Budget Speech 2016

State-owned companies, Honourable Speaker, have important roles to play in boosting growth and development. But there are issues to address in their governance, mandates, financing and operations.

The recently-released report of the Presidential Review Commission on State-Owned Enterprises is a very welcome guide to the path ahead. It rightly emphasises that effective leadership is central to progress. It notes that our infrastructure financing requirements are huge, and require effective co-funding arrangements between SOCs and other investors.

The asset base of state owned entities is over R1 trillion, equivalent to about 27 per cent of GDP. They maintain networks and provide services – power, roads, transport, water, communications – on which the rest of the economy depends.

But the PRC report indicates that the mandates of some of our entities overlap, some operate in markets that should be more transparently competitive and some are no longer relevant to our development agenda. Some are in perpetual financial difficulties. So we must take decisive steps to ensure that they are effectively governed and that they contribute appropriately to the attainment of the National Development Plan.

Firstly, as President Zuma has indicated, entities that are no longer necessary should be phased out. The resources raised or saved will be redirected to the balance sheets of SOCs that should grow.

Secondly, where entities have overlapping mandates, rationalisation options will be pursued. The merger of our housing DFIs is already in progress. There are entities with regulatory responsibilities where capacity should be combined. We have national and provincial entities with diverse property holdings, interests in farming or trading or manufacturing enterprises – often inherited from the pre-1994 dispensation, typically buried in subsidiary companies that are not publicly accountable. These are unnecessary state investments, and often a drain on government resources. They are also assets with potential for growth in independent hands.

It seems clear, furthermore, that we do not need to be invested in four airline businesses. Minister Brown and I have agreed to explore the possible merger of SAA and SA Express, under a strengthened board, with a view to engaging with a potential minority equity partner, and to create a bigger and more operationally efficient airline.

Thirdly, the balance sheets of several entities with extensive infrastructure investment responsibilities are now stretched to their limits. Government has provided support in the form of guarantees, which now total R467 billion or 11.5 per cent of GDP. This is a source of pressure on the sovereign rating. Yet we need to accelerate infrastructure investment in the period ahead. So we must broaden the range and scope of our co-funding partnerships with private sector investors. This requires an appropriate framework to govern concession agreements and associated debt and equity instruments, and appropriate regulation of the market structure.

In taking this forward, we are able to draw on our experience in road funding concessions, in building the renewable energy market, and in promoting broadband telecommunications. Across these and other sectors we have much to learn from each other, both nationally and through provincial and local initiatives.

Minister Brown is in discussion with Transnet’s leadership on measures to accelerate private sector participation in the ports and freight rail sector. The intention is to improve efficiencies, reduce the cost of doing business and increase investment in new port facilities and inland terminals. This will complement investments that Transnet has already initiated through its Market Demand Strategy.

Our aim is to strengthen our state entities so that they can play a propulsive and dynamic role in our development. Further financial support to state-owned companies will depend on clarity of this mandate and firm resolution of governance challenges.

Our regulatory agencies have a special responsibility in this regard: in setting prices for electricity, transport and water utilities, they have to ensure that investment can continue to be financed and that costs are properly managed.

The strength of our major state-owned companies does not lie in protecting their dominant monopoly positions, but in their capacity to partner with business investors, industry, mining companies, property and logistics developers, both domestically and across global supply chains.