Gigaba faces ghosts of SOE past

Seven years ago, Malusi Gigaba cut the same lean, intent figure as he did this past Saturday at his first press conference as the new finance minister. (Delwyn Verasamy, M&G)

Seven years ago, Malusi Gigaba cut the same lean, intent figure as he did this past Saturday at his first press conference as the new finance minister. (Delwyn Verasamy, M&G)

NEWS ANALYSIS

Rewind seven years. Malusi Gigaba lands the daunting job of public enterprises minister after the widely respected Barbara Hogan is shuffled out the door.

Mere days after his promotion from deputy minister of home affairs, he begins media engagements, making clear statements about the role he sees for state-owned entities and their place in a developmental state.

In an interview with the Mail & Guardian at the time, he cut the same lean, intent figure as he did this past Saturday at his first press conference as the new finance minister.

In the interview, given a day before he had met his senior staff at public enterprises for a full briefing, he laid out his strategy for the country’s largest state-owned enterprises (SOEs), including Eskom and SAA.

“We are going to play a much more hands-on, robust, strategic leadership role,” he said.

His attitude was a marked departure from Hogan, who espoused board independence and reduced state intervention in SOEs.

There was a tendency to conflate robust leadership “with interfering in the operations of these organisation”, he said, but parastatals were “not private entities, they are state-owned enterprises; they must implement the vision of government”.

Back in 2017, Gigaba will be haunted by the parlous financial state of SOEs, including ones he once oversaw – specifically because of the contingent liabilities they pose to the government’s finances.

This was highlighted by S&P Global in its decision to downgrade South Africa’s credit rating to junk earlier this week. Since his time at public enterprises, SOEs, and specifically SAA have been placed directly under the treasury’s management.

S&P Global cited the state’s contingent liabilities – namely the guarantees it has provided to public enterprises – as a key reason for the downgrade.

Referring to the Cabinet reshuffle and the threat it posed to policy continuity, S&P said it had “reassessed South Africa’s contingent liabilities”.

“This reflects the increased risk that nonfinancial public enterprises will need further extraordinary government support,” the agency said.

According to the 2017 budget, the state’s contingent liabilities were more than R775-billion in 2016-2017, with guarantees amounting to over R445-billion of the total.

The agency estimated that by 2020 nonfinancial public entities would have utilised about R500-billion, with Eskom dominating this.

In the October 2016 medium-term adjustments budget, Gigaba’s predecessor, Pravin Gordhan, outlined in an unprecedented “fiscal risk statement” the danger that major SOEs posed to attempts to stabilise national debt and ensure the sustainability of government finances.

The country’s large SOEs, with their big procurement budgets, have become central in the battle over state capture.

The axing of Gordhan and his deputy, Mcebisi Jonas, has been seen as a direct response to their unyielding commitment to good governance and an unwillingness to let government procurement channels be used to dispense patronage.

Nomura analyst Peter Attard Montalto has described the reshuffle as an “open attack on the treasury’s institutional integrity”.

At Gigaba’s maiden press conference he appealed to sceptical media, opposition parties and members of the public not to judge him on “speculation and rumours” but rather on his actions in the coming months.
He also stressed his experience as a member of the national executive.

“I am not a newcomer to the economic sector,” he said. “I have vast experience in government [across] the security and economic sectors.”

He referred to his credentials again in a briefing with the South African Revenue Service that followed on Monday.

The country’s parastatals faced many challenges long before Gigaba arrived at public enterprises, but questions remain about whether he left the portfolio in a better state than when he started.

At public enterprises, he lived up to his promises to shake things up: in less than a year he had replaced Eskom’s and Denel’s boards, and made several executive appointments at the key parastatals.

Gigaba has said he instituted “rotating” boards at the parastatals as part of his efforts to enhance governance, but when he began these they immediately raised concerns.

Appointments under Gigaba included Brian Molefe. He was appointed as Transnet chief executive in 2011 and would later be seconded to Eskom by Gigaba’s successor, Lynne Brown.

He resigned after being named in the public protector’s State of Capture report, linking him to the influential Gupta family. Other appointments linked to the Guptas included the likes of Colin Matjila at Eskom and Iqbal Sharma at Transnet.

