New commission set to oversee operations of state-owned entities

0:00You're listening to the Money With, SAFM Market Update podcast. The Government of South Africa has decided that we are taking a potentially different route in how it is that we're going to be monitoring and overseeing state-owned entities. Initially, we had had the plans of setting up a holding company that would function to oversee the operational activities of our various state-owned entities. That plan has since changed and we are now looking to establish a commission that would be potentially chaired by the President of the Republic to coordinate these efforts. We're going to take a closer look at this with the team at Gordon Institute of Business Sciences, but specifically the Professor for Economics, Finance and Strategy at Gibbs Professor Adrian Savall. He joins me on the line now to take a look at this and see what we make of it. Prof always lovely having you on the show. It's been quite some time since you and I have caught up. Having developments here, I thought we had figured all of this out. Why suddenly the back paddling?

1:01What could potentially be the reason here? Evening Jimmy, so I guess the thing that is concerning about this is another shuffle in foot position as we try to get our teeth into this really important structural shift. This has been underway for, I think this has been on the burner for the better part of seven, eight years now. It's hard to understand quite what the motivation is. As things stand, South Africa has changed this committee a couple of times. The head of the committee hasn't shifted. Different intent or different direction, same intent and slightly different structure.

2:03It doesn't really inject certainty into it. There's a bigger point behind this and that's the concern with whether this will actually translate into delivery, which is a point that we can perhaps double click on. Prof, I want to take a look at this particular structure, this commission type of structure for its own merits before we look at whether or not this is better than having the holding company that we initially planned. We've seen in other countries that this type of structure has worked. China's got a similar structure, Norway's got a similar structure. We're actually looking at a hybrid and Norway to their credit has the largest public investment fund for their pensionable assets, potentially in the world, if I'm not mistaken. Clearly, there is merit to some elements of this type of structure. What are those merits and what can we learn from other countries that have done it? Well, there's merit and you're pointing to some of the important aspects.

3:09Norway, I would agree with you, is probably, that's the flagship, that's the go-to model. Very, very deliberate positioning every year, a statement on what the mandate, what the ambition, what the deliverables are, very clear accountability, separation of ownership and control, which mitigates the very high risk of political interference. We've seen that again and again and again in South Africa's circumstance. So you have separation of politics and policy. You get really what we are looking for, which is a state owned enterprise as opposed to a government owned enterprise. And here is where South Africa constantly confuses things. State is independent of who happens to be in charge and the state owned enterprises

4:11responsible for delivering the things that bolster the welfare and wellbeing of citizens. And when you start confusing state and government, that's where you get into the controversy circumstance that South Africa has found itself in. And so this proposal takes us in that direction, which is very encouraging. So if I want to take a look at the other side of it, you mentioned the politics of this type of decision, I want to take a look at the governance side of this decision as well, because with a formal company in place, there could be other mitigating factors, a board of directors, independence, all the other things that are required for good governance in line with things like the King Code. If we are going down this road and we're still talking about that separation that is desperately needed, can we take a look at the governance aspects of it and how it is that that needs to be managed because as we know from a South African perspective, accountability becomes essential and that can only be achieved with

5:14proper structure. Well, Jimmy, you alluded to it and I'll reinforce that point that we've got a commission, you lose those direct lines, you have to establish different guardrails, different arrangements, where you have a company, then you can rely on well-established, well-tested, well-demonstrated company law. And what investors need in terms of being able to allocate capital and that is increasingly the case in South Africa's circumstances, we need to be able to attract and retain a good capital is you need clear rules on appointment, remuneration, how directors are bound under the terms and principles and that perhaps gets compromised here.

6:23And so there's rather than injecting confidence and clarity, I think this rather creates a whole fresh set of new questions and where has this come from and why are we doing it, which is exactly what you and I are wrestling with, is in help us make sense of this. Prof. Before I let you go, I want to get your thoughts on how we potentially, if this is the way to move forward, how we potentially adopt some of those important guardrails, the basic guardrails that prevent this conversation from turning into another conversation about misappropriated funds or mismanagement or the other things that we've struggled with in the past. We're not saying that this is going to fail or not saying that this is an impossible task, but what easy guardrails should we be looking at here? So Jimmy, let me perhaps give a small, you know, an advertorial for a piece of work that I've just finished and presented by the Bizarre coincidence at the old Mutual Thought Leadership Forum

7:29this morning, where one of the things that underpins a country's growth structure is the ability of institutions to deliver. And again and again, you know, we keep hearing about the things that are really robust about South Africa's institutions, whether it's our reserve bank national treasury, freedom of the press, property rights, et cetera. And certainly, you know, those institutions are established and well defended and evidence their ability to deliver. However, is what we've found in this work and there's a white paper that comes out that reports on this is it's not institutional capacity, it's institutional progress that matters. And South Africa not only has stalled but has regressed on institutional positioning, which puts us in the territory of the countries that we're hanging out with other likes of

8:31Lebanon. And this is not the this is not the company you want to keep. So rather than frassing about the form that it takes, which is what our conversation is here, I think that even more important question is will this deliver and how will the organs and institutions of state be held accountable and be put to the task of delivering on the commitment and the promise that they make? This is about oversight and accountability and ensuring that we maintain the integrity of our institutions regardless of the form that we wish to do that in. We'll have to leave the conversation on that note. Professor for economics, finance and strategy at the Gordon Institute of Business Sciences, Professor Adrian Savill joining us to take a look at the latest decision or potential decision to look at a new commission to oversee state owned entities as opposed to a holding company. You've been listening to another MoneyWeb SAFM market update podcast uploaded weekdays

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