Abstract
With a dominant role in network industries, SOEs in South Africa provide key inputs to business and contribute to capital formation. However, the deterioration in their operational and financial performance over time and the increasing burden they pose on the budget point to the urgent need to reduce their large footprint in the economy and address their weak performance. Both are major obstacles to economic efficiency and competitiveness and to the growth of productive private sector firms. Reform options include undertaking a comprehensive inventory of existing SOEs to decide whether to divest, liquidate, or keep them after being restructured. SOEs that are retained should have clearly defined mandates, strong governance, and strict oversight structures to operate in competitive markets with autonomy.
The Role of Soes in South Africa: Issues and Policy Options1
With a dominant role in network industries, SOEs in South Africa provide key inputs to business and contribute to capital formation. However, the deterioration in their operational and financial performance over time and the increasing burden they pose on the budget point to the urgent need to reduce their large footprint in the economy and address their weak performance. Both are major obstacles to economic efficiency and competitiveness and to the growth of productive private sector firms. Reform options include undertaking a comprehensive inventory of existing SOEs to decide whether to divest, liquidate, or keep them after being restructured. SOEs that are retained should have clearly defined mandates, strong governance, and strict oversight structures to operate in competitive markets with autonomy.
A. Introduction
1. SOEs play a significant role in the South African economy, dominating key network industries. SOEs are prevalent in the utilities, transportation, and communications sectors as well as the provision of developmental financial services. Given SOEs’varied roles in supplying key inputs for businesses and their significant share in real gross capital formation (averaging 13 percent of total in the last five years), SOEs’ operations are an important determinant of the productivity and the competitiveness of the economy. As recipients of substantial support from the budget in the form of transfers and guarantees, SOEs create large direct costs and are an important source of fiscal risks in the form of contingent liabilities.
2. In recent years, the debate about whether SOEs are delivering on their mandates in a cost-effective manner has intensified. As public finances have become increasingly constrained, the growing burden of SOEs on the budget has been a key area of concern. Moreover, deficiencies in SOEs’ service delivery, especially in electricity provision, combined with corruption scandals in procurement and administration, have been a source of discontent and led to demands for reform. In FY20/21, direct transfers from the government to SOEs amounted to 1.6 percent of GDP compared to an already high average of 1 percent of GDP in the previous five fiscal years. The stock of government guarantees on SOE borrowing amounted to 10.3 percent GDP in FY20/21, about 2 percent of GDP higher than in FY15/16. In addition, transfers averaging 0.5 percent of GDP per year in FY21/22 and the next two fiscal years have been budgeted. Although a decline in transfers to SOEs is budgeted, there is a high risk that the projected transfers would become insufficient if progress with restructuring plans, especially in the electricity sector, does not accelerate.
3. This paper aims to contribute to this debate and discuss policy options for reform. Section B discusses the South African SOE landscape, including general characteristics, the legal and institutional framework, and SOEs’ financial and operational performance. Section C puts the South African SOE scene in an international perspective. Section D discusses international experience with SOE reform. Section E concludes with policy options for reforming SOEs.
B. The South African SOE Landscape
General Characteristics2
4. SOEs’assets amounted to 34 percent of GDP at end FY19/20. Nonfinancial SOEs account for 86 percent of total assets while financial SOEs account for the remainder. Of the total nonfinancial SOEs, the three largest—Eskom (electricity), Transnet (transportation), and Telkom (communications)— represent about ¾ of assets, 80 percent of revenue, and 97 percent of loan debt (11.4 percent of GDP).3 Of the total financial SOEs, the three largest—the Development Bank of Southern Africa, the Industrial Development Corporation (both developmental financing), and the Land Bank (agricultural financing)—account for 94 percent of assets, 95 percent of revenue, and 91 percent of loan debt (2.8 percent of GDP).
