South Africa's State Owned Enterprises and their Challenges

South African state-owned enterprises (SOEs) are facing an existential crisis. SOEs are government-owned enterprises that operate independently from the state to provide vital services and products to the South African economy. These include arms manufacturer Denel, power generator Eskom, fuel provider Sasol, and airline South African Airways (SAA). There are a total of 131 SOEs at the national level.

Most of the SOEs were created during the apartheid era as a means to be self-reliant to ward off British control or while under international sanctions for crimes against human rights. These SOEs had efficiency and administrative inadequacies during apartheid. However, the entire economy was designed to benefit the few (whites) on the backs of the many (blacks). When South Africa became more inclusive, the influx of social rights became a strain on the SOEs. An easy example would be Eskom, which under apartheid had to provide electricity to benefit the few. Still, when those same resources had to be used to benefit the many, it became a strain.

The non-performance of SOEs has become more pronounced over the years, and have been exacerbated by the economy's anemic growth. In 2019, the government was forced to dip into its contingency reserve, funds meant for disasters such as floods, to bail out SAA, Denel, SABC, among other SOEs.

In the past 12 years, SOEs have taken R162 billion in bailouts from the government; 82% went to the power producer Eskom. SAA has not had a profit since 2011 and has relied on bailouts to survive, R20 billion in just the last three years. SAA was forced into bankruptcy protection in December 2019. It received another government-backed loan in early 2020 to the tune of R3.5 billion as part of its rescue package. In 2019, SOEs made an accumulated loss of R34 billion, excluding perennial loss-making SAA, which did not publish its results. Only one SOE made a profit that year, the South African Forestry Companies Limited (Safcol).

What has wrecked the SOEs is more than the number of new customers, it's also a matter of governance and management. Massive reforms are needed to make the SOEs more efficient and possibly profitable. That is the challenge that faces the South African government.

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