Some SOEs will need financial assistance – Gigaba

Finance Minister Malusi Gigaba. (Photo: Gallo Images)
Finance Minister Malusi Gigaba. (Photo: Gallo Images)

Cape Town – Finance Minister Malusi Gigaba has announced more details on how government will revitalise state-owned enterprises (SOEs), however some of them will require financial assistance, he said.

At a press briefing ahead of the National Budget Speech on Wednesday, Gigaba told journalists that some SOEs will require financial assistance. The question of which SOEs they may be and how much will be provided is still part of ongoing discussions.

He could say that provisions have been made for SOEs such as SAA, SA Express and Denel.

“Any spending on SOEs will be done in a budget-neutral way, we will need to find resources in the sale of assets to recapitalise SOEs,” he said.

This is part of the state-owned company (SOC) reform process.

“We are going to review the guarantee framework.” Gigaba reiterated previous statements that the provision of guarantees for operational expenditure at SOEs must come to an end.

Guarantees should be provided for capital expenditure, where needed, he said.

The policy framework of the reforms is in the final stages of being approved by Cabinet, he said.

“We can’t implement it right away. We must take due regard of the process announce. So all these; the recapitalisation and provision of government guarantees will be part of broad framework going forward.

“I have raised concerns of the financial sustainability of SOCs,” he said. The financial assistance will be provided through a combination of disposing non-core assets, strategic equity partners or direct capital injections,” said Gigaba.

This includes the disposal of properties which are not being used, he explained during his speech. There are 195 000 properties which have been identified that could potentially unlock R30bn in value Director-General Dondo Mogajane told journalists at the briefing.

Return on equity of SOEs fell from 0.8% in 2015/16 to 0.3% in 2016/17, according to the budget review.  “Several are in financial distress,” the budget review read.

“Many public-sector institutions are not operating sustainably.

“Although a weak economy has contributed to low returns, corruption and mismanagement have taken a toll, and the finances of several large state-owned companies have continued to deteriorate,” the review explained.

Government recognises that some business models of SOCs are unsustainable and their capital structures are too reliant on debt, said Gigaba.

Ramaphosa’s Council

Newly elected President Cyril Ramaphosa has promised structural changes at SOEs. This includes changing the way boards are structured, as well as the funding model of SOEs.

In his reply to the debate on the State of the Nation Address on Tuesday, Ramaphosa said he welcomed the concrete suggestions from MPs to fix SOEs. One of these being a State-Owned Company Coordinating Council (SOCC), proposed by EFF MP Floyd Shivambu. The council will be chaired by the president and would be responsible for “high level strategic direction”, he said.

Gigaba said that the time frame for new board announcements are to be determined by the SOCC.

The next bard scheduled for a rotation is state-arms manufacturing company Denel, he said.

Other boards to be reviewed and time frames will be announced, he told journalists.

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