5. Most of nonfinancial SOEs are in the utility and transportation sectors and fully owned by the government (Figure 1). The utilities sector comprises the electricity (Eskom) and water enterprises (i.e., the water boards and the Transcaledon Tunnel Authority (TCTA), a related water infrastructure company). The transport sector comprises mainly the commercial railways, ports, and pipeline infrastructure SOE (Transnet), the airlines (SAA and SAX) and the related airport, and air traffic and navigation companies (ACSA ATNS), and passenger railway transportation (PRASA). SOEs operating in communications, energy, and mining account for most of the remaining assets, with Telkom, the Central Energy Fund (CEF), and the State Diamond Trader (STD) being the largest companies in each of those sectors. Several smaller companies are also active in forestry (SAFCOL), postal services (SAPO), and defense (Denel). In terms of the ownership structure of non-financial SOEs, only Telkom and ACSA have private shareholders.
Nonfinancial SOE Portfolio by Sector
(Percent of total assets)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: South African authorities and IMF staff.Note: Details of the SOEs in each sector are provided in Annex I.Nonfinancial SOE Portfolio by Sector
(Percent of total assets)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: South African authorities and IMF staff.Note: Details of the SOEs in each sector are provided in Annex I.Nonfinancial SOE Portfolio by Sector
(Percent of total assets)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: South African authorities and IMF staff.Note: Details of the SOEs in each sector are provided in Annex I.Institutional Framework
6. Several pieces of legislation and a protocol on corporate governance establish the SOEs governance framework. SOEs are created by law and can be established at all levels of government. They are subject to enabling legislation (EL), the Companies Act (CA), and the Public Finance Management Act (PFMA). While the contents of EL vary across SOEs, EL usually contains a description of SOE objectives and requirements on governance, reporting, and accountability. The CA establishes the corporate governance for private sector firms, which also applies to the few SOEs that are corporatized. The PFMA defines the oversight responsibility for SOEs’ corporate plans, shareholder compacts, and reporting requirements. The PFMA also establishes principles regarding the role and responsibilities of SOE boards. The protocol of corporate governance is a non-legislated code of conduct on SOE governance endorsed by the cabinet. It defines the relationship between the government and SOEs while seeking to maintain the independence of SOEs from the executive in their day-to-day operations.
7. SOE objectives are established in their enabling legislation, by both the shareholder departments and the cabinet. The shareholder departments are responsible for ensuring that SOEs under their purview generate appropriate returns on investment, and more generally, are financially sustainable. The cabinet provides policy directives to SOEs and contributes to the design and achievement of SOE objectives. Functions may be performed by two different departments in some cases. For Eskom, for example, the Department of Public Enterprises is the shareholder while the Department of Minerals and Energy is in charge of the SOE’s policy. There is no formal ownership policy for SOEs nor a periodic re-evaluation of the relevance of their objectives.
8. SOE oversight is carried out by the parliament, the executive, and SOE boards. Parliament’s Standing Committee on Public Accounts reviews annual financial statements and audit reports from the Auditor General. Separate portfolio committees exercise oversight over service delivery performance of SOEs compared to their corporate plans. Within the executive, the shareholder and policy departments ensure that proper corporate governance is in place and oversee policy implementation respectively. The Finance Minister and the National Treasury are responsible for financial oversight to protect the budget and the sovereign credit rating. SOE boards of directors give strategic direction to SOEs and are fully accountable for SOE performance. The relevant shareholder departments appoint the boards of directors, ensure that they have the necessary skills to guide SOEs, and seek an appropriate mix of executive and non-executive directors. Shareholder departments are also required to sign agreements with the SOEs under their purview on key performance indicators (i.e., shareholder compacts).
9. SOEs also interact with regulators independently when applicable. Regulators focus on pricing issues, consumer protection, and the extent to which SOEs meet the standards of their specific industry.
10. The accountability mechanisms for SOEs work through the executive and the parliament. The cabinet and its shareholder departments have the authority to hold SOE boards and management accountable for their performance. The shareholder departments can dismiss SOE boards if not performing satisfactorily. In turn, the parliamentary committees oversee the corresponding departments and can request the implementation of remedial measures in the exercise of their oversight roles.
