S. African finance minister targets state-owned companies in budget speech

State-owned companies (SOCs) have important roles to play in boosting growth and development, but there are issues to address in their governance, mandates, financing and operations, Finance Minister Pravin Gordhan said on Wednesday.

The mandates of some of SOCs overlap, some operate in markets that should be more transparently competitive, some are no longer relevant to the development agenda and some are in perpetual financial difficulties, Gordhan said in his 2016 budget speech in Parliament, citing the recently-released report of the Presidential Review Commission on SOCs.

"So we must take decisive steps to ensure that they are effectively governed and that they contribute appropriately to the attainment of the National Development Plan," he said.

The asset base of state owned entities in SA is over one trillion rand (about 65.7 billion U.S. dollars), equivalent to about 27 percent of GDP. They maintain networks and provide services - power, roads, transport, water, communications - on which the rest of the economy depends.

SOCs that are no longer necessary should be phased out and the resources raised or saved will be redirected to the balance sheets of SOCs that should grow, Gordhan said.

There are entities with regulatory responsibilities where capacity should be combined, he explained.

"We have national and provincial entities with diverse property holdings, interests in farming or trading or manufacturing enterprises - often inherited from the pre-1994 dispensation, typically buried in subsidiary companies that are not publicly accountable," said Gordhan.

Furthermore, there is no need to invest in four state-owned airline businesses, he said.

The government will explore the possible merger of South African Airways (SAA) and SA Express, under a strengthened board, with a view to engaging with a potential minority equity partner, and to create a bigger and more operationally efficient airline, Gordhan said.

He said the balance sheets of several entities with extensive infrastructure investment responsibilities are now stretched to their limits.

The government has provided support in the form of guarantees, which now total 467 billion rand (about 31 billion dollars) or 11.5 percent of GDP.

"This is a source of pressure on the sovereign rating," Gordhan said.

He stressed the need to accelerate infrastructure investment in the period ahead. Endit