No more Mr Nice Guy: Gigaba gets tough on state-owned entities

2017-10-25 14:22 - Matthew le Cordeur

Cape Town - Finance Minister has drawn a line in the sand regarding government’s expectations of the executives and board members that are running the country’s state-owned companies (SOC) into the ground.

It was revealed in the 2017 mini budget that between 2011/12 and 2016/17, the combined profitability of the SOCs declined from 7.5% to an estimated 0.2%.

“Recent years have seen several worrying developments with regard to SOCs, with worrying trends of governance failures, corruption, operational inefficiency and the need for government bailout,” Gigaba said in his maiden mini budget speech on Wednesday.

“In this way, SOCs are developing a poor reputation with the public at large, and have become a major fiscal risk to the country due to government guarantees of their debt.”

SA tired of being dragged into crises, says Gigaba

Gigaba said that executives of SOCs are paid competitive salaries for their professional expertise as business managers.

“The public, and indeed government as a shareholder, are correct to expect a lot of them,” he said.

“As the shareholder, we are tired of being dragged into crises by those we employ to govern and manage SOCs,” he said.

“This must end.

“The trend of SOCs seeking bailouts to finance operational expenditure, inefficiency and waste must also be brought to an end.”

Eskom and SAA have been the biggest culprits of bailouts through government guarantees in recent years. Acting on SAA, Gigaba recently appointed a new board – and removed controversial chairperson Dudu Myeni – in a bid to turn the ailing airline around.

They are all equal, says Gigaba

The times of some SOCs being more equal than others is over, Gigaba told a press conference before his speech.

“We need to reduce the guarantees,” he said. “We will be very strict going forward. No SOC must feel like they have a special relationship with government.

“They are all equal,” he said. “They must generate their own revenues.

“We need to reduce governance management and financial risks to which SOC are exposing us,” he added.

Gigaba also said they will analyse all assets – not only non-core assets – that they own and decide which ones they should sell off by March 2018. This is required to raise additional revenue to lower the risk of breaching the fiscal ceiling, he said.

Treasury to make guarantee framework more stringent

Gigaba announced that National Treasury will make proposals to make government’s guarantee framework more stringent, he said.

“It is imperative that government ensure that the boards of directors in the SOCs are properly qualified, ethical and provide the requisite skill sets that will ensure that the SOCs are soundly and profitably run, to properly serve their mandates. This needs to be done without delay.

“If board members do not exercise the leadership, good governance and financial management expected of them, government must act quickly and decisively.”

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