Pan-African Investment Summit
Accra, Ghana, 8 - 10 September 1999
We are moving rapidly towards the new millennium. As we do so, we are all aware of expressions of anxiety, perhaps even of trepidation, at what the new century and new millennium will bring. Written history tells us that during the dying years of the 10th century Europe was ablaze with all sorts of prophecies and expectation. Solar and lunar eclipses, natural disasters such as floods or earthquakes, even peculiar cloud formations were suddenly explained in new ways, as portents of the great and terrible thi ngs to come. As it happened, Europe's decent into the Dark Ages was not duplicated in our continent. In Africa, particularly in the Sahel and sub-Saharan regions, great developments marked cultural interchanges. Our oral traditions, supported by remarkable archaeological works of later centuries, speak of complex societies, of long-distance trade, of mining and agriculture, of culture and song, of religious belief and philosophical traditions. The muezzin, of Islamic Africa called the faithful to prayer, gr eat states came into being, stretching from the lands just north of here to Great Zimbabwe and the settlements on the highveld of South Africa, the region where my own ancestors lie buried.
Calamities there were, for Africans climate is sometimes loving, but frequently harsh. Africa's people were often tolerant, but also warlike and the rise and fall of regional and local economies was linked to the success or failure of different state and n on-state systems to sustain themselves. African life was dynamic and rich. Its history diverse and resplendent, portrayed in the magnificence of the patterns of Ghanaian Kente cloth, or the bronzes and sculpture of West Africa, the architecture of the Swah ili coast, and the dance of the forests and savannah of central and east Africa. When our Dark Age came, it came with the force of the Portuguese guns of war, blazing across our coasts, it came with the trade in slaves that stripped our continent of men, w omen and children in an orgy of violence and destruction; it came with the rape of our mineral and natural environments, hunters, colonists and settlers. Europe used our continent as a playground of greed, imposing systems only after fierce resistance was broken through their use of technologies far more destructive than anything Africa could retaliate with. Their enemies came from outside the continent We just have to look at the architecture of forts all along our coastline: the guns and cannon ports look out to sea, from whence came rival European marauders, they do not look inland where our ancestors lived and worked.
Today we stand at the dawn of a new millennium, and again we hear the prophets of doom shouting out that the end of the world, yet again, is nigh. Again, we are encouraged to be anxious and fearful about what the future holds. I would be as bold to suggest that we should in fact put all that behind us and do what we in Africa have always done best: to be ourselves, to be in charge of our own destinies, and to determine what course of action we believe is best for our people and our continent. When the OAU i n Algiers recently adopted the vision of an African Renaissance developed from the experience of so many great leaders and peoples drawn from all corners of our continent; it issues a clarion call for a resurgence in confidence in ourselves and in the qual ity of the contributions we can all make to ensure that the world is a better place to live in. We have adopted the vision of the next millennium as an African one. We need now to identify the tools with which to carve the lines of that vision in the stone , wood and clay of our African reality.
Our task in Accra this week is a collective one. We will share our experiences of a particular set of strategies for growth and development. We understand clearly that economic systems are not abstract entities. They are systems that involve the conscious articulation of principle and policy, strategy and tactics. As such, they are systems that develop and change according to new needs and requirements. Our interaction and control rests on the ability to make realistic assessments, to monitor and evaluate o ur programmes every step of the way, to refuse leadership to dogmatic attitudes except when we insist that the peoples' interests remain paramount.
We have witnessed many experiments at development in Africa in recent times. Many leave not lived up to the expectations they were based on. More still have not had time to mature because of strife and the collapse of legitimate forms of government at the hands of rebels and insurrectionists. But yet, it is imperative that we continue to seek solutions to our problems, often in partnership with the international community, dedicated to ensuring that short-term disadvantage is transformed into long lasting b enefit. If there has been one salutary lesson of recent experience it is this; whilst it is useful to develop generic frameworks to sort out reasonably similar problems, only their adaptation to the particular circumstances of individual countries will giv e them any chance of success. Similarly, we must accept that restructuring comes in many shapes and sizes, just as our own physical features differ from one to the other but we all remain human. Often, the cultural context of business is as important as th e structure of state institutions, as is the interrelationship between civil society and government.
