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South Africa: report on state-owned entities

Pretoria: In May 2010, during the Presidency Budget Vote, President Jacob Zuma announced the establishment of the Presidential Review Committee (PRC) on State Owned Enterprises. We are pleased to announce that the Cabinet accepted the Final Report of the Presidential Review Committee on State-Owned Entities (SOEs) on 30 April 2013. As you will recall, His Excellency President Jacob Zuma established the PRC in response to the need to improve SOE policy and to strengthen the role of SOEs in society in general, and in the economy in particular, and to ensure that SoEs respond to a clearly defined public mandate and support the developmental state aspirations of the South African Government.

The strategic role of SOEs in propelling the developmental agenda was deemed to be both desirable and long overdue. With the advent of democracy in 1994, government inherited a large and complex array of State-Owned Entities (SOEs), with varying degrees of efficiency, efficacy and purpose. Hence the initiation of the PRC review.

The Presidential Review Committee on State-Owned Entities chaired by Ms Mangwashi Victoria Phiyega concluded its work and presented its final report findings and recommendations first to the President and subsequently to Cabinet.

The primary mandate of the PRC was to review SOEs and to provide recommendations and reforms on these entities across all spheres of Government. This goal was in order to achieve a balance between national developmental and transformation objectives, improved governance, improved performance, and improved service delivery as well as to achieve sustainable viability of SOEs in alignment with the developmental state aspirations.

The committee's enormous task entailed 21 terms of reference and was executed by a committee of 12 assisted by a modest secretariat team, which comprised of a dedicated, professional team with extensive experience and diverse subject matter expertise.

The 21 terms of reference were categorised into four themes: 1) development and transformation, 2) governance and ownership, 3) business case and viability and 4) strategic management and operational effectiveness.

The PRC observed that there were 715 entities serving various commercial and non-commercial objectives at different spheres of Government. The PRC did not undertake a micro study of each of the entities. Through the technical guidance of the Human Sciences Research Council (HSRC) which was the primary research advisor, the PRC developed a scientific representative sample of entities to study.

The PRC, within 24 months, undertook an unprecedented and a comprehensive macro review of all State Owned entities as well as conducting an extensive national and international bench mark.

The methodology followed also included the following;

· The PRC conducted a combined primary and secondary research with the assistance of specialist research service providers among others such as KPMG, PWC, HSRC and 21st Century

· The PRC adapted an international best practice SOE review approach

· The PRC reflected on the history of South African SOEs, dating back to the 1900s when the first SOE was established through to the past 18 years since 1994 when a democratic South Africa came into being.

· The PRC with the assistance of subject matter specialists developed and produced discussions papers for each work stream to enhance the understanding of the issues being examined

· The committee conducted focus group/policy dialogues and roundtable discussions with subject experts and stakeholders who provided an instrumental robust contribution to understanding the SOE environment and policy discourse.

· The PRC, in order to avoid duplications and reinventing the wheel, also considered and incorporated some of the recommendations of previous reviews undertaken on State Owned Entities, such as the review of Chapter 9 institutions.

In its comprehensive review, the PRC has ascertained that while SOEs have an indispensable role to play in service delivery and have crucial performance and transformation potential, they are nevertheless faced with significant weaknesses and threats that might become grave impediments to their optimum contribution.

The report contains recommendations on the entities to be reshaped and made relevant to the developmental needs of the country. More specifically, the recommendations seek to ensure that SOEs are modernised and are positioned to be efficient and effective in accelerating the country's growth and development aspirations.

The report accordingly recommends major reforms to strengthen SOEs. These reforms address matters of overarching strategy, legal and regulatory policy, governance, oversight for SOEs, establishment/ disestablishment of SOEs; funding, institutional structures, systems, capacity, as well as critical performance evaluation measures.

The Review articulates that the State should:

· Clearly define and communicate a consistent strategy for SOEs.

· Ensure that governance policies and practices are in place and that effective contact between regulators, agencies, Government and SOEs are maintained.

· Define the purpose of SOEs. Standardised monitoring and evaluation criteria modelled on best practice should be adopted to make it more effective.

· Enable high operational performance of SOEs so that they are able to meet economic and developmental objectives in a cost effective manner.

· The Government should develop a consolidated funding model for commercial SOEs and Developmental Finance institutions (DFIs).

Government now aims to re-orient the SOEs towards the twin goals of attaining the country's socio-economic developmental goals and maximising operational efficiency and financial sustainability.

Cabinet accepted the PRC report and approved the establishment of a SOE Inter-Ministerial Committee to guide the implementation of the recommendations of the PRC subject to consultation with the President and the Cabinet. The Inter-Ministerial Committee will also process the various inputs made by the Cabinet in regard to those recommendations that require further consideration and discussion. Further, the Presidency and the SOE Inter-Ministerial Committee will ensure that all appropriate institutional arrangements are put in place to ensure effective implementation of this Cabinet decision.

The implementation of the PRC recommendations should be viewed as a reform process or programme, not a once off event. The PRC proposed a phased implementation approach of the PRC recommendations namely: short-term (up to two years), medium-term (five year period) and long-term (full implementation of all reforms).

This provides an opportunity for post-1994 South Africa to redefine the configuration and roles of its SOEs to address economic, social and service delivery challenges facing the country.

*  A 14 page summary is available here.

Date: 
28 May 2013
Source:
The Presidency
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