Africa (Business)

Could the Chinese provide a model for SA's 'developmental state'?

Lynley Donnely

The Chinese model of state-led development has garnered wide support from a number of African governments, but it comes with governance-related risks.

There are some good lessons to be learnt from the Chinese model, but governance risks threaten to undermine bold steps taken by South Africa's government, said Lumkile Mondi.

This is according to Lumkile Mondi, chief economist at the Industrial Development Corporation.

Mondi's statement has been particularly relevant to South Africa and its state-owned enterprises and development finance institutions – at the forefront of government's plans to create a developmental state – where oversight issues were becoming a concern he said.

Mondi was speaking at an African Frontiers Forum, hosted by Frontier Advisory, in partnership with Wesgro and the Association of Chartered Certified Accountants, in Cape Town on Thursday.

There was a view within certain quarters of government that the Chinese model might provide the answer to South Africa's desire to create a developmental state, he said.

But this process did not take into account the "institutional set up in South Africa" – notably a Constitution that respected property rights and governed institutions overseen by the state, as well as the Public Finance Management Act, which defined the structure of these institutions.

Corporate governance
State-owned entities such as Transnet, Eskom and South African Airways (SAA), were governed by the Act, as well as the Companies Act, said Mondi. In this respect it was very clear that the King III Code formed the benchmark of corporate governance for these companies.

"It spells out clearly what the shareholder role is, what the role of the board is and what the role of the management is," said Mondi.

In addition both state-owned enterprises (SOE) and development finance institutions, such as the Industrial Development Corporation and the Development Bank of South Africa, were subject to Acts of Parliament, and ultimately accountable to the legislature.

One of the biggest risks was the "blurring of responsibility" between the shareholder's role and that of the institution "leading to confusion and competition at managerial level and almost a failure of an SOE to effect the mandate that is given by parliament" he said.

State-led growth
Mondi pointed to recent developments at SAA. The airline has been under severe commercial strain after a fall-out between Public Enterprises Minister Malusi Gigaba and its former board, followed by a set of poor financial results.

"We've seen how companies like SAA for example are battling these issues and in the process leading to institutional confusion and uncertainty within a company that should be focusing on its mandate, in this case [transporting] people cheaper, efficiently and on time," he said.

He also raised concerns over the appointment of securocrats to institutions such as the Development Bank of Southern Africa (DBSA), which is currently undergoing restructuring. Last year Mo Shaik, formerly head of the security services, was appointed to head the bank's international division, which is to be relaunched as a DBSA subsidiary. Finance Mininster Pravin Gordhan defended Shaik's appointment, stating at the time that Shaik proved the best candidate following a rigorous selection process.

There were some good lessons to be learnt from the Chinese model, he said, but governance risks threatened to undermine the "very bold and positive" steps government was taking to drive economic growth and development.

The emphasis on state-led growth presented positive opportunities for South Africa in a number of respects including as an infrastructure provider to southern Africa. Localisation requirements by government on large projects had also encouraged the entrance of multinational companies, which had invested locally in South Africa.

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