State Owned Enterprises (SOEs) play a pivotal role in the South African economy and serve as a vehicle for achieving improved economic growth and poverty reduction. Sound governance structures are crucial for reaching societal goals and for the SOEs to perform optimally. However, for more than a decade SOE performance has been sub-optimal and characterised by poor governance, poor financial sustainability, and operational inefficiency. Corruption, state capture and the lack of a common SOE agenda/agreed strategy further added to the financial and operational woes.

To address the above shortfalls, the Presidential Review Committee on SOEs and the National Planning Commission both recommended the development of an overarching long-term strategy for SOEs and enacting a single overarching law for their mandate, supervision, and operation.

Minister of Public Enterprises might have a potential solution for this SOE challenge. The minister is expected to soon introduce a new bill (the National State Enterprise Bill) in parliament to establish the new State Asset Management SOC Ltd, thereby creating a centralised SOE model. The entity intends to operate as a state-owned holding company and will, over time, own and manage at least 13 SOEs. It will have a CEO and Board of Directors and will eventually replace the Department of Public Enterprises. According to the Department of Public Enterprises, ‘the establishment of the holding company will ensure effective oversight of SOEs and separate the operational, regulatory, and policy-making roles of the government’.

The draft National State Enterprise Bill was gazetted for public comment in September 2023. Government received 3 500 comments (including our comments) on the bill with several comments highlighting the critical shortcomings of the initial draft. A revised version was published in January 2024, aiming to address the concerns raised.

Objectives of the National State Enterprise Bill

The bill proposes a significant structural shift, changing the way SOEs are run in the country. The bill also signals the initial stages of the dissolution of the Department of Public Enterprises. The primary objective of the bill is to improve the operational, financial and governance inefficiencies of SOEs, guided by an approved national strategy.

SOEs being transferred to the holding company

The following 13 SOEs are listed for potential transfer:

• Air Traffic and Navigation Services Company Limited
• Airports Company Limited
• Broadband Infraco SOC Ltd
• CEF (Pty) Limited
• Denel SOC Limited
• Eskom Holdings SOC Limited
• Sentech SOC Limited
• South African Airways SOC Limited
• South African Forestry Company SOC Limited
• South African National Roads Agency Limited
• South African Nuclear Energy Corporation Limited
• South African Post Office SOC Limited
• Transnet SOC Limited

While the Board has the authority to advise the President on the phased succession of the transfer of the 13 SOEs to the holding company, the bill is unclear on the timing and order of transfer. It is envisioned that other SOEs will be added to the list over time.

The National Strategy

The bill calls for the shareholder (South African government) to develop a national strategy to improve the financial and operational sustainability of the subsidiaries. The strategy is to include performance targets, sectoral and specific objectives, developmental obligations, matters related to financial turnaround and to enable private sector investment.

Some of the key challenges identified by the Presidential Review Committee were that South Africa had no common agenda for and understanding of SOEs, there were no commonly agreed strategic sectors and priorities, and no clarity on the role of the executive authority (government representative Minister). The development of the national strategy is intended to remove these barriers and create a more cohesive approach to managing and stabilising these SOEs.

The President (acting as the shareholder representative) will play a key role in the development of the national strategy for the holding company and its subsidiaries. However, in an attempt to limit political interference, the bill states that this will be done on the advice of the Presidential Advisory Committee and then gazetted for public comment. It is important to note that the bill does not obligate the President to act on the advice/comments provided.

The Presidential Advisory Committee is prescribed to include a ‘mix of independence’ and must include: i) three members of the national executive appointed by the President, ii) one representative from organised labour, iii) one representative from organised business, iv) sector specific experts appointed by the President and v) a representative of the holding company as appointed by its Board.

With the President responsible for electing several Committee members, we question the actual mix of independence.

The national strategy will be periodically reviewed every five years with the bill allowing for additional ad-hoc reviews. This reviewed strategy will follow the same process as the initial strategy and will be gazetted for public comment.

State Asset Management SOC Ltd – the holding company

The Bill outlines the objectives of the holding company, the powers and duties of the shareholder and the objectives of its Board.

Another key inclusion, in an attempt to limit political interference, is the introduction of an independent panel to elect the holding company’s first Board. The panel will comprise: i) a retired judge appointed by the President to chair the panel, ii) two members of the national executive appointed by the President, iii) one representative of organised labour, iv) one representative of organised business, and v) three former and/or current CEOs of public companies to be appointed by the President. The panel must call for nominations and interview the candidates and recommend them on the grounds of ‘skills, knowledge, experience and integrity’. Any Board appointments thereafter are by recommendation of the Board to the President

The bill allows for the panel to determine its own rules to govern its proceedings and therefore, decision-making processes are unclear until such time. The bill once again allows the President to appoint several panel members, which raises concerns about actual independence.

Political interference

While the revised bill does attempt to limit the powers of the President, the bill does still leave scope for the President to make regulatory changes in future and to delegate its powers to a member of cabinet. No guidance has been provided on who the electee could be.

Possible political interference remains an area we do not believe has been fully mitigated, acknowledging that this risk has been reduced with the revised version.

Final thoughts

The introduction of the new holding company and the intention to improve on the shortcomings of the current regime is positive. There is a strong need to effectively address the issues these SOEs and the economy are facing and a strong requirement for government to step up and implement turnaround measures with great intent. This bill has the potential and is an opportunity to do so if implemented effectively. 

For the holding company to achieve its stated objectives, it needs a level of independence and autonomy to operate effectively and to achieve the desired performance targets.

However, the timing of the implementation is not clear and it is likely that the new bill will only be finalised in the second half of 2024 with elections taking place in May 2024.