SOE’s to review operating models

Isaah Mhlanga, Executive Chief Economist at Alexander Forbes Investments
Reading Time: 3 minutes

After much speculation about the unbundling of Eskom, President Ramaphosa in his response to parliament last week, said Eskom will not be privatised, but the three separate parts, – namely generation, transmission and distribution – will be 100% state owned.

On Tuesday, South African Airways (SAA) refuted claims that the company may be considering privatisation, saying that the message got lost in translation and that the changes relate to their operating model, and that they will remain a single entity with a reconfiguration of its resources.

Meanwhile, trade unions have vowed to fight any form of privatisation. Isaah Mhlanga, Executive Chief Economist at Alexander Forbes Investments explains that trade unions need to make a decision regarding job loss.

“Here is the decision which trade unions need to make. We lose 10 000 or 17 000 jobs at Eskom now and a couple more at SAA in order to set these institutions on a good financial sustainability path so that they can help the economy grow and create potentially 500 000 jobs over the next five years; or we protect the 17 000 jobs now which will imply that the state owned companies will continue to be a risk for the Fiscus which means it’s also a risk in terms of the credit rating downgrades and also a risk for the economy as a whole. Which means we are likely to lose much more jobs over the next couple of years.”

Mhlanga explains his perspective on whether State Owned Entities (SOE’s) are beginning to re-think their operating models to achieve maximum efficiency.

“Ordinarily if one talks about unbundling it means that there is going to be a sale of some aspect of that SOE or company some months or years later. So it’s just the first preparation for that sale. But if you listen to the messages that are coming, you would understand that it’s a political economy of SOE’s giving that we are ahead of an election and there are significant push backs from trade unions against privatisation.”

Mhlanga says separating SOE’s could isolate problem areas.

“If you look at SAA, their restructuring into three components, perhaps it’s going to help isolate where are the problem areas. If you distinguish local, from regional to international you can deal specifically with the ones that are non-profitable.”

Mhlanga believes that privatisation is the route to go.

“I do believe that is the route the state needs to go because it introduces another layer in terms of governance. If you have private players that are part owners of these SOE’s it means that they are going to enforce the right way of doing business, they are going to oversee how contracts are signed in terms of services which are provided to SOE’s and in that way it will help with some of the costs that SOE’s are incurring unnecessarily.”

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