SOE Performance
11. The weak and deteriorating financial performance of SOEs has been mainly driven by nonfinancial SOEs. Nonfinancial SOEs have consistently shown cash deficits in the period 2004–20, averaging about 1.1 percent of GDP per year in aggregate. As a result, nonfinancial SOE debt in 2020 reached 12.1 percent of GDP compared to only 2.3 percent in 2004. Financial SOEs contributed considerably less to debt accumulation (about 2 percentage points of GDP) given their much smaller size. Nevertheless, the Land Bank’s financial position has deteriorated in recent years as a result of decreasing loan quality, requiring budget support to shore up its finances.4
Nonfinancial Public Enterprise Deb and Deficit
(Percent of GDP)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: SARB and IMF staff estimates.Nonfinancial Public Enterprise Deb and Deficit
(Percent of GDP)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: SARB and IMF staff estimates.Nonfinancial Public Enterprise Deb and Deficit
(Percent of GDP)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: SARB and IMF staff estimates.12. Applying an SOE health check methodology individually to the largest nonfinancial SOEs confirms that most fully government-owned SOEs pose significant fiscal risks.5 This methodology consists of computing relevant indicators collected from SOEs’ financial statements data to measure their profitability (return on assets, cost recovery), solvency (debt to assets, interest coverage), and liquidity (current ratio, quick ratio), and compare these values to those that lenders and credit rating agencies consider representative of five categories of risk. A composite indicator derived from the individual indicator ratings is used to estimate the overall risk for each enterprise. Below-moderate risk scores are interpreted as financial performance being on track, moderate risk scores as a gray zone, and above-moderate risk scores as high or very high risk, pointing to the need to rectify the financial performance. The methodology was applied to 11 nonfinancial SOEs accounting for an estimated 84 percent of total nonfinancial SOE assets, using financial statements fromFY15/16 through FY19/20.6 The main results suggest that:
SOEs with weak financial performance had consistently poor profitability, liquidity, and solvency indicators, the latter reflected in a high level of indebtedness.
About 70 percent of fully government-owned SOEs consistently show risk scores above moderate since FY16/17.7
SOEs with partial private ownership (Telkom and ACSA) had consistently better financial indicators than the fully government-owned ones due to better performance in the areas of profitability and solvency.
13. Data on government support to major nonfinancial SOEs are consistent with the SOE health check findings. Several nonfinancial SOEs (i.e., Eskom, SAPO, SABC, Denel, and SAA) have received transfers from the budget. Moreover, Eskom, TCTA, SAA and Transnetare also beneficiaries of government guarantees on their borrowing, with Eskom and energy-sector related guarantees accounting for 87 percent of the stock of guarantees in FY20/21. The cost to the government of direct support through transfers increased from 1 to 1.6 percent of GDP between FY15/16 and FY20/21, and the stock of government guarantees on major SOE borrowing picked up from 8 to 10.2 percent of GDP over the same period.
Fiscal Support to Major SOEs
(Percent of GDP)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: South African Authorities, and IMF staff calculations.Fiscal Support to Major SOEs
(Percent of GDP)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: South African Authorities, and IMF staff calculations.Fiscal Support to Major SOEs
(Percent of GDP)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: South African Authorities, and IMF staff calculations.14. Nonfinancial SOE productivity developments also seem consistent with the weak financial performance. Per-employee sales in constant prices, a common measure of SOE productivity, had been falling before the pandemic and likely declined further in FY20/21 as the sharp pandemic-induced contraction hit. The result holds irrespective of whether sales are measured in rand or in US dollars.
