Failing state-owned enterprises holding South Africa back

South Africa’s state-owned enterprises (SOEs) get in the way of the country’s economic growth and development, as they negatively impact the economy. 

Professor at the University of the Witwatersrand Alex van den Heever told the SABC that it is unclear why South Africa has so many SOEs. 

“It is unclear why we need to have the government’s hand in so many organisations of this nature. They are now in the way – they are part of holding back South Africa’s economic growth and development.”

The government should focus on its core business of providing basic services to South Africans, which it is struggling to provide, rather than running companies whose services can be provided by the private sector. 

“In many cases, these organisations negatively impact South Africa’s economy structurally. The government must get out of the way and let society and the private sector move the country forward,” he said.

The best solution is to “push these organisations into private companies and get them off of the government’s balance sheet”.

Business rescue will not save many of these entities as the practitioners are not empowered to radically restructure the business and change its operating model. 

Van den Heever raised the examples of the South African Post Office (SAPO) and the South African Broadcasting Corporation (SABC) which are facing financial difficulties. 

While placing these entities into business rescue is not a bad decision, it will not ensure they become viable businesses over the long term. 

Business rescue practitioners tend to “chop it up and make it leaner”, which makes the company stronger in the short term.

However, it does not address the failing operating model that pushed the company into business rescue in the first place. 

Furthermore, business rescue processes for SOEs tend to involve additional taxpayer-funded bailouts. This is the case with the SAPO, which will receive more funding from the government after entering business rescue. 

These entities can be turned around, “but it is not sufficient to just give them bailouts. They need a completely new vision.”

The SAPO and SABC, for instance, operate according to business plans devised over three decades ago. They are unequipped to compete with private companies in the 21st century. 

There are many alternatives to these companies that are flourishing, which means that they, in theory, could flourish too if they were effective organisations. 

Bailouts from the government also handicap plans to turn around SOEs as they come with strings attached in the form of no job cuts and no changes to leadership.