Immediate reforms on SOEs ‘unlikely’
Finance Minister Pravin Gordhan is not likely to speed up the reform of state-owned companies, as he needs a comprehensive economic plan first, say analysts.
|||Finance Minister Pravin Gordhan was unlikely to effect immediate reforms on the country’s under-performing state-owned entities, local economists said yesterday.
Wits University economics lecturer Lumkile Mondi said Gordhan was unlikely to accelerate the reform of state-owned firms as he needed a comprehensive economic plan first.
Read: Gordhan charms, but investors wary
Mondi added that most investors had become sceptical of the government’s ability to implement the National Development Plan, given the embedded kleptocracy and the infighting taking place within the ruling party.
“Any action on the state-owned companies will, at a minimum, be a two-year process, because of the Public Finance Management Act and the preferential procurement,” Mondi said.
“By that time we will be heading for an election and the ANC will be loath to annoy its labour and communist allies.”
Gordhan, who is currently on an investor road show in the UK and the US to reassure rating agencies and investors that South Africa is an investment-grade destination, last month announced several measures to rein in the troubled and loss-making public entities.
He said these included a proposal to merge SAA with SA Express and partnering the new entity with a minority equity partner “and to create a bigger and more operationally efficient airline”. The Treasury said several public institutions posed significant short-term risk to the fiscus.
It said the combined return on equity of all state-owned companies had been declining over the past five years, reaching minus 2.9 percent in 2014/15 and charged that the entities faced internal weaknesses such as inefficient operations, poor governance and weak balance sheets.
Among the struggling parastatals is SAA, which is technically insolvent, and the SA Post Office, which reported a net loss of R1.5 billion in 2014/15.
The Treasury said it would be “some years” before SAA could become a sustainable stand-alone carrier. While very little had been said lately about the unbundling of Eskom, Mondi said this was also a possibility.
He added that Eskom should be split into three businesses – generation, transmission and distribution. “Transmission should be in state hands for equal access to the transmission line at a fee. The rest can be privatised.”
NKC African Economics senior economist Bart Stemmet said he also did not expect “big” changes on state-owned companies this year.
Stemmet said breaking up Eskom was unlikely “because of its strategic value. I do not think that is on the cards.”
Nedbank chief economist Dennis Dykes said it was crucial for Gordhan to send signals of the government’s readiness to deregulate certain sectors and open them to private sector participation. Dykes said it was important for the government to ensure a regulatory framework in which private sector investment would take place.
He referred to previous attempts to lure private sector participation in the electricity sector “while there was no regulatory framework… no offtake agreements and no idea what the price (of the electricity) would be”.
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