Productivity: Sales per Employee
(Thousands, constant 2017 prices, group median)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: Annual Financial Statements, IMF World Economic Outlook, and staff calculations.Productivity: Sales per Employee
(Thousands, constant 2017 prices, group median)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: Annual Financial Statements, IMF World Economic Outlook, and staff calculations.Productivity: Sales per Employee
(Thousands, constant 2017 prices, group median)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: Annual Financial Statements, IMF World Economic Outlook, and staff calculations.C. South Africa’s SOE Landscape vis-a-vis the International Perspective
15. While major SOEs are present in similar network industries than in other EMEs, the extent of government ownership is considerably higher in South Africa. Internationally, SOEs are especially prevalent in utilities, transportation, and banking, as is the case in South Africa (Fiscal Monitor April 2020). However, 60 percent of utility companies in other EMEs have a mix of public- and private-sector owners. Countries like Brazil and China have taken advantage of private participation to improve incentives for efficiency in SOEs. Meanwhile, in South Africa, the largest SOEs are typically 100 percent government-owned. Moreover, there are still SOEs that operate in sectors that are managed by private participants with higher productivity in other countries.
16. Unlike in other EMEs where government ownership of commercial banks is more prevalent, financial SOEs in South Africa focus exclusively on developmental objectives. Financial SOEs are modest in size compared to the banking system (4 percent of banking system assets) and they do not take deposits from the public. This is a relative strength compared to other EMEs given that government ownership of commercial banks internationally has proven to be a major source of financial sector fragility and contingent liabilities.
17. Consistent with the higher extent of government ownership, the cost of labor compares unfavorably with that of international counterparts. The average cost of labor (as a share of total operating revenues) is somewhat higher in the fully government-owned nonfinancial SOEs in South Africa than in the majority government-owned entities internationally8 Among nonfinancial South African SOEs, in the two institutions with minority private shareholders, labor costs are considerably lower than in the fully government-owned ones—consistent with findings at the international level that private participation in SOE operations increases their efficiency. The latter result, however, needs to be interpreted with caution given the small number of SOEs with private participation in South Africa.
Cost of Labor per Operating Revenue, 2015–2020
(Percent)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: Annual Financial Statements, IMF Fiscal Monitor, and staff calculations.Note: The international data are taken from the IMF Fiscal Monitor (2020), based on data for 969,000 firms from 1999–2017. Majority and minority “government” ownership.Cost of Labor per Operating Revenue, 2015–2020
(Percent)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: Annual Financial Statements, IMF Fiscal Monitor, and staff calculations.Note: The international data are taken from the IMF Fiscal Monitor (2020), based on data for 969,000 firms from 1999–2017. Majority and minority “government” ownership.Cost of Labor per Operating Revenue, 2015–2020
(Percent)
Citation: IMF Staff Country Reports 2022, 038; 10.5089/9798400201318.002.A002
Sources: Annual Financial Statements, IMF Fiscal Monitor, and staff calculations.Note: The international data are taken from the IMF Fiscal Monitor (2020), based on data for 969,000 firms from 1999–2017. Majority and minority “government” ownership.18. SOEs in South Africa face similar challenges than in other EMEs. The 2012 Presidential Committee Report on State Owned Entities (PCRSOE) extensively documented these challenges, which include lack of clarity in objectives, multiplicity of mandates within their business models, improper costing of mandates, and weaknesses in governance and oversight. These weaknesses have contributed to the feeble financial health of SOEs. Furthermore, the use of bailouts to prop up SOE finances and guarantees to help them borrow, in the absence of sufficient assurance that appropriate restructuring and efficiency improvements will take place, have undermined SOEs’ incentives to improve their performance. SOE finances and service delivery have largely failed to improve, as exemplified by the continued deterioration in Eskom’s finances and energy availability in recent years.
19. Weaknesses in the institutional framework discussed in the PCRSOE include:
Lack of an ownership policy. The proliferation of SOEs reflects historical developments more than a planned long-term vision that links ownership to a development plan. As such, misalignments of SOEs’ performance with goals and needs are not subject to review. Moreover, establishing new SOEs is a simple process—SOEs can be created by all levels of government with no deep comparative analyses on appropriateness and cost-effectiveness compared to other means of addressing market failures or reaching non-economic objectives.