Allow me to share a few thoughts with you based on our South African experience to illustrate some of what I have being saying so far. It is now common knowledge that South Africa embarked on its democratic route only in 1994, and that that journey was pre ceded by a long period of conflict that defied the search for consensus that emerged during the early 1990s. As the representatives of the vast majority of our people, we were terribly conscious not to adopt policy positions introduced by the apartheid reg ime. Let me put this in context.
Prior to 1994 the then white minority government introduced a privatisation process aimed ostensibly at improving economic efficiency and service delivery. South Africa had, in its colonial and apartheid period built up a significant state-owned asset base in various fields such as energy, transport, minerals, defence, industries, post, telecommunications, forests, and even holiday resorts! Over time, that asset base was located in 6 large entities, most of which were subdivided into smaller divisions or un its. However, one complications relates to the apartheid policy of creating so-called independent bantustans like the old Transkei Ciskei, Venda and Bophuthatswana. These semi-states also established their own state entities that ranged from entertainment casinos, to mines, farms, pharmacies, petrol stations and a whole range of odds and ends. 1994 brought these entities under the new government's authority. Today, we count between 600 and 800 state-owned entities in South Africa, most of which are assigned to government's departments, but a number of which remain illusive.
The monetary value of the asset base is extremely difficult to calculate, but we estimate that it is in the region, of some R150b, or $25bn at current exchange rates. One of the difficulties we have in determining the value of the asset base is this: we be lieve that state-owned enterprises still have an important role to play in transforming our country. We do not agree with the view that we should sell off state assets completely, or even in part, as a matter of principle. We consider the restructuring opt ions against a strategic assessment of the particular SOE, influenced by the particular role we see it playing within the overall economic policy framework of government. South Africa's political transformation is developing rapidly: we have in place a con stitutional democracy secured through parliament based on a rigorous committee system and enhanced by a strengthened executive whose modus operandi is geared towards intra-governmental co-ordination and inter-governmental co-operation. However, social and economic transformation, as is to be expected, is more uneven and more vigorously challenged by established economic interests. South Africa, as is the case with many of the former settler colonies in Africa, developed into a complex society, where class a nd race were deliberately linked, with the effect that cities and rural areas became identifiable in distinctive racial and class terns. Skewed development was a deliberate policy that results in a situation where those areas classically ignored by the pri vate sector, such as poorer urban or undeveloped rural backwaters are home to the majority of our people who are black. The neglect was effected through the deliberate denial of energy, transport, communication, infrastructure, or urban development designe d to form economic hubs. In other words, precisely those infrastructural elements, which are urgently required for the development and transformation of our rural and poor areas, are located within the ambit of the major state-owned enterprises. Rather tha n perpetuate inefficiencies through converting state monopolies into private monopolies, it is better to ensure that development policy is steered according to the priorities of government through entities that are subject to government authority but are m anaged according to partnership arrangements of one form or another.
We are painfully aware that a number of the SOEs are not performing well at the moment. Whether this is the result of deliberately poor or reckless management, or outdated managerial and financial systems that have not adapted to an increasingly competitiv e marketplace or simply because they really do not have a role to play because the product is neither a niche product nor useful, is difficult to say. At the same time we do not believe that it makes any political or economic sense simply to discard troubl esome state-owned entities and to leave someone else, to whit the private sector, to assume responsibility. Too frequently the temptation arises to suggest that an entity needs to be privatised because it is a drain or, the fiscus, or because it is unable to hold its own in an unregulated market. In these circumstances it is critical to identify accurately the real cause of the problem. We leave found that in the most instances, successful turnaround strategies are viable and indeed necessary prior to consi deration of partial privatisation or indeed of bringing in strategic equity partners. As far as possible, partners should be brought into well-run institutions, rather than the turnaround being determined by outside influence. Of course, we cannot keep the two totally separate, but would suggest that caution and care should he the name of the game.
