Business

'State-owned entities must be more efficient'

Staff Reporter

Malusi Gigaba has said efficient state-owned enterprises must be efficient to create jobs and unlock growth in South Africa.

It is necessary to drive investment, efficiencies and transformation in state-owned enterprises (SOEs), their customers and their suppliers to unlock growth, create jobs and develop skills, Public Enterprises Minister Malusi Gigaba said on Wednesday.

“The department is embarking on a paradigm shift to ensure proper alignment between SOE performance and executive or directors remuneration,” he told the National Assembly during debate on his budget vote.

However, this shift required patience and careful consideration to ensure ultimate successful implementation.

Gigaba said the very rationale for SOEs was the developmental mandate they had which related to services provided in poorer parts of the country, skills development, industrial opportunities they created for local suppliers and many more.

There was thus a need for innovations in the governance of the SOEs if the new vision was to be achieved.

These innovations would be focused on five key areas that related to planning, funding, procurement, productivity improvement in the SOEs and integrating SOE developmental initiatives more effectively with overarching government programmes.

Development-focused planning
The sharp decline in public investment in infrastructure in South Africa between 1976 and 2004 had created a significant backlog in infrastructure investment which created a significant constraint to investment and growth in key SOE customer sectors, he said.

As commercial enterprises, the SOE plans were based on the funds they could raise off their balance sheets.

“Clearly there is a funding gap between the required investment to unlock growth in customers and these existing investment plans.”

Secondly, a narrow approach by SOEs would ignore what economists referred to as positive externalities.

For example, the societal benefits to the environment of moving more passengers and cargo from road to rail, the foreign exchange benefits of reducing the nation’s fuel bill and improvement to commuter safety.

“Consequently, the department will continue to put considerable effort into the formulation of a new development-focused planning paradigm.”

Engaging creatively
No single institution, including the fiscus, could fill the funding gap, he said.

“We need to start engaging creatively with key stakeholders in the private sector to see how we can qualitatively increase the rate of investment to fill this gap.

“Our economy is characterised by very large mining, industrial and financial services companies that have the most to gain from an accelerated infrastructure programme, and with whom we need to forge social compacts to unlock their balance sheets and actively build funding partnerships to speed up the rate of investment in infrastructure and in our strategic customer sectors.

“We need to begin this dialogue that aligns private sector players with our national economic objectives through concrete investment processes,” Gigaba said.

Another area of focus pertained to leveraging capital and operational procurements to promote investment in relevant industrial capabilities.

“Consequently, we have implemented the competitive supplier development programme that requires the SOEs to integrate supplier development considerations into the heart of the procurement planning and execution processes.”

This had been complemented by the fleet procurement approach that aimed to provide a 10 year to 15 year consistent demand platform for building advanced industrial capabilities in relevant supply chains.

Producing more with less
Both programmes had the objective of moving from a transactional relationship between the SOEs and their local and international suppliers to longer term developmental partnerships based on the continuous building of national industrial capabilities.

“We realise that the quality of service delivery of some SOEs is below acceptable levels in key areas,” he said.

It was necessary to ensure that SOE operational efficiency was continuously improving, even as investment programmes were rolled out.

“Improvements in productivity simply means that we are using our assets more efficiently—producing more with less.”

Consequently, a programme of bi-monthly meetings with the chairs and chief executives of the SOEs was being implemented.

These meetings would systematically identify areas requiring productivity improvements and define interventions in these areas.

The design and implementation of these interventions would be closely monitored by the department.

This forum would also focus on concrete targets for the developmental mandate of the SOEs, Gigaba said.—Sapa

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