Inconsistent legislative framework. Legislation is dispersed among many laws and lacks uniformity. Important elements may contradict each other in different pieces of legislation (EL, CA, PFMA), including governance arrangements and reporting lines. For example, there are differences between who appoints CEOs and SOE boards, who sets remuneration policies, who is responsible for checks and balances, and what the reporting obligations are, which creates uncertainty, complicates enforcement, and increases the burden of compliance for SOEs. Lack of enforcement of PFMA provisions has also been a longstanding problem.
Complex and decentralized oversight model. Given the lack of clarity in the definition of roles, conflicts among different oversight entities may arise, weakening accountability. For example, the National Treasury should have the tools to ensure that a policy ministry does not pursue an SOE policy that is financially unaffordable or creates large fiscal risks. Recent developments around SAA illustrate these issues and the need for greater coordination among entities.
Deficiencies in the regulatory framework. Regulatory uncertainty, limited review of new capital projects, frequent changes in assessment methodologies, and insufficient independence of key decision makers are all factors that weaken SOE performance. For instance, if non-viable projects are imposed on SOEs, large but politically unfeasible increases in tariffs will be needed, financing costs will increase reflecting market risks, and the need for government guarantees will be higher.
D. International Experience with SOE Reforms
20. International experience in addressing the above mentioned challenges can help provide options for reform. Given that several EMEs have faced difficulties with SOEs, a variety of approaches have been used. A survey of SOE reform experiences indicates that reform success has critically depended on the ability to change the incentives underlying the inefficiency of SOEs. The discussion of country cases in World Bank (1995), OECD (2015), and World Bank (2020) suggests that a combination of reforms in the following areas have contributed to successful experiences:
A favorable political economy environment. Three attributes seem to be needed: (1) reform must be politically desirable to the leadership and its constituencies—normally achieved after a change in government that weakens the influence of the potential losers or when an economic crisis makes the budgetary burden unaffordable; (2) political leaders act in coordination (legislatures, executive, state or provincial governments) and have the means to implement change, withstand opposition, and compensate losers; and (3) reform announcements are credible to investors and all stakeholders.9
Conditions for increased competition. Markets where SOEs operate need to be sufficiently competitive to encourage company managers to be efficient. To this end, some EMEs have, for instance, liberalized trade (e.g., by reducing tariffs and non-tariff barriers), removed barriers to entry and leveled the playing field (e.g., by removing specific SOE advantages, such as special tax treatments, superior regulatory treatment, and preferential procurement arrangements to attract private participants), and unbundled large SOEs to separate the parts of the business that could operate in a competitive market from those that could not.
Increased private-sector participation. Some countries have promoted the entry of private capital either by broadening the ownership structure or by using management contracts to hire private-sector managerial expertise in open and transparent competitive processes. Broadened ownership occurred either by retaining majority shareholding with corporate governance reforms (e.g., Brazil, China, India, Poland), maintaining minority shareholding after a sale of the majority to the private sector (e.g., Brazil, Poland, Spain, UK, Norway), or fully divesting companies (e.g., Argentina, Brazil, New Zealand). Also, the more competitive or potentially competitive the market, the more countries broadened ownership to benefit from the efficiency advantages of private firms in such markets.
Hardened budget constraints. In successful reforms, the use of explicit or implicit subsidies/transfers/bailouts was significantly reduced or eliminated; SOE borrowing was increasingly made on commercial terms; guarantee frameworks were tightened to reduce SOE reliance on them to borrow; and “soft loans” from the domestic financial sector were no longer available.10
Strengthened regulation. Appropriate regulation needs to provide incentives for companies to invest, expand services, and operate efficiently while protecting consumers from market power. This has been achieved in some EMEs by: (1) auctioning off the right to be a monopoly in a competitive process or increasing competition by splitting companies into regional monopolies; and (2) setting rewards and penalties through the regulatory framework to induce the companies to operate efficiently and pass on gains to consumers through lower prices.11 Safeguards to protect private producers from government opportunistic behavior were also introduced.