I mentioned earlier that restructuring comes in different shapes and sizes. This has been particularly true in the South Africans context, and I am aware that similar examples exist around the continent. Outright sale of some state enterprises has occurred in a number of instances at the local level. For example, a number of agricultura1 establishments such as the largest mango farm situated in the north of the country, or a pineapple factory in the eastern part have both been privatised. The purchasers are workers from the projects themselves who are provided assistance from other government departments and NGOs to develop management and financial skills, coupled with expertise in marketing, public relations and so on. Employee share ownership is a critical component of all our major restructuring efforts, and we have identified a minimum of 10% as a ball park figure for ESOPs. Similarly, government recently established a National Empowerment Fund whose purpose is to secure funding for the advancement of bla ck economic empowerment. Partly funded by government, we have established the principle of participation of up to 5% by the NEF in the shareholding of privatised entities as a means to supplement government funding.
Government agreed to the outright sale of two important companies to private interests that incorporated industry expertise, as well as black economic investment. These were the airline company Sun Air, sold in 1997, and a travel agency that used to be par t of the transport parastatal. Recently, and perhaps some of you are aware, there has been some controversy around the recent decision by the new Sun Air shareholders to close the business. Government seized of the situation at the moment but we have expre ssed our concern that at all times we must be able to ensure that the original objectives of our restructuring efforts, in this case a privatisation exercise, are maintained in the longer term. Again, looked at positively, the Sun Air story provides us wit h valuable lessons that can guide us in the future.
Strategic Equity Partnerships are a common feature in the world today, and I am pleased to indicate that our utilisation of this type of restructuring has been beneficial. Telecommunications have seen the introduction of Malaysian interests at a substantia l price. SAA, the national airline has sold a 20% share to Swissair. Both these initiatives do not stand alone. Both complement internal restructuring as well as reinforce improved business and management performance. So, if I take the airline as an exampl e, the new look SAA has expanded its partnerships dramatically, including Ghana Airlines and is busy talking with other continental lines to strengthen an African carrier fleet to and from other destinations. The benefits are modified of this type of restr ucturing foreign capital investment caries international expertise with local initiatives and policy priorities to secure domestic social and economic value at the same time as building interdependent relationships across and between countries.
In those instances where an outright sale of an asset would most probably be counter-productive financially, we have introduced the system of management contracts. In these instances, it is clear that the current management regime is not able to introduce suitable turnaround strategies fast enough. Nor is the financial situation a fair reflection of the actual value of the asset. We have engaged management contracts to formulate turnaround strategies in two diverse and complex enterprises, namely the leisur e industry and diamond mining. Essentially the terms of the contract are such that it is of financial benefit to the contractor to make their plans succeed. Furthermore, once the business has been put on a firm footing once again, it becomes possible for t he state to entertain further options for its contribution. These include possible disposal, the introduction of SEPs, or indeed the consolidation of related industries into one single entity. The point is that the restructuring process can often be seen a s a process, moving from one set of solutions for particular problems to identifying new ideas for new situations.
Restructuring also occurs in relation to the way in which state enterprises are themselves organised. Holding companies divided into business units or divisions are commonplace. The identification of core and non-core activities is an important aspect of t his example. It also permits a clearer definition of what the state considers to be of strategic value. So, for example, it may be justified to sell off part of a consolidated information technology enterprise, but necessary to retain 100% of an entity who se productive output has been redefined to include only those elements of a strategic nature. This approach allows the consolidation and rationalisation of sectors within the economy that brings together both private and public sector companies. Combinatio ns of these models, for example, are currently being examined for the restructuring of the state-owned defence-related industries.
Yet another useful example is provided by Eskom, our electricity commission. The operation has been rationalised over some years now to the extent that generation, transmission and distribution are distinct packages, whilst a variety of non-core activities are grouped under a new entity Although the restructuring in this case emphasises good business and managerial sense, it also unleashes remarkable resources from within the entity as a whole in a manner that supports and promotes government's reconstructi on and development policy both at home and on the continent as a whole.
My point simply is this: imagination and good business sense can combine in an undogmatic and creative way to the benefit of the process as a whole.
Earlier I referred in passing to the idea of the need to recognise business culture. In this sense, the rejuvenation of corporate governance principles for state-owned enterprises is essential to success. This includes an appreciation of the peculiar circu mstances where Boards of Directors are appointed by a single shareholder, or where the majority shareholder is "government", but still operate according to normal company practice. The autonomy of the Board needs to be defined within the parameters of stat e ownership and control, even when this is mitigated with the participation of other shareholders. Furthermore, we are convinced that managerial reform is overdue, that the need to adjust to operating within an increasingly competitive context, both domest ically and globally, is urgent, and that social capital programme co-ordination between the various entities and between government and themselves is critical.
