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This includes making them accountable to their boards and not directly to parliament.
Speaking in parliament during his budget vote speech, Erwin outlined work currently being done with the view of recapitalising and changing state-owned enterprises (SOEs) so government departments can form new ones easily as the need for them arises, so they do justice to South Africa's developmental needs and, ultimately, interact better with the private sector.
Erwin has proposed new legislation to govern the SOE sector and to set out exactly what is expected of these entities and how they should be accountable to a board and not to parliament. Parliament would, in turn, hold the relevant cabinet minister accountable.
Erwin says a more "flexible but disciplined" approach to forming new SOEs is also essential.
Referring to the scale of the Eskom infrastructure build that is going to be necessary to keep up with demand, Erwin said: "How should we respond to this challenge? Do we buy the equipment off the international shelves or do we attempt to industrialise and produce a significant portion of the equipment within the South African economy?
"Being merely a buyer has serious drawbacks - not only would we remain a price-taker, but we become subject to the risk of the long supply queues, keeping us very vulnerable to international supply and economic conditions, and possibly lead to delays in our build programme, and certainly increase its cost.
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"Furthermore, this will massively increase our import bill and worsen the balance of payments and exchange rate challenges we already face. If we want to use this opportunity to industrialise then it is crucial that we move now.
"We have to provide a clear plan and a predictable environment if we are to induce the global original equipment manufacturers to locate production in South Africa, and thereby develop our national capacities. We have to be prepared to co-invest and to develop a range of second, third and fourth-tier suppliers."
He added that the private sector and market forces alone "will not be capable of such a long-range strategic response". Yet, he said, it would be equally unwise to expect that Eskom should provide such a leadership role as this would stretch its resources and place its core tasks at risk.
"We need therefore, to consider new SOE and new partnerships with the private sector - both national and global, in order to leverage on the SOE build programme and its associated procurement," said Erwin.
But, he stressed that "the mechanisms for establishing new SOE are currently imprecisely defined and not uniform across government. The decision-making process as to how public entities should be classified in terms of the Public Finance Management Act is also unclear and the role of the National Treasury overrides cabinet and other shareholder departments. The process needs to be reformed."
He explained that, as present it's "very hard" to carry out corporate restructuring or form new SOEs, and "this rigidity militates against a dynamic response by SOEs to changing conditions".
Proposals before cabinet on the SOE sector emphasise the need for SOEs to operate like and use the same systems as private companies but maintaining their long-term strategic functions.
He stressed that it was crucial for SOEs to be able to make the investments that private companies would not necessarily make as a way of creating opportunities for the private sector.
"These are very important enterprises. It is a question of balancing their ability to enter commercial terrain with a long term strategic objective," said Erwin before his budget vote speech.
For the SOEs, Erwin said this was a time of challenge and opportunity.
"For parliament it is a time to reflect and decide on the lessons learnt and to make farsighted decisions. It is a critical time and the thrust of this address is that careful consideration needs to be given to the role of the SOEs," said Erwin, who added that parliament had to reflect on its own role in this context where government is required to meet pressing economic challenges as well as commercial pressures.
- Fin24.com