Collaboration between the government and SOE Managers. SOEs’ response to appropriate incentives ultimately depends on whether SOE managers have the freedom, means, and accountability to improve performance. SOE managers need to be able to adjust staff levels, seek cheaper suppliers, discontinue loss-making activities, and look for new markets. Their performance must be evaluated through a system of rewards (and penalties) directly linked to their success (or failure) in meeting well-defined objectives. Improving relations between the government and SOE managers necessitate the creation of new centralized ownership and oversight bodies; increased managerial autonomy to limit politicization with expanded powers for SOE managers on pricing, procurement, production, and personnel decisions; performance agreements; and upgrades in the composition of SOE boards to make them more professional and/or include representatives of consumers.12 Financial controls on borrowing and guarantee approvals should be retained to limit fiscal risks.
21. Reforms were often implemented in stages over many years depending on country-specific circumstances and initial conditions. Given the importance of a favorable political economy to implement a critical mass of reforms, reforms were implemented in stages as country-specific conditions allowed. For example, SOE reforms in China started in the 1970s, gradually increasing private participation in the economy from what was originally a soviet-style system. Brazil experimented with different reform models since the 1980s debt crisis. In both cases reforms are ongoing.
E. Policy Options
22. Establishment of SOEs is just one policy instrument to address market failures or achieve non-economic objectives. As Shleifer (1998) suggests, the case to justify intervention through an SOE for many of the usually mentioned purposes is hard to make from stated principles, such as addressing market failures or achieving non-economic objectives. In practice, the creation of SOEs can have serious unintended consequences, including inefficient production, facilitation of political patronage and corruption, and a high fiscal cost.
23. Various policies can be deployed to improve the efficiency of SOE operations to boost growth and reduce fiscal risks. These include:
Undertaking a comprehensive SOE inventory. Taking stock of the existing SOEs in all levels of the government (including subnational SOEs and SOE subsidiaries) in terms of their commercial viability, relevance of their objectives from a public policy perspective, performance, and success in dealing with market failures and achieving non-commercial objectives would not only inform subsequent reform strategy decisions but also help fill in current information gaps.
Devising a reform strategy for each SOE. As discussed in Alves (2016), options include: (i) transformation into government agencies or budgetary institutions if SOEs are not commercially viable but carry out relevant public policy objectives; (ii) divestment if they are commercially viable but their objectives are not relevant from a public policy perspective; (iii) liquidation if they are not commercially viable nor are their objectives relevant from a public policy perspective; (iv) retention of them as SOEs if they are both commercially viable and have relevant objectives from a public policy perspective, while pursuing reforms to improve their performance. Deciding on the course of action for each SOE and concentrating on a more focused subset of entities that will be kept as such would help upgrade companies’ management and performance, improve consumer satisfaction, reduce fiscal costs, and make better use of scarce monitoring and oversight resources.
Addressing weaknesses in the institutional framework. This could be achieved by (i) developing, publishing, and periodically reviewing a comprehensive ownership policy (as in France, Finland, Norway, Sweden, and the U.K)13; (ii) standardizing the legislative framework across SOEs to eliminate legal uncertainty, strengthen enforcement, and implement increased disclosure and reporting requirements (as in Cyprus, Korea, New Zealand, and the Philippines)14-15; and (iii) simplifying the oversight model by increasing centralization of the ownership function (as in China, Denmark, Finland, France, Netherlands, Peru, and Singapore) preferably in the Ministry of Finance or a holding/investment company to unify SOE guidelines and their interpretation, compile, and report aggregate information and make the most of scarce expertise.
Reforming SOEs that are retained to improve their functionality. As learned from international experience, successful reform includes (i) increasing competition in the markets where SOEs operate; (ii) broadening the ownership structure to include private sector participation; (iii) hardening budget constraints; (iv) reducing regulatory uncertainty while ensuring that price regulation provides appropriate incentives for companies; and (v) making the relationship between the government and SOE managers more collaborative.
References
World Bank. 1995. “Bureaucrats in Business: The Economics and Politics of Government Ownership.”
Shleifer, Andrei. 1998. “State versus Private Ownership” Journal of Economic Perspectives.