It was also under Gigaba’s watch that most of the SAA board, led by Cheryl Carolus, resigned in 2012, claiming a lack of shareholder support.

In the aftermath, Gigaba would go on to name Dudu Myeni as the chairperson of SAA in December that year. It was speculated that a clash between Myeni and Gigaba eventually led to his being reassigned to the home affairs portfolio after the 2014 elections, though this was denied by the presidency.

Under Myeni’s watch, SAA has continued to flounder, and the latest financial figures provided to Parliament reportedly put its losses at R4.5-billion for 2016-2017.  Despite her poor performance, Myeni, who is seen to be close to President Jacob Zuma, has survived not only Gigaba but also former finance ministers Nhlanhla Nene and Gordhan.

Eskom faced enormous difficulties while Gigaba was minister. These included delays in the construction of Eskom’s coal-fired power stations Medupi and Kusile. Poor performance by two major contractors, Alstom and Hitachi, plagued the project.

Although Alstom was replaced, Hitachi, which had been awarded the job after taking on the ANC funding arm Chancellor House as a black economic empowerment partner, stayed in place.

A recently leaked investigative report by the law firm Dentons highlighted the “inconsistent treatment” of contractors.

But Gigaba’s spokesperson, Mayihlome Tshwete, said there was “an easy answer – no” to any suggestions that Gigaba put pressure on Eskom to retain Hitachi to protect the ANC’s interests.

Tshwete said Gigaba, during his tenure at public enterprises, put SOEs such as Denel and Safcol back on a path to profitability, and he oversaw a move towards better co-ordination between the private sector and the SOEs.

The appointment of executives and members of SOEs’ boards were made on the basis of their expertise, Tshwete said, and the insinuations that appointments were made because of associations with the Guptas had “nothing to do with his [Gigaba’s] decisions”.

The SOEs’ governance remained important for Gigaba, Tshwete said, and would be a primary focus for the finance minister, particularly to ensure that they become “viable, self-sustaining entities” that undertake developmental agendas.

Tshwete said it had been three years since Gigaba had looked at the operational and financial position of SAA, but once he had received a brief from his new department, he would decide on what was best for the airline and the country.

Gigaba has repeatedly committed himself to sticking to the budget policies already outlined by the treasury, including operating within the current spending ceilings. He has also said he would not be withdrawing from any of the matters between the treasury and Gupta-linked business interests that are before the courts.

He would also not make changes to the Financial Intelligence Centre Act Amendment Bill, Tshwete said.

The passage of the Bill, which requires financial institutions to exercise greater scrutiny of politically influential people, has been fraught. Although the Bill has been passed by Parliament, it is still waiting for the president to sign it into law.

Gigaba, in championing Zuma’s promised radical economic transformation, outlined in the State of the Nation Address, said the state’s R500-billion strong procurement budget would be used to include and grow more black businesses.

But the treasury’s dogged oversight of state contracts, particularly through the office of the chief procurement officer, has been seen as a stumbling block to those who would use state spending for patronage.

It falls to Gigaba now to find a permanent replacement for former chief procurement officer Kenneth Brown.

Gigaba would “passionately enforce” the “checks and balances that have been put in place to ensure that money is not used irresponsibly and recklessly”, said Tshwete, although it was too soon to say when he would make an appointment.

The same applied to the selection of a new director general after the long-serving Lungisa Fuzile announced he would leave at the end of May.

His pending departure has sparked fears that other senior treasury staffers will follow, but Tshwete does not foresee “a leadership crisis. We are saddened that he is leaving,” he said, but Fuzile had “left a great team that is going to continue his work”.

Gigaba also had a proven record of retaining senior officials in the portfolios he was assigned to and did not make a habit of “sweeping out” existing leadership.

In his role as finance minister, a key test for Gigaba will be the balance he strikes between articulating radical economic transformation and ensuring the government’s finances remain sustainable.

But it was “problematic” to insinuate that making the economy more inclusive would lead to an increase of procurement abuses and corruption, Tshwete said.

Perhaps the most important sceptics who Gigaba must convince are the ratings agencies, Moody’s and Fitch, which must still decide whether to downgrade South Africa. Whether they will find Gigaba a reassuring alternative to Gordhan remains to be seen.

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