Experts shed light on how cadre deployment has led to the collapse of state-owned enterprises.
Image: Henk Kruger / Independent Newspapers
The majority of people employed as chief executives, executives, and board members in state-owned entities are incompetent, do not know the sectors they operate in, are without skills, and don’t even know what they are doing, experts say.
Governance, economic, and political experts say that South African leaders lack the political will to fix the problems.
The SOEs have cost the country billions of rand in bailouts. Many of them are struggling with massive debt, under-investment in infrastructure, and continuous reliance on government bailouts. Eskom, Transnet, South African Airways, Denel, and the South African Broadcasting Corporation (SABC) have accumulated significant losses and debt.
The Treasury has since announced that no funds have been allocated to struggling SOEs.
Professor William Gumede from the Wits School of Governance said incompetence is the main issue, resulting from hiring unskilled, politically connected people.
“Most of the CEOs, most of the boards, most of the executives are appointed because of their political connections. So, people are not appointed based on merit. They do not know what they are doing, they don’t know how to manage an organisation, and they also don’t know the sector where they are operating.
“Sometimes you may not know the sector, but if you are very well skilled, you’ll be able to turn around something. But now, often what happens with politically connected people that get appointed is they don’t know the sector, are also not competent, so you have a double destruction of entities,” Gumede said.
He added that the second problem is corruption, where procurement processes are manipulated based on Black Economic Empowerment. “They don’t appoint capable black-owned companies, they appoint politically connected companies, who don’t deliver.
“So you (SOEs) pay for services that don’t get delivered. Many of these companies inflate the prices. So, there are double and triple payments for products and services, for no delivery. They suck the money out of the entities without delivering services also.
“Even if there was corruption, if services are delivered, at least one could say that at least services are being rendered, but now there are no services and there is no money left.
“So, now you are left with management and board members without appropriate skills, not knowing the sector, not knowing the entity, and then they run the entity into financial distress. And then you have your empowerment process, which has been abused and manipulated, and you lose money there also,” he explained.
He added that another challenge is that many of the entities are very unionised. And the unions are aligned with the ANC as part of the Tripartite Alliance.
“Often, union members can’t be fired by the entities because they just go to the union. And the union will protect them, or it will even go straight to the president. I know, at Eskom for example, instances where senior union leaders, who are part of the staff, and when the CEO wants to fire them, they actually phone the president straight.
“So, it means they are untouchable, they don’t have to work. They don’t have to be efficient, they don’t have to be effective, and they cannot be fired,” he said.
Gumede highlighted that at almost every level in the SOEs, there is political capture and interference.
“No one can be held accountable, no one can be fired. You can’t fire the board, you can’t fire the management, because they are all politically connected. You can’t fire your staff because they are trade union connected, you can’t fire the companies that don’t deliver, because they are also politically connected.
“When the entities are bailed out, they are bailed out with the same things in place, so you’ve got the same management; you have the same board, the same staff, the same procurement companies that cannot be fired. So, the money just disappears into a hole all the time,” Gumede said.
He said one of the moral hazards created by bailouts is that most people ideologically believe state companies should not close down because they create jobs.
“Bailing out a company without holding management and companies accountable is like throwing money into a bottomless pit. In fact, bailing out state entities is a misallocation of government resources.
“Black people who are competent but not politically connected get marginalised, they don’t get jobs or promotions. Even competent black-owned companies get sidelined because they are not politically connected, and this becomes a lost opportunity to get the right people to turn things around,” Gumede said.
“Some of the entities must close down. If you can’t improve performance even after a bailout, you have to close down, just like in the private sector.”
He said the various SOE reform initiatives, such as Operation Vulindlela and the National State Enterprises Bill, don’t reform anything, but waste state money and people’s time. These bills miss the mark because people should be hired based on merit and fired if they don’t perform.
He said ordinary citizens are not doing enough. “They must stop voting for political parties that fail to deliver. They must hold the entities accountable. They must be vocal about these issues,” he said.
Politicians should not appoint the CEOs and boards of SOEs. That must be professionalised or left to an independent panel, and there must be public transparency in the process. Also, employees must be depoliticised, he said.
Gumede was part of the 2009 Presidential Review Commission on SOEs, however, these have not been implemented despite being approved and adopted by the Cabinet.
Under President Cyril Ramaphosa's administration, he was part of the Task Team on the Professionalisation of Public Services, and says that the recommendations have not been implemented.
Professor Sipho Seepe, a political analyst from the University of Zululand, said there are no hurdles that stand in the way of the effective implementation of SOE reforms other than a political will.
He said SOEs have been reduced to employment agencies for the politically connected.
“If the number one citizen (Ramaphosa) can be allowed to avoid accountability as far as the Phala Phala scandal is concerned, how can we expect lowly public servants not to do the same. The president must lead by example. So far, he has failed dismally. Until then, we should not be surprised that there is a general failure insofar as proper governance is concerned.”
Dawie Roodt, a chief economist from Efficient Group, said: “If there’s one institution that I would like to blame for how we got here (failing SOEs), it is the ANC. Ideologically, the ANC believes and talks about the developmental state and centralisation.
“Secondly, they’ve got the policy of cadre deployment, and what often happens is that they employ people in positions because they are loyal to the party and not because they can do the job. Quite often, you find incompetent people in high positions. Thirdly, you often find very high levels of corruption. So, the combination of all these things inevitably then leads to the collapse of these state-owned enterprises.”
Roodt said many of these SOEs are crucial to the economy. Eskom, for example, is important, but gradually, the economy is weaning itself off Eskom by putting in solar panels. Harbours are still very important for exports, and the railways.
“In the past, you had various levels of government. The lowest level of government is local authorities, which have their revenue sources, own tax base, and balance their books. They did not need the Minister of Finance.
“The same goes for the SOEs. The state-owned enterprises could wash their faces. They had their revenue sources, good-rated debt, like Eskom’s debt. At one stage, it was better rated than the state’s debt. They could stand on their own feet financially, but what has subsequently happened, not only at the state-owned enterprises, but local authorities, because of mismanagement and cadre deployment, they have been run into the ground operationally and financially. Those institutions now need to be bailed out by the central (national) government,” Roodt said.
According to Roodt, the Minister of Finance has his problems, as the Department of Finance and others have been mismanaged. And in the process, state debt levels have reached a record high, but it’s much worse than what we think because, since the SOE and local authorities are also depending on the state.
He said there is a need to fix the country’s political leadership before things can improve. One must look at the Zondo Commission's report and ask oneself why it has not been implemented.
“The problem is they are not prepared to act, and to enforce the laws. Zondo did all the work, and the reason why that has not been implemented is that the cadres are implicated. Proof is there for everybody to see; all they need to do is start prosecuting, but it is simply not happening. So if they don’t implement the Zondo Commission report, then I do not have any hope that they will start acting against corruption,” Roodt said.
gcwalisile.khanyile@inl.co.za