October 22, 2023 In Consultancy

How to resolve challenges faced by SOE’s

Introduction

To those in the private and public sector who are supporters of “agency-led” development, State Owned Enterprise (SOE’s) could play a vital role in facilitating economic development, improving service delivery and enhancing efficiencies in public sector administration. However SOE’s in South Africa are currently regarded as a waste of time and resources due to various challenges and shortcomings experienced mainly around corporate governance and poor financial planning and reporting. Does this mean we should discard all the SOE’s and find alternative models on public service delivery which will not include the 3 letters S.O.E?

The basis of this paper is the Presidential Review Commission (PRC) on SOE’s which concluded and handed over its report to the President in May 2010. The report seems to have been forgotten and nothing has come from its findings to date. The PRC had 21 Terms of Reference to consider e.g. A common understanding and definition of SOEs, the place of SOEs in a Developmental State, the viability and funding of SOEs, the efficiency and effectiveness of SOEs with respect to service delivery and owner/shareholder oversight and governance of SOEs to name but a few.

Challenges identified by the PRC

The PRC identified the following challenges faced by SOE’s:

  1. Proliferation of SOEs, including commercial and non-commercial entities and their subsidiaries.
  3. Whether SOEs were responding to the State’s developmental agenda.
  5. South Africa has no common agenda for and understanding of SOEs.
  7. There are no commonly agreed strategic sectors and priorities
  9. Balancing the trade-offs between commercial and non-commercial objectives of SOEs.
  11. The legislative framework for SOEs was found to be inadequate.
  13. Governance, ownership policy, and oversight systems were found to be inadequate.
  15. Quality of the board and executives’ recruitment was found to be inadequate.
  17. No clarity on the role of the executive authority; boards; and the Chief Executive in the governance and operational management of SOEs.
  19. The remuneration frameworks and practices are inconsistent.
  21. Funding models for social and economic development mandates of SOEs are blurred and confusing, leading in some instances to under-capitalisation.
  23. Service delivery performance of SOEs was found to be mixed.
  25. Despite the importance of these shareholder compacts, they are often not signed on time and make insufficient provision for objectives beyond the narrow goal of profitability.
  27. Lack robust leadership and initiative on crucial transformation imperatives.
  29. Collaboration and coordination among SOEs and their oversight is poor.

Analysis

The basis of most of the problems above lies on one critical flaw which is that SA “does not have a common agenda for and understanding of SOE’s” according to the writer. Like all else in life, the correct road-maps are required for a hassle-free journey. One needs to know where one wishes to go, get a map to indicate the direction of travel and the vehicle and tools for the journey. Similarly if there is no intention to travel to any specific location, then one will not have to worry about the destination etc. The latter scenario seems to characterise the current state of SOE’s in South Africa.

The above scenario has resulted in a proliferation of SOE’s in various forms and most oft, unnecessarily so. Simple Agencies that could have a meaningful role within departments have been registered as SOE’s in the National Treasury Schedules without proper mandates and resources to capitalise them. This often creates an impression that SOE’s are inefficient when in actual fact they are being failed by the political head of departments who have free reign to dictate terms and deploy unskilled cadres as board members or chairpersons on boards. Boards of SOE’s mostly become dumping sites for warm bodies.

Conclusion

The most pressing challenge therefore is for the state to do a needs analysis by defining why we need SOE’s, how they will advance the states developmental agenda (if any), how they will be capitalised and supported to reach their full potential etc. In the next publication we will shed more light on challenges and solutions facing SOE’s.