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Regressive step

20th January 2023

By: Terence Creamer

Creamer Media Editor

     

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The African National Congress’ resolution to relocate the country’s large State-owned enterprises (SOEs) under their line departments is a regressive step for governance and bad news for development and growth.

The decision, post-apartheid, to uncouple Eskom, Transnet and the other dominant SOEs from their policy departments was an important first step in reducing so-called moral hazard, particularly in a context where all the sectors in which these companies were operating were undergoing significant change.

It was designed to ensure that the policy department was free to make the best choices for each sector without being encumbered by what was best for the dominant SOE. In other words, the financial and operational interests of the SOE should not take precedence over what was required to ensure that the sector was moving in a direction that was supportive of the country’s growth and developmental objectives. Until the separation, there was a perpetual risk of the SOE tail wagging the policy dog.

Secondly, it was seen as good for governance in that the shareholder Minister was meant to have a soft touch when it came to political interference at the SOEs. In other words, boards were in theory meant to have greater sway over strategy and appointments. In reality, this was not the case, as was on vivid display during the Zondo Commission. However, the ANC resolution points to far more hands-on political interference and is a significant departure from earlier plans to set up additional buffers in the form of a professionalised SOE holding company.

The decision is also likely to have regressive consequences for two key sectors that are in the throes of their biggest transformations in more than a century: energy and transport.

For the energy sector, particularly the electricity subsector, the decision to extend shareholder responsibility for Eskom to the Department of Mineral Resources and Energy (DMRE) will be especially damaging. Decisions will be based on what is best for Eskom rather than the industry.

Given the pace and nature of the energy transition, these interests are diverging and will continue to do so. Yet the animal spirits that will prevail once the DMRE is in charge will be to direct the Eskom board and its executives to ‘Make Eskom Great Again’ rather than fit for purpose. As a consequence, the unbundling that is so necessary to unleash a competitive and electricity supply industry able to deliver reliable, affordable and clean electricity will be undermined.

Fourth, the decision is bad for inclusive development, as the uncertainty that will arise will see the private investment and ingenuity needed for universal access diverted such that islands of energy wealth are created in a sea of energy poverty as businesses and affluent South Africans make their own power plans.

It is equally bad for growth, as failing to have widely affordable and progressively cleaner electricity will undermine investment in everything from automotive production and green hydrogen derivatives, to mining and agriculture, particularly given moves by South Africa’s trading partners to penalise carbon-intensive imports.

Edited by Terence Creamer
Creamer Media Editor

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