South African SOE shake-up warning

South Africa’s proposed new state-owned asset management company will do nothing to solve the deep, structural problems at many of the country’s failing SOEs and is merely shuffling deck chairs on the Titanic. 

This is the warning from Peter Attard Montalto, managing director at Krutham. He told 702 that it is unclear how this model of governing state-owned enterprises will work in South Africa. 

The Department of Public Enterprises (DPE) published a new Draft National State Enterprises Draft Bill 2023 for public comment last week, 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 Company – managing the finances of the nation’s SOEs. 

“There are deep, deep problems at Eskom, Transnet, and the South African Post Office, among many other SOEs,” Montalto said. 

“You need to design an institution that can deal with that mess and have the ability to reform SOEs to make sure that they are sustainable. Unfortunately, this Bill does nothing about it,” Montalto said. 

The government has no overarching plan or policy for how SOEs should be governed in South Africa, and this Bill adds to the confusion. 

The DPE has said it will only transfer the few profitable SOEs to this entity, while the rest will be moved into their line departments following the department’s closure. 

Thus, there is no policy regarding addressing the SOEs with genuine problems, such as Eskom and Transnet. 

The government is expected to continue to muddle along with bailouts and debt restructurings. 

Montalto said there should be a unified, transparent mechanism for the management of all SOEs. 

“We need to design policy not for Mandela but for Zuma and state capture. This Bill does not pass that test,” he said. 

Furthermore, it is unlikely to be implemented soon, with the DPE set to be shut down on 31 March 2024. 

This creates a problem as the Bill is unlikely to be passed by then, and the new state asset management company will not be operational. 

“There is no way, in any universe, that this Bill can be passed by then. Either the DPE will have to continue to operate, or an interim solution will be created,” Montalto said.