Big problems with government’s new SOE plan

The draft National State Enterprises Bill’s fourth iteration has not incorporated feedback from stakeholders and is the same as the prior version that lapsed under the previous government. 

Futuregrowth head of credit Olga Constantatos said the Bill appears to be stuck on repeat and poses significant risks.

This Bill aims to establish a State Asset Management state-owned company (SAMSOC) to own certain state-owned entities (SOEs). 

The National State Enterprises Bill was first published for public comment within 30 days on 15 September 2023. 

During that time, various stakeholders, including Futuregrowth and ASISA, submitted their written comments to the Department of Public Enterprises. 

The second version of the bill appeared in February and then lapsed in May 2024, when the national elections ushered in a new national assembly.

The bill was revived shortly after, in July 2024, in a version identical to the second version that lapsed. The deadline for comment on this third draft was 14 February 2025. 

As such, the bill is now in its fourth iteration, with Constantatos expressing concern over the unclear process being followed to implement stakeholder feedback. 

“It appears as if none of our previous comments have been addressed in the latest version,” she said.

Bloomberg reported that the draft law provides for the establishment of a centralized holding company that will own and oversee state companies, including power utility Eskom, intending to make them more effective and efficient.

However, Constantatos said they do not understand the reasoning behind this new law, given that many laws and regulations already govern SOEs. 

The additional law will add legislative complexity, and Constantatos said that adding this new law will necessitate a revision of the laws that already govern SOEs. 

This revision will need to test the legislation for its ongoing relevance, alignment with the shareholder’s objectives, and consistency with each other.

She suggested that it would be better to standardise these and other requirements across all the SOEs by requiring SOEs to be governed by the Companies Act in full. 

The Companies Act has a well-understood, transparent and known system for regulating corporations. 

Besides adding complexity to the legal frameworks guarding SOEs, the suggested bill risks repeating past mistakes in its current form. 

Notably, the Bill lacks safeguards around public spending because it does not mention the obligation for SOEs under the holding company to comply with the Public Procurement Act and the Public Finance Management Act.

The Bill lacks provisions regulating the large future budgets and expenditures of the holding company and its subsidiaries.

Constantatos said that this is concerning against the backdrop of state capture and the findings of the Zondo Commission of Inquiry into state capture. 

She also highlights the Bill’s confusion regarding the accountability of the boards of directors of the holding company and its subsidiary companies. 

As it stands, the Bill requires the holding company’s directors to assess and evaluate all capital expenditure programmes for the subsidiary. This creates conflicts of interest.

Furthermore, different countries have different ways of tackling SOEs, but South Africa’s direction for addressing local SOEs is unclear.

Bloomberg reported that the new structure will be partially modelled on Singapore’s Temasek, which the government owns in its entirety.

In South Africa, it will fall under the jurisdiction of the Department of Planning and Monitoring, which is located in Ramaphosa’s office. 

However, Constantatos said South Africa must address the issues at each SOE individually. 

As such, each entity’s sustainability must be assessed to ensure that, when they operate independently, they fulfil their mandates, remain financially and operationally stable, and do not drain the fiscus.

She said that many of the thirteen SOEs set to be transferred are currently in a financially or operationally unsustainable position.

Additionally, she highlighted that the Bill does not go far enough to limit political interference in Board appointments and conflicting objectives between goals of the Bill.