Government of South Africa. 2012. “Presidential Review Committee on State-Owned Entities. Main Report.”
Allen, Richard and Miguel Alves. 2016. “How to Improve the Financial Oversight of Public Corporations,” How to Notes. Fiscal Policy.” Fiscal Affairs Department, International Monetary Fund.
Organization for Economic Co-operation and Development. 2015. “Stated-Owned Enterprises in the Development Process.” OECD Website on Corporate Governance at http://www.oecd.org/corporate/
International Monetary Fund. 2020. “State-Owned Enterprises: The Other Government”, Chapter 3, Fiscal Monitor, Fiscal Affairs Department.
World Bank. 2020. “State Your Business! An evaluation of World Bank Group Support to the Reform of State-Owned Enterprises.”
Annex I. Non-Financial State-Owned Enterprises Covered by SARB Data
| Sector | Entity | |
|---|---|---|
| 1 | Utilities | Eskom |
| 2 | Overberg Water | |
| 3 | Rand Water | |
| 4 | Transcaledon Tunnel Authority (TCTA) | |
| 5 | Umgeni Water | |
| 6 | Sedibeng Water | |
| 7 | Lepelle Northern Water | |
| 8 | Magalies Water | |
| 9 | Mhlathuze Water | |
| 10 | Amatola Water | |
| 11 | Bloem Water | |
| 12 | Transportation | Transnet Limited |
| 13 | Airports Company of South Africa Limited (ACSA) | |
| 14 | Passenger Rail South Africa (PRASA) – SA Rail Commuter Corporation Ltd | |
| 15 | South African Airways (Pty) Limited (SAA) | |
| 16 | Air Traffic and Navigation Services Company Limited (ATNS) | |
| 17 | South African Express (Pty) Limited | |
| 18 | Communications | Telkom SA Limited |
| 19 | South African Broadcasting Corporation Limited (SABC) | |
| 20 | Sentech Limited | |
| 21 | Broadband Infrastructure Company Limited (Infraco) | |
| 22 | Energy | Central Energy Fund |
| 23 | Petroleum, Oil and Gas Corporation of South Africa Pty Limited (Petro SA) | |
| 24 | South African Nuclear Energy Corporation Limited (Necsa) | |
| 25 | Mining | State Diamond Trader |
| 26 | African Exploration Mining and Finance Corporation SOC Ltd (AEMFC) | |
| 27 | Council for Mineral Technology (Mintek) | |
| 28 | Alexander Bay Development Corporation (Alexkor) | |
| 29 | Others | South African Post Office Limited (Sapo) |
| 30 | South African Forestry Company Limited (SAFCOL) | |
| 31 | Denel Pty Limited | |
| 32 | Council for Scientific and Industrial Research (CSIR) | |
| 33 | North West Development Corporation (SOC) Ltd (NWDC) | |
| 34 | South African Bureau of Standards (SABS) | |
| 35 | Free State Development Corporation (FDC) | |
| 36 | Onderstepoort Biological Products Limited |
| Sector | Entity | |
|---|---|---|
| 1 | Utilities | Eskom |
| 2 | Overberg Water | |
| 3 | Rand Water | |
| 4 | Transcaledon Tunnel Authority (TCTA) | |
| 5 | Umgeni Water | |
| 6 | Sedibeng Water | |
| 7 | Lepelle Northern Water | |
| 8 | Magalies Water | |
| 9 | Mhlathuze Water | |
| 10 | Amatola Water | |
| 11 | Bloem Water | |
| 12 | Transportation | Transnet Limited |
| 13 | Airports Company of South Africa Limited (ACSA) | |
| 14 | Passenger Rail South Africa (PRASA) – SA Rail Commuter Corporation Ltd | |
| 15 | South African Airways (Pty) Limited (SAA) | |
| 16 | Air Traffic and Navigation Services Company Limited (ATNS) | |
| 17 | South African Express (Pty) Limited | |
| 18 | Communications | Telkom SA Limited |
| 19 | South African Broadcasting Corporation Limited (SABC) | |
| 20 | Sentech Limited | |
| 21 | Broadband Infrastructure Company Limited (Infraco) | |
| 22 | Energy | Central Energy Fund |
| 23 | Petroleum, Oil and Gas Corporation of South Africa Pty Limited (Petro SA) | |
| 24 | South African Nuclear Energy Corporation Limited (Necsa) | |
| 25 | Mining | State Diamond Trader |
| 26 | African Exploration Mining and Finance Corporation SOC Ltd (AEMFC) | |
| 27 | Council for Mineral Technology (Mintek) | |
| 28 | Alexander Bay Development Corporation (Alexkor) | |
