South Africa is set to get a new state-owned company, but there are concerns that it could just end up becoming another government failure.

The Department of Public Enterprises has published the new Draft National State Enterprises Draft Bill 2023 for public comment, which looks to create a new state-owned holding company.

The department will no longer exist following the 2024 elections, with a new state-owned holding company – the State Asset Management SOC Ltd – instead managing the finances of the nation’s various state-owned enterprises (SOEs).

The new Bill aims to do the following:

• To establish the State Asset Management SOC Ltd;

• To provide for the State as the sole shareholder of a holding company;

• To consolidate the State’s shareholdings in state enterprises;

• To provide for the powers of the shareholder on behalf of the State;

• To provide for the phased succession of state enterprises to the holding company;

• To provide for the holding company’s powers as shareholder of subsidiaries;

• To provide for the restructuring and management of subsidiaries for developmental purposes;

• To provide for appropriate and effective performance monitoring mechanisms over subsidiaries;

• To provide for the corporatisation of those state enterprises that are not registered as companies;

• And to provide for matters connected therewith

Potential problems

Business Leadership South Africa CEO Busisiwe Mavuso said that SOEs seriously impact the business environment and the government’s finances and are thus crucial for the nation’s future growth.

Mavuso said that a new state-owned holding company that is fully empowered to turn around the government’s flailing SOEs and bring in private shareholders would be welcomed.

She added that this allows the government to concern itself with policy and regulatory issues while proper commercial principles are applied to the running of SOEs.

“To achieve that, the holding company would need a level of independence, able to make operating decisions that ensure the financial performance of the SOEs. It should have budgetary autonomy, and its legislation should give it full authority over the operating and financial affairs of the SOEs,” she said.

“It needs a board of accomplished, experienced professionals with extensive corporate expertise and not political cronies. In turn, it must have authority over the boards it appoints to manage the SOEs, and to monitor performance and ensure delivery.”

She added that it should also report to government departments and be held accountable in parliament.

Furthermore, like elsewhere in the world, South Africa’s SOEs should also be seen as crucial sources of revenue that deliver dividends.

Although Telkom has historically been a regular payer of dividends, other companies, particularly Eskom and Transnet, have taken billions in bailouts while providing no dividend payouts.

Mavuso said that it is positive that the new draft legislation allows the holding company to have oversight over SOEs and that it provides for the corporatisation of state enterprises that are not yet legally companies in line with the Companies Act.

“But one disappointment is that the legislation envisages the holding company being only sole or majority shareholder, leaving out the option of minority ownership, which may sometimes be optimal, as the Telkom example illustrates,” she said.

She added that the success of the holding company will heavily depend on the board and executive management appointed.

In addition, the legislation places the president as the sole representative of the company instead of the minister of finance, who would see the financial sustainability of the new holding company as a chief concern.

“All business can take from the legislation as tabled is that the new holding company might be a good thing, but it also might not, depending entirely on how it is implemented. Indeed, the worst fear is that it becomes yet another expensive white elephant that adds no value,” she said.

The National State Enterprises Draft Bill 2023 can be found below, and public comments must be submitted by Sunday, 15 October 2023.

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