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Management vacuum hobbles parastatals

Johannesburg - Rudderless and cash-strapped. That’s the state of South Africa’s biggest state-owned enterprises (SOEs) after the government failed to heed warnings from its advisers about a lack of leadership, oversight and strategic vision.

The companies supply about 95% of electricity to the country run, railways and ports and operate the national airline and postal services.

“Too many bad decisions have been taken regarding certain SOEs, leading to critical business performance failures,” Raymond Parsons, a professor at the North West University Business School in Potchefstroom and a former head of the South African Chamber of Business, said by email.

“The government has either been unwilling, or unable, to take the tough decisions needed.”

South African Airways, oil and gas company PetroSA and the South African Post Office collectively lost more than R20bn in the past two financial years, while Eskom is failing to meet demand for power, which has resulted in rolling blackouts almost every second day on average this year.

The four companies, along with the Passenger Rail Agency of South Africa, have acting chief executive officers.

SOEs are central to the success of the government’s 20-year development plan to boost growth and cut a 25% unemployment rate. State companies are set to invest R362bn over the next three fiscal years to help spur an economy that’s battled to gain momentum since a 2009 recession.

Inadequate, unstable

“To a large extent the ability of South African industries to compete globally is influenced by the effectiveness of our SOEs,” Anglo American [JSE:AGL] CEO Mark Cutifani said in a July 30 speech in Johannesburg. “We are being constrained by expensive, yet inadequate and unstable electricity supply and by capacity limitations on state-run rail links.”

While a panel appointed by President Jacob Zuma in 2010 to review their performance recommended a strategy overhaul, new rules for appointing board members and a clearer funding approach for state companies, the government took no immediate action and the management oversight of several of them has deteriorated.

SAA, which last made a profit five years ago and is surviving on government guarantees, has had five CEOs in the past three years. Eskom, battling to plug a R191bn funding gap, has had six CEOs in a decade. Its last permanent leader was replaced in March after six months in the job, while the chairperson resigned two weeks later.

Governance failure

Keeping the companies under state control has given the ruling African National Congress a greater influence over the economy and the appointment of key personnel.

The management flux is “a huge governance failure”, Lumkile Mondi, an economics lecturer at Johannesburg’s University of Witwatersrand who served on the state review panel, said.

“Where you have short-term appointees, you are basically saying to the private sector ‘don’t make long-term decisions’,” he said by phone. “The biggest loser is our economy.”

PetroSA’s loss widened to about R15bn last year after making the biggest-ever impairment by a government company. Its chairperson Nonhlanhla Jiyane quit in July, a month after CEO Nosizwe Nokwe-Macamo and chief financial officer Lindiwe Mthimunye-Bakoro were suspended due to the company’s poor performance.

‘Revamp them’

Rail, ports and pipeline operator Transnet is an exception, having been profitable for more than a decade. Its CEO, Brian Molefe, and chief financial officer Anoj Singh have been seconded to run Eskom.

“Not all state-owned enterprises are going through difficult times,” Deputy President Cyril Ramaphosa told lawmakers in Cape Town on August 12. “A few of these state-owned entities are operating in difficult markets. We are determined to revamp them.”

Laws are being drafted that will regulate how state company CEOs are appointed, according to Public Enterprises Minister Lynne Brown.

Stable management is required as a matter of urgency, said Shaun Nel, a spokesperson for the Energy Intensive Users Group of South Africa, which represents 31 of the country’s largest electricity users.

“The importance of the SOEs to the economy cannot be underestimated,” he said by email. “While particularly Eskom and Transnet retain good technical staff, maintaining operations and delivering their mandates is hampered by indecision and executive turnover.”


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