by Stef Terblanche

State-owned enterprises

Telkom latest casualty amongst troubled SOEs

South Africa’s economic policy arena

Telkom is the latest casualty in a long list of troubled state-owned enterprises (SOEs). While nationalisation has replaced privatisation as the dominant debate in South Africa’s economic policy arena, global financial woes have also made privatisation a non-starter. Yet it is obvious that  the state is unable to run its massive enterprises efficiently and profitably.

Besides management upheavals, a number of public enterprise ministers have been replaced over the past two decades. The most controversial departure was Barbara Hogan, fired in 2010 by President Jacob Zuma.

Many thought Hogan was a competent minister unafraid to speak her mind on conflicts of interest concerning her own political party and certain business deals in the SOE environment. She also took a hard line on restoring good corporate governance in public enterprises at a time when a number of them experienced problems.

Since her departure, things have gone markedly backwards for South African SOEs.

Worldwide SOEs are created as distinct legal entities run entirely by government or companies in which the state may be a major  or a majority shareholder. They operate the state’s commercial affairs, often with public policy objectives.

Political interference, corruption, and non-adherence to good corporate governance practices cause SOEs to fail, which often troubles South African SOEs. Most successful SOEs have a balance of public and private interests and are commercially run without political interference.

The recent global economic crisis has brought new perspectives on governments' roles in business while favouring a greater role for government.

In South Africa, the rapid nationalisation of key industries and institutions with more state-owned and run enterprises is an issue. Critics predict severe failures were this to happen.

The national policy conference held in June, suggests that the ruling African National Congress seeks an approach that includes more state intervention but not wholesale nationalisation.

Whatever the government decides on, it will have to be an  approach that harnesses the best of both the private and public sectors to stop corruption.

It will also have to resolve the conflict of interests it has as regulator/legislator and shareholder/owner of many of the SOEs.

That government is aware of the problems is clear in the New Growth Path (NGP) document. It states that “the performance of most state interventions in the ICT sector has been disappointing" and notes that South Africa "has lost its status as continental leader in internet and broadband connectivity".

The list of troubled SOEs in recent years is a long one and includes:

Telkom, with regular changes in chairpersons, CEOs and directors, top managers who resign or are fired. In 2010 it was rocked by allegations of widespread corruption, bribery, poor procurement practices, mismanagement and nepotism.

A dossier, implicating senior managers and executives, was compiled by the Communications Workers Union (CWU) and sent to cabinet ministers, parliament, state and industry watchdogs.

Most recently, Telkom is virtually leaderless. CEO Nombulelo Moholi, is the fifth CEO to quit in seven years; less than a month after chairman Lazarus Zim suddenly left. The board has eight vacancies. More resignations are expected.

Political interference in Telkom's running was questioned when Minister Dina Pule suddenly voted against the re-appointment of four independent, non-executive directors she had earlier approved. A turnaround strategy for Telkom, prepared by Moholi and her board which included the sale of a 20% stake to a South Korean telecommunications company, was also vetoed by Cabinet in July.

Telkom faces other challenges such as a massive fine from the Competition Tribunal over anti-competitive behaviour and increased competition.

SAA, long-troubled, is on the verge of implementing yet another turnaround strategy to save itself from going under. Turnaround strategies have been the order of the day at this state-owned airline for over the past two decades.

It has also experienced a series of financial and other controversies, frequent changes of CEOs, chairmen and board members since the early 1990s.

It is presently experiencing a leadership crisis following the resignations of chairman, Cheryl Carolus, and CEO, Siza Msimela.

From a place on Zagat Survey's top 10 international airlines a decade ago, SAA has steadily deteriorated to one of the worst-run airlines in the world today using the industry standard measure of efficiency based on workers per aircraft.

Eskom, state-owned power utility is the largest producer of electricity in Africa and among the top seven utilities in the world in terms of generation capacity and among the top nine in terms of sales. Nonetheless, it has a legacy of bad planning, poor management and lack of infrastructure development. Both Eskom and the government were warned in the late 1990s that Eskom would run out of power reserves by 2007 unless action was taken to prevent it. The advice was ignored.

An electricity crisis in 2007/2008 meant the mining industry (the country's backbone) was temporarily shut down. Now the government, household and industry consumers are footing a massive bill to finance Eskom’s capacity upgrades to prevent this re-occurring.

Former CEO, Jacob Maroga’s, spell at Eskom was marked by power shortages, severe financial losses and electricity price rises that pushed up South Africa's inflation rate. His off and on presence at Eskom was also accompanied by the short-lived chairmanship of former mining boss, Bobby Godsell.

The state-owned freight and logistics company, Transnet, seems an exception to the rule and one of the few SOEs not to be downgraded by rating agencies last month.

It delivered excellent interim results in October with earnings (before interest, tax, depreciation and amortisation) rising 7.1%; revenues up 11%; rail shipments up by 7.5% and cash generated by operations going up by 18.1%.

The company is also on the verge of launching a multibillion rand capital development programme.

The planned R300-billion capital investment will make Transnet the world’s fifth-largest rail freight company. It will almost double the capacity of its ports while rail capacity will increase from 200 million tonnes to 350 million tonnes by 2019.

But Transnet, whose major shareholder is the Department of Public Enterprises, cannot take the good times for granted. Until very recently it suffered problems similar to other SOEs and was riven with legacy problems. Former CEO, Mafika Mkwanazi, was said to have left the company in bad shape.

He was replaced by Maria Ramos and after her departure the company was without a CEO for two years. Business improved as Brian Molefe, the capable former head of  Public Investment Corporation was appointed CEO.

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