| 29 | Others | South African Post Office Limited (Sapo) |
| 30 | South African Forestry Company Limited (SAFCOL) | |
| 31 | Denel Pty Limited | |
| 32 | Council for Scientific and Industrial Research (CSIR) | |
| 33 | North West Development Corporation (SOC) Ltd (NWDC) | |
| 34 | South African Bureau of Standards (SABS) | |
| 35 | Free State Development Corporation (FDC) | |
| 36 | Onderstepoort Biological Products Limited |
Prepared by Alejandro Simone and Zhangrui Wang (AFR).
The figures in this section cover 40 non-financial SOEs (including some subsidiaries of major SOEs), SANRAL (road operation and construction agency) recently reclassified as an extra-budgetary fund, and 7 financial SOEs, mostly belonging to the national (central) government, except for the water boards which are subnational SOEs. Financial and non-financial SOEs at the subnational level are for the most part not included in the analysis given data limitations.
Telkom is included as a non-financial state-owned company in line with the treatment in SARB’s quarterly bulletin statistical tables, which is aligned with the IMF Government Finance Statistics Manual.
The methodology was developed by the Fiscal Affairs Department of the IMF. See the SOE Health Check User Guide (forthcoming) for a more detailed discussion.
The non-financial SOEs included are Eskom,Transnet, Telkom,ACSA, CEF, Denel, SAA, SABC, SAFCOL (the forestry company), SAPO (post office), and TCTA.
This result counts as above moderate the case of one SOE, which after having received significant government transfers in FY19/20, showed improved liquidity indicators that fiscal year.
Using data from the April 2020 Fiscal Monitor.
Three factors helped build credibility (1) a history of announcing and implementing reforms; (2) domestic commitment mechanisms, such as difficult-to-remove constitutional restrictions on overturning legislation; (3) participation in international agreements or treaties that imply adverse consequences for the government from reversing reforms.
Financial sector reforms included strengthened supervision and regulation, relaxation of controls over interest rates, and reduction of directed credit.
Splitting national monopolies into regional monopolies and allowing companies to bid for that right allow to assess the performance of different firms in providing services and then not renew rights for those that are less efficient.
Reforms to limit politicization included increasing professional qualifications and strengthening rules against conflicts of interest (Germany, Italy, Singapore, Spain), reducing board sizes (Korea, France, Poland, Spain), and the introduction of guidelines for remuneration and employment that apply across the SOEs (Czech Republic, Finland, Norway, Sweden).
An ownership policy states the government’s policy and financial objectives, defines performance indicators for each company or group of companies, and lays out the organization of the ownership function and the governance principles.
An SOE law could define the roles and responsibilities of key players (Ministry of Finance, line ministries, and SOE boards), introduce clear requirements for the creation/winding down and sale of SOEs, tighten sanctions for non-compliance with SOE legislation,and set standardized disclosure and reporting requirements.
These requirements could include: (i) enforcement of international accounting and auditing standards and timeliness of accounts; (ii); publication of key financial and non-financial performance indicators for increased public scrutiny (iii) quantification and disclosure of the cost of quasi-fiscal operations compared to budget compensation;and (iv) production and disclosure of consolidated information regarding the SOE sector in an annual report to be able to ascertain more clearly the impact of SOE policies on the macroeconomy and the public finances.
