Guest Column

Lessons for South Africa's SOEs from other African countries

2018-11-20 06:00
Eskom's Lethabo coal powerstation in the Vaal triangle. Photo: Elise Tempelhoff/Netwerk24

Eskom's Lethabo coal powerstation in the Vaal triangle. Photo: Elise Tempelhoff/Netwerk24

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Since independence many failing African SOEs have been bailed out by governments without introducing non-patronage-based competent management with devastating effects, writes William Gumede.

Since independence from colonialism many state-owned enterprises (SOEs) in Africa have failed as businesses because of poor corporate governance, with governments running them as state organs and milking them for patronage. 

Many African governments immediately after independence either nationalised the few large private entities owned by colonial settlers or formed new state-owned companies to deliver public services, build infrastructure and foster development. 

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However, since independence many failing African SOEs have been bailed out by governments without introducing non-patronage-based competent management, operating it like genuine businesses and slashing corruption. 

The argument for bailing out failing SOEs has been that these entities deliver public services, employ substantial numbers and give business contracts to many local businesses. However, often those employed and getting tenders have been closely aligned to the ruler. 

Services delivered by these SOEs are substandard – as they are rarely held accountable to deliver on quality. These bailed out SOEs naturally continue to fail. However, they are continually bailed out until the debt they accumulate balloons to such large proportions that they threaten to bring down the country's economy. 

The same executives and board members who have been proven ineffective are often recycled to run different SOEs, just because they are allied to the governing party or leader and formed part of the favoured ethnic group. They run down every entity they touch.

At the stage where indebted SOEs bring country economies to collapse, African countries then approach international lenders such as the World Bank or the International Monetary Fund (IMF) for country bailouts. These international lenders then as a condition for lending recommend SOEs be privatised. 

This cycle has continued for years, with failing African SOEs now increasingly being bailed out by new emerging powers such as China and Saudi Arabia. 

Ghana is a typical example where SOEs were created immediately after independence in 1957 because there was not a sizeable private sector. However, by the 1980s these SOEs had been so poorly managed because of patronage appointees, corruption and mismanagement, they were often bailed out, but without accompanying efficiency reforms, accumulating substantial debt which eventually brought down the whole economy. 

The Ghanaian government turned to the World Bank and IMF for help to bail out the country. These global lenders in return for bailout packages instructed the country to sell many SOEs to raise funds. 

In June this year, Kenya's auditor-general Edward Ouko reported that the country lost more than US$300m in dodgy loans by state-owned companies. The Kenyan government have bailed out a number of failing SOEs including Kenya Power, the Kenya Broadcasting Corporation and Telkom Kenya. 

In 2017, civil society organisation Global Watch reported that a fifth of all mining income of the Democratic Republic of Congo (DRC), including state mining company Gecamines, disappeared between 2013 and 2015 because of mismanagement, corruption and poor investment decisions. The DRC is a top producer of copper, cobalt, coltan, diamonds, tin and gold. The mandate of Gecamines was to oversee the exploration, investment and production of the country's mineral wealth. 

Zimbabwe has 92 recorded SOEs, with the latest audit by the country's treasury showing that 70% of them are technically insolvent. Last month the Zimbabwean treasury appointed an independent administrator to run its loss-making national airline to try to revive it. Air Zimbabwe has a US$300m debt. 

In 2016 then-Angolan president Jose Eduardo Dos Santos appointed his daughter Isabel Dos Santos as the chairwoman of the country's giant state-oil company Sonangol. In November last year, the country's new president Joao Lourenco removed her from the job and appointed Carlos Saturnino. Angolan prosecutors have opened an investigation into corruption, financial irregularities and mismanagement of the entity under Dos Santos' management. 

President Dos Santos in 2013 also appointed his son, Jose Filomeno Dos Santos, as head of the Angolan state-owned sovereign wealth fund of  US$5bn. Earlier this year, Angolan prosecutors charged Dos Santos Jr with fraudulently transferring US$500m from the fund to the UK. 

Lack of oversight

African countries often lack robust corporate governance laws, regulations and oversight mechanism to hold SOEs accountable, ensure transparency in operations and promote business efficiency. In many cases, even if such corporate governance frameworks may be present, they are rarely implemented, complied with, neither are there consequences for SOEs failing to do so. 

Many African SOEs are required to meet too many objectives, with governments often adding new responsibilities over time. Such multiple objectives for SOEs mean there is no clarity over which objective is more important. Managers at SOEs can shirk responsibility for performance by saying they had to focus on one objective, and therefore could not meet another. 

Nigeria in 2011 established the Nigeria Sovereign Investment Authority (NSIA), the country's sovereign wealth fund. However, the NSIA have so many multiple objectives, confusing responsibilities and mandates overlapping with those of other entities, it is in danger of being overstretched in terms of capital, resources and skills. 

There has to be a division of responsibilities between the state as owner, policy maker and regulator in African SOEs. Governments must come up with a clear strategy of the role of a state as owner or shareholder. Such a strategy must be the equivalent of the role of a majority shareholder in listed private companies. 

There has to be a firewall between governing parties and SOEs. Boards must be given the requisite power to oversee SOEs, including appointing the CEO and chairperson. 

Many SOEs do not have a clear purpose. Many SOEs are not necessary, because the local private sector can deliver the services more effectively, more cheaply and with less of a drain on scarce public resources.  

African SOEs are in many cases not run as effective businesses. The organisational culture of many African SOEs mirrors that of public services. African public services are notoriously corrupt, appointments are made based on patronage, not merit or competency and the efficiency, productivity and quality of delivery of public services – and accountable are below par. 

Appointments should be made on merit. There should be limits on how many SOE boards an individual should be allowed to sit on. 
SOEs also need rigorous external auditing, robust internal auditing, controls and compliance systems. African SOEs need clear objectives, which should be publicly available. The performance, remuneration and executive and board appointments of SOEs should also be publicly available.

Executives and boards should take individual responsibility for mismanagement, corruption and inefficiencies. 

African SOEs need independent oversight. Parliamentary oversight should be strengthened. African media, civil society and consumers of services and products of SOEs must hold these companies more accountable. Annual general meetings of SOEs must be made open to ordinary citizens, the media and civil society organisations. 

- William Gumede is associate professor at the Wits School of Governance, executive chairman of the Democracy Works Foundation; and author of South Africa in BRICS (Tafelberg). This is an edited extract from an address to the African Network of Corporate Governance of State-Owned Enterprises, organised by the African Peer Review Mechanism, in partnership with the Mauritian Ministry of Financial Services and Good Governance and the Organisation for Economic Cooperation and Development (OECD), Le Meridian, Mauritius, 8 November 2018.

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Read more on:    soe  |  state-owned enterprises  |  africa  |  kenya  |  zimbabwe  |  ghana  |  corruption


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