Life after restructuring is another area of critical engagement. A preliminary assessment indicates that we need constantly to weigh the original objectives of a particular restructuring, and the results of that exercise over time. If, for example the obje ctive is to secure revenue to help reduce the state debt, it helps little if the asset is either undersold, or is privatised as if it were an item in a basement bargain sale. Again, if the venture is designed to increase competitiveness within a particular sector, or bring in effective empowerment of formerly marginalised sections of the population, and it fails as a business entity, then the objective and perhaps even the process is called in doubt.
I do not wish to go into the details of specific South African restructuring projects. Rather I will share with you the constraints we have discovered as a result of the past few years and outline some of the proposals we have developed to erasure the sust ainability and success of the restructuring process. I hope that some, if not all, of these generic issues will resonate with delegates and perhaps provide some new ideas to the debates.
It is critical that the government department of agency tasked with restructuring is adequately resourced. One immediately thinks in budgetary terms but I would stress rather that tile quality of the professionals employed in the department is paramount. R estructuring needs to be driven by the shareholder, in this instance, government, through the efficient and knowledgeable interaction of its officials and the management and boards of the entities themselves. We need to avoid situations where restructuring is driven by the SOEs themselves as this frequently dilutes the state's ability to use the process to optimise economic impact or can even lead to a diversion from government policy. One clear area where this is evident relates to the question of retrench ment. Some commentators suggest that retrenchment is the answer to all the economic woes that state-owned enterprises endure. Partly the argument concentrates on the fact that SOEs frequently were utilised by governments to secure employment for supporters or others. Partly, it is based on outmoded ideas that do not provide sufficient attention to managerial and institutional reform. Most of our countries need to be particularly sensitive to the employment question, and sometimes the larger interest of soci ety, the state and the workers themselves need to take precedence over narrow managerial solutions.
An associated problem of human resource neglect is the possible over reliance by government of external advisors, advisors drawn from the SOE sector itself, and particularly those from financial institutions whose longer-term interests may be influenced mo re by their client base than the requirements of government policy. Under-resourced departments are also unlikely to be able to give sound financial judgements concerning the financial performance of SOEs, their compliance with corporate governance convent ions, the impact of restructuring on broader, macro-economic levels, or indeed, in their ability to assess the relationship between objective and result that I have alluded to earlier. Furthermore, it is difficult in these circumstances to think laterally, to consider the rationalisation of function between different SOEs, where, for example, it would make eminent sense to divert all IT components of SOEs into one entity that can itself then undergo some form of restructuring. The ability to identify and se parate, if necessary, core from non-core functions could also be jeopardised.
At the core of the restructuring process has to be an overall consensus from all stakeholders, but particularly management, labour and shareholder, about the policy framework and its legislative expression. Policy formulation and implementation must be tra nsparent and accessible to all stakeholders, otherwise the legitimacy of a frequently misunderstood programme is questioned. Without a clear and precise articulation of policy, backed up by a legislative framework that spells out the rules of the game, it is probable that the state would not be able to maximise its returns on its investment both financial and social.
In summary, the constraints as we have found them convince us that we have not been able to direct the restructuring process in the best interests of the state. I often ask myself, who is going to benefit most from a particular restructuring the citizens o f the country, i.e. the state, or the consortium that buys into the project? It is government's job to ensure that the former is the major beneficiary.
President Thabo Mbeki has committed his government to accelerate the tremendous advances made under the former President Nelson Mandela. In Public Enterprises we do not interpret acceleration to means selling of the family silver faster at bargain prices. Rather we see our task as providing rapidly the necessary direction and frameworks that will ensure that the partnerships we encourage and implement provide the best socio-economic development returns for the country as a whole. In this endeavour, we empha sise that restructuring is a multi-pronged instrument that collectively relieves pressure on the state debt. It improves and enhances the competitive economic environment that will assist the emergence of smaller and micro business enterprises and previous ly disadvantaged people. It operates to spread the creation of wealth and its attendant benefits more widely, both in geographic and human terms. It operates also to make sure that greater financial and institutional support is given to established governm ent programmes that are aimed at infrastructure development and the alleviation of poverty. Restructuring is also a mechanism to speed up training programmes and the development of skills for workers. Restructuring cannot remain an end in itself. It has to be linked to the essential development of new operating and managerial cultures that emphasise the positive contribution that state participation in economic development provides.
