State of Government Business

We understand that the public sector doesn’t need to compete for consumers money, state-owned enterprises (SOEs) are significant players in many countries around the world, providing sizeable contributions to GDP, creating jobs, and supplying essential services to citizens, such as light and power, healthcare, water, transportation and education. However, the performance of SOEs has shown signs of deterioration in much of the world over the last few decades (Garkhar and Phukon 2017). As seen in: 
Eskom: which has a debt of around R400-billion that it is unable to service using its own revenue generated from electricity sales. Most of this debt is guaranteed by the government, which will be on the hook for Eskom debt payments if it defaults on debt payments.

Denel: State-owned arms manufacturer Denel will receive R3-billion from the government. Denel is facing a financial crisis so daunting that it cannot pay its debt and owes more than R500-million in outstanding salary payments to its workers.

SAA: Struggling state-owned airline SAA will receive R1.8-billion in 2022/23, funds that were always earmarked by the government for its business rescue process. In 2020, the government set aside R16.4-billion to fund SAA’s business rescue process, of which R14.6-billion has already been transferred to the airline. The R1.8-billion to SAA will go towards paying the airline’s historical debt, which is a condition imposed by a group of private-sector investors that plan to invest in the airline.

Sasria: A state-owned insurance company that was at the forefront of paying businesses insurance claims arising from the July unrest across Gauteng and Kwazulu-Natal. Sasria has faced insurance claims worth R32-billion and cannot afford to independently pay them. So, it needs the government’s help. Sasria has been allocated R22-billion by the government.
Although private companies play a dominant role in market-based societies, enterprises with government ownership are still key players in the global economy, making their performance important for economic growth and competitiveness.

Are our State-owned enterprises failing because of:
  • strict government control and restrictions around general operations and decision-making
  • as they feel that their job security is guaranteed, the employees will not have the pressure to work very hard.
  • the public sector doesn’t need to compete for consumers money
  • lack of autonomy caused by the policy burdens
  • levels of professionalism
  • unskilled workers
Is it as simple as the points above or is it:
compared to a regular enterprise, are state-owned enterprises typically expected to be less efficient due to political interference and legacy issues or the lack of the profit motive at SOEs that results in inefficiencies and products which are out of sync with market demand.

SOEs’ commitment to sustainable development matters because of their sheer size because they tend to be located in high-impact sectors and because SOEs enable the state to set the “tone at the top” in the business sector.

Government officials entrusted with exercising the ownership of SOEs must be held accountable. They should act as active and informed enterprise owners, communicating objectives and expectations to the SOEs that are fully aligned with the public interest and service.

Is it as simple as regardless of whether a firm is state-owned or privately owned, efficiency can be achieved as long as the firm operates in a competitive market, gives full autonomy to the management to make crucial decisions based on market signals, and provides performance-based compensation.

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