SOCs such as Eskom, Transnet, and Sanral must prioritise projects that not only drive economic growth but also have a measurable impact on employment, social equity, and service delivery. Picture: Supplied
By Maropene Ramokgopa
SINCE the advent of democracy in 1994, the role of state-owned companies (SOCs) has become an integral part of South Africa’s economy and its development.
These institutions have over the years provided essential services, driving industrial expansion and enabling infrastructure growth. SOCs are also key vehicles and catalysts for inclusive growth, and for the implementation of the National Development Plan (NDP), which is our country’s lodestar for inclusive prosperity.
Despite their indisputable contribution to the country’s economy, the financial instability, underperformance and malfeasance at SOCs in recent years have raised concerns about their capacity to fulfil their expected role effectively.
In this regard, SOCs need a more strategic approach to capital allocation and optimal capital structure. Efficient capital allocation ensures that financial resources are directed toward projects that drive meaningful social and economic transformation, while a well-balanced capital structure reduces debt dependency and enhances long-term sustainability.
Accordingly, reforming the financial management of SOCs is crucial for achieving impactful and inclusive growth, allowing them to support South Africa's broader developmental objectives without imposing excessive burdens on the national budget.
Efficient capital allocation is inextricably linked to the success and high impact of SOCs, especially in cases where the goals are broader than mere profit maximisation. The NDP emphasises infrastructure and industrial growth as pillars of economic inclusion.
This means that SOCs such as Eskom, Transnet, and Sanral must prioritise projects that not only drive economic growth but also have a measurable impact on employment, social equity, and service delivery.
Over the years, there has been mixed success in relation to investment in rail infrastructure. Transnet, South Africa's freight and logistics SOC, has made significant capital allocations to expand and modernise its rail infrastructure. This has been particularly important considering that the rail sector, especially in freight transport, is an enabler of industrial growth.
For Transnet, as a key player in South Africa's transport infrastructure, a well-strategised capital allocation and a balanced capital structure are essential to drive both financial stability and developmental goals.
Some aspects at Transnet that contribute to inclusive growth and economic competitiveness include:
SOCs in South Africa have historically been heavily reliant on debt, which has often led to unsustainable debt burdens, especially when combined with operational inefficiencies.
Eskom, for example, has accumulated a debt of more than R400 billion, placing a significant strain on the national economy.
Equally, Eskom’s high debt levels have contributed to its inability to maintain and expand infrastructure. Its reliance on government bailouts crowded out other critical spending areas, like education and healthcare.
Moving forward, SOCs like Eskom need to adopt a more balanced capital structure by increasing equity contributions, particularly from private sector partnerships and development finance institutions (DFIs). This approach would most likely reduce debt exposure while still allowing SOCs to expand their infrastructure and service delivery capabilities.
Furthermore, SOCs need to leverage on blended finance models, where public and private capital are combined. An example is the development of renewable energy infrastructure through independent power producers (IPPs). This model not only relieves pressure on the balance sheet but also drives growth in the green economy, contributing to the country’s climate goals and creating new employment opportunities.
The NDP emphasises the important role of collective action, which includes the private sector, in achieving the country’s development objectives. Thus, private sector participation is key in optimizing the capital structure of SOCs in our country.
SOCs should transition from being predominantly reliant on state support to exploring more innovative financing mechanisms that engages and embraces the private sector.
The Airports Company SA (Acsa) is a testament to the partnership with the private sector. Acsa’s ability to attract private investors for its expansion projects, like the upgrade of Cape Town International Airport ahead of the FIFA 2010 World Cup, helped reduce reliance on state funding. The dividends declared by Acsa of over R800 million, further illustrate how an efficient SOC can provide a return on investment, creating fiscal space for the state to invest in other critical areas of the economy.
The key to SOCs successfully driving inclusive growth is to identify and invest in key sectors. There are several sectors with the high-potential areas for success in South Africa.
Firstly, the advanced manufacturing sector can create a competitive export hub, focusing on industries such as automotive, machinery, and chemicals. Secondly, infrastructure enhancement can support growth across the economy by improving transportation, energy supply, and digital connectivity. Thirdly, diversifying the energy mix with natural gas can provide a reliable and low-cost energy source, supporting industrial development. Fourthly, expanding agricultural exports, particularly high-value crops and food processing, can drive rural growth and create jobs.
Lastly, leveraging South Africa’s strong service sectors, such as financial services and tourism, can capture growth opportunities in regional and global markets.
While South Africa has made significant progress in this area, it is important to draw practical lessons from like-minded countries and fast-growing economies in order to get valuable insights for our country.
China’s focus on infrastructure development and manufacturing has been pivotal in its rapid economic growth. South Africa can emulate this by prioritising infrastructure investments and fostering a robust manufacturing sector. India has focused on information technology and service exports to drive significant economic growth.
South Africa can leverage its strong service sectors to boost exports and economic diversification. Brazil’s agricultural sector has been a major driver of its economic growth. South Africa, with its vast arable land, can enhance its agricultural productivity and exports by adopting modern farming techniques and improving market access.
Alongside efficient capital allocation and an optimal capital structure, SOCs need robust governance frameworks to ensure that capital is used responsibly.
The introduction of performance-based management and accountability frameworks, like those used by China’s State-owned Assets Supervision and Administration Commission (SASAC), could significantly improve the operational performance of South African SOCs.
This approach would also help attract private investment, as clear governance standards and transparency are key requirements for private sector involvement.
The proposed establishment of a National State Enterprises Holding Company could centralise and professionalise the management of SOCs, ensuring that capital allocation and structuring are optimised across the board.
Such an entity would allow for greater financial oversight, performance management, and accountability, creating a system where SOCs are both financially sustainable and contribute to the country’s broader development objectives.
For South Africa to realise the potential of its SOCs, capital must be allocated efficiently, with a focus on high-impact sectors and projects that promote inclusive growth. Moreover, SOCs need to adopt an optimal capital structure that reduces reliance on debt and leverages equity, particularly from private sector partnerships.
The reform of governance structures and the introduction of innovative financing models are critical to the long-term success of South Africa’s state-owned entities. By prioritising capital discipline, South Africa can ensure that its SOCs remain key drivers of impactful, inclusive economic growth.
* Maropene Ramokgopa is Minister in the Presidency for Planning, Monitoring and Evaluation. The views expressed here are his own.