We have engaged in a number of initiatives already to ensure the success of our vision. At the end of July this year, the Department was upgraded to a fully-fledged national department. Necessary adjustments to the budget have been made for the next three years. A new Director-General to head the department took office only last Monday. We have a five year programme of action broken down into annual business plans in place. Our staff are appointed on a contract basis, and subject to performance contracts to measure outcomes and results. We have already engaged state-owned enterprises and ensured that the redefined mandate is understood and implemented. My officials are hard at work preparing the ground for legislation and a regulatory framework to provide st ability and security to the sector. We are in the process of developing guidelines for institutional reform to facilitate the acceleration of restructuring at all levels. In short, we are inspired with the task of ensuring greater success and more remarkab le achievements in the context of a fully-integrated government macro-economic framework.
In many ways, the restructuring of state assets in South Africa is a natural cousin of the reforms we have introduced in the arena of state procurement. There, too archaic systems and philosophies have been overhauled to ensure that procurement become a to ol for transformation. It ensures the growth and development of small, micro and medium enterprises, it increases participation in critical areas of the economy, it highlights transparency and fair play , it emphasises efficiency and cost-benefits to the s tate, it reduces bureaucracy and corruption. The transformation of state-owned enterprises in South Africa includes initiatives, then, to privatise where desirable, employ strategic equity partners where possible, concessions where viable and piggy-back al l of these strategies to ensure superior economic performance by the SOE's after restructuring has taken place.
Society is about partnership and co-operation. It involves the recognition that different entities and institutions or bodies of people have qualitative and quantifiable contributions to make to the overall development of people. When we harness these ener gies, these skills, imaginations, temperaments and peculiarities together we have within our grasp the tools of massive power. Recognition of the value of these various attributes allows us to compete with one another openly and positively. It allows us to engage constructively and with purpose, able to ascertain what is best for our development.
When we split them up, when we fight for turf, or hide behind corruption and dishonest behaviour, when we each pursue goals without consideration of the greater good, we reduce our interaction to barbarism. We remain struck in the dark ages of the colonial and racist past. We have refined our perception of the role that state-owned enterprises can play in our democracy in South Africa. We believe their role is a positive one that can develop further into becoming an engine room of creativity and rapid deliv ery of services to millions of our people. We are proud too, that many of our SOE's already work beyond South Africa's borders, beyond even the borders of Southern Africa. They are active instruments of our government's support for the programme to provide African's with the means to defeat poverty and underdevelopment. Eskom, our electricity commission, brings light energy to many parts of our continent. Transnet, the transport infrastructure group, co-ordinates the passage of freight and passengers throug h our ports and harbours, linking the sea to the interior through our rail and roads systems. Telecommunications speeds along our information highways, bringing news and the whispered love-songs to people in the remotest areas. Our gas, ore and mineral pip elines and networks further provide essential resources in an environmentally friendly manner. Our State military armaments manufacture, Denel, has developed a client base in many of our continent's states, fully backed by a government exercising its respo nsibility through a clearly-defined policy framework for trade in weapons, components and arms, and subject to our government's accession to numerous international conventions.
The powerlines, the railways, the roads and sea routes between ports, cities and remote areas, the invisible pulses and waves of the internet and telecommunication are the veins and arteries that provide our well-being, the lifeblood of our modern existenc e. The continent is ready for the new millennium. The continent has a major contribution to make to the modern world. The world can learn from our culture, our art, and our systems of belief, our humour, generosity and literature. It is the best that they learn it from us, rather than steal it in the ways of the past. To do that requires us all to participate actively in the further development of our infrastructure capacity. State-owned enterprises have a role to play. The manner in which they perform that role is a subject for particular investigation. We should engage the debates actively and with passion. We do not have time to prevaricate.
I thank you