direction, where the government has initiatives with the private sector.

“There is also movement in this direction in the freight rail sector, but it must happen faster. The only way PPPs can be effective is to allow the private sector partner to run things. What I mean by this is that the government should stand back and not interfere. 

“If you look at Eskom and Transnet, the government constantly interfered at the board level — changing the CEO and getting involved with board members. This should not happen.

“When you enter a PPP, you assemble the board of directors then allow the private skills and capital to run it with a mandate. You will have a memorandum of understanding and clear deliverables in place. And with deliverables comes accountability — if the PPP is not delivering, it must account to the government. 

“So if you have all that in place, then the government shouldn't interfere. It needs to say, ‘Okay, we put our trust in you and the accountability built into the system; now run with it.'

“If that happens, you'll see the fruits. We can stabilise entities like Transnet within 24 months, and you will start seeing more effective imports and exports, for instance, with improved rail and port performance."

♦ VWB ♦

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