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Building bridges to future

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Building bridges to future

16th November 2018

By: Terence Creamer
Creamer Media Editor

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By circumstance rather than design, the end states of several of South Africa’s largest – and most troubled – State-owned companies (SoCs) are becoming increasingly discernible.

National carrier South African Airways (SAA) is unlikely to be closed, but it will eventually have a strategic equity partner and its noncore assets will be sold. SAA will be a far smaller entity, operating right-sized domestic, regional and international networks, with a fleet that is fit for purpose.

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Defence group Denel will be streamlined and many of, if not all, the remaining units will involve foreign strategic equity partners. The company will be less reliant on the budget-constrained South African National Defence Force and will supply specialised products to international customers, or make inputs into the supply chains of the defence majors.

Electricity utility Eskom will be vertically separated, with the generation assets sold to various entities, while the transmission business will remain State-owned and operate as an independent grid company.

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In addition, generation will be more widely distributed, as indivi- duals, companies and municipalities take advantage of the technology and cost changes sweeping through the world of electricity. These changes have already made it feasible to generate electricity on a small scale and, as battery storage costs fall, new opportunities will arise, including the ability to take advantage of the arbitrage opportunity associated with storing energy when the price is low and gene- rating when the time-of-use tariff rises.

Similar reorganisation exercises will unfold across the South Africa SoC landscape, no doubt affecting the other four large companies clustered under the Department of Public Enterprises, as well as those housed within the Central Energy Fund.

South Africans, who are deeply frustrated by the corruption and poor performance of the SoCs, will generally support a restructuring effort. However, there will be fierce resistance from labour movements, some SoC managers and from those political parties opposed in principle to an expanded role for the private firms in sectors currently dominated by public enterprises.

Within government itself, the prevailing fiscal condition has woken up most politicians and bureaucrats to the reality that these businesses cannot be salvaged in the absence of what Finance Minister Tito Mboweni has described as a “reconfiguration”. In other words, there is a growing realisation that it can no longer be business as usual.

For this reason, policymakers and industry practitioners are starting to extend their gazes across the valley in search of a more sustainable future. As they do so, however, they are immediately confronted with the reality that there are simply no bridges in place to facilitate the journey.

For this reason, it has become beyond urgent for government to put in place a framework that enables SoC executives to begin building those connections. To begin with, an intervention is required at the highest level to ensure that the end state of each enterprise is well articulated and can be defended. But, unless these vision statements are supported by a genuine commitment to ongoing support, some SoCs could well find themselves walking through the ‘darkest’ of valleys.

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