Political deployment cycles and SOE bailouts

ANTHONY BUTLER: SOEs are like alcoholics who can’t settle for one free drink

Bailouts and transfers in the medium-term budget may just make things worse

First published in BusinessLive

03 NOVEMBER 2022

Reserve Bank governor Lesetja Kganyago can be a very funny man. A decade ago, as director-general of the National Treasury, he told parliament’s finance committee that he was fed up with answering for the sins of SAA: “They must answer for themselves.”

Sceptical about “tough love” conditions for bailouts, he said state-owned enterprises (SOEs) resemble heavy drinkers looking for a fix. Give them something today and they may go away for a while, but “I have been long enough in the Treasury to know that they will come again for more”.

Kganyago’s insight remains pertinent given the government’s commitments in the medium- term budget policy statement, to disburse R33bn to Transnet, the SA National Roads Agency and Denel.

It has been less controversial that the finance minister has decided to absorb more than R200bn of Eskom’s contingent liabilities in the government’s balance sheet. After all, credit ratings agencies treat state-guaranteed parastatal debt as equivalent to government borrowing, and surely everyone wants SOE executives to focus on their core business rather than on debt management?

However, if Kganyago is right, such bailouts and transfers may both make the underlying problems worse. Of course, SOEs are not individuals afflicted with substance addiction. Nor, typically, are they run by them. But there are four reasons why, as organisations, they often resemble them.

First, bailouts ease symptoms rather than deal with causes, key among which is confusion about objectives. The shareholder claims it wants to create economic value, but it also wants to marginalise private partners, support politically connected suppliers, and rigidly apply procurement and equity targets.

There is nothing wrong with multiple policy goals, but they need to be costed and transparent. As things stand, parastatals are faced with a plethora of conflicting objectives; behind the mess the crooked and corrupt can thrive.

Second, Treasury conditionality can never succeed as a routine instrument for managing SOEs. The Treasury is allegedly finalising a funding framework, which will supposedly specify in detail the conditions — and preconditions — that must be met by supplicants.

Such an approach suggests wrongly that SOE boards and executives simply cannot be expected to run their own operations. Instead, it suggests, the Treasury is capable of running them all by itself. This is not so.

Third, the current parastatal architecture concentrates economic hazards in too-important-to-fail boardrooms. Almost every major SOE serves some essential function in the economy, and bailout approaches simply perpetuate the debilitating insecurity this generates.

For example, SA’s energy security cannot be reliably guaranteed without diversifying energy sources and ending the tyranny of Eskom’s vertical monopoly. The same is true in the fields of transportation and logistics.

Finally, party deployment explains why parastatal boards so often resemble drunkards hoping for one more drink. When parastatals are flush with cash the ANC can deploy looters and loyalists, with questionable business skills, to generate wealth for themselves, for their political networks, and for the liberation movement’s always-depleting coffers. When crisis strikes, such deployees can simply bail out and return to postparastatal life, typically landing gently, courtesy of a golden parachute.

We then get some soberly dressed fixers. Hitherto passed over by deployment apparatchiks, these upstanding business persons, of good character, promise to dispose of noncore assets, undertake operational reviews, and finally draw up “turnaround plans”. But once the money is in they become disposable themselves, and the looters push their way back to the head of the deployment queue.

The problems at SOEs are not essentially financial or managerial. They are political, and they require political solutions. It is still not clear that President Cyril Ramaphosa and the broader ANC leadership are willing, or able, to accept that fact.

• Butler teaches public policy at the University of Cape Town.

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