Readers of work produced by the Centre for Development and Enterprise (CDE) will know that the notion of the “developmental state” is not one to which we subscribe. It is, in our view, an incoherent idea used to justify any policy that sounds desirable to some or other faction that supports the ANC, irrespective of the workability, affordability or plausibility of the notion itself. That so many still cling to this belief as the state collapses around us is proof of the power of wishful thinking or ideology over reality.

The catastrophic failure of South Africa’s state-owned enterprises (SOEs) should be paradigm-shifting for those who believe state-led development is a solution to South Africa’s many woes. In fact, the manifold crises that confront the SOEs are a symptom of the wrongheadedness that has pervaded most of the ANC’s thinking about government, empowerment and economic policy over the past three decades.

The government of national unity (GNU) needs to make notable progress in resetting the whole SOE portfolio if sustained economic growth is ever to resume. Fixing the SOEs is therefore one of the catalytic priorities the CDE has identified for the GNU.

The fundamental problem with the ANC’s approach to the SOEs has been the conviction that these entities can fulfil a wide range of contradictory goals at the same time. They are expected to provide cheap (sometimes free) and reliable services, employ large numbers of workers, and leverage their vast procurement budgets to promote various elements of a wider transformation programme — while being run by boards and senior management officials whose principal qualification, all too often, is their acceptability to ANC factions.

That this model has failed spectacularly was not so much predictable as it was inevitable. The effects are apparent in every one of the big SOEs.

The South African Post Office is insolvent and the retrenchment of even more of its employees appears inevitable.

SAA, which once flew to 72 destinations, now flies to less than a quarter of that number, despite having received nearly R50bn in bailouts since 2008.

The Passenger Rail Association of South Africa (Prasa) now carries fewer than 2-million passengers a month, down from 50-million a month in 2008. This is despite Prasa having spent more than R48bn on investment in its own infrastructure and equipment between 2009 and 2018. What on earth did all that money buy? Someone should ask the Guptas.

The crises in the most important SOEs — Eskom and Transnet — are now the focus of a partnership between the government and business. But we should not forget the reasons why this was necessary. In Eskom’s case, it was the result of the collapse of generating capacity. In the early 2000s, Eskom’s power stations could produce about 90% of the electricity they were built to produce on any given day. By 2017, this figure had fallen to 70%, and by 2023 it was 55%.

There has been some recovery since then but, had it not been for huge investment by businesses and households in solar power, load-shedding would still be an ever-present risk.

South Africa’s ports, for which various divisions of Transnet are responsible, are among the worst in the world. The World Bank’s 2023 container port performance index ranked Cape Town last out of the 405 ports surveyed. Durban and Gqeberha didn’t fare much better, ranking at 398 and 391 respectively.

The effect of the collapsing performance of Eskom and Transnet on the wider economy has been calamitous because of the knock-on effects on business and economic competitiveness. A Harvard team commissioned by the National Treasury and led by Prof Ricardo Hausmann estimated South Africa missed out on about R2 -trillion in output between 2011 and 2020 solely as a result of declining productivity in energy and logistics.

That all these entities suffered existential crises around the same time is not coincidence or an act of God. It is the symptom of an underlying approach to SOEs that is dysfunctional, at the core of which is the reality that most of these businesses are monopolies protected from the disciplining effects of competition for customers.

Of course, there have been extensive governance failures in the SOEs leading to all kinds of incompetence and malfeasance. And some of the crucial recommendations we put forward relate to improving this problem. And, of course, the government needs to make sure the boards and senior management of the SOEs are fit for purpose and, where they are not, take steps to appoint the best people possible.

We disagree, also, with President Ramaphosa’s decision to move the SOEs to their respective policy departments. In our view, this will create conflicts of interest, with the likely result that the SOEs’ interests will dominate policy decisions in these sectors, to the detriment of public interests. Instead, the SOEs should be managed by the National Treasury until a small, highly skilled department with a clear and limited mandate can be established.

At the same time, the president should release for public debate the detailed reviews of the big SOEs commissioned by the presidential state-owned enterprises council. The issues are too important for these reports to be available to only a select few.

He should appoint a high-level team led by business leaders to conduct a review of the financial position of all big SOEs.

Most importantly, the GNU needs to drive a process that will ensure the discipline created by competition for customers is the crucial method for ensuring SOEs are focused on delivering the best possible services at the lowest possible prices.

SOEs are monopoly providers of crucial services, and this explains why their collapsing productivity has persisted for so long, and why it has had such profound knock-on effects for the rest of the economy. Addressing this issue by introducing more competition wherever feasible into sectors now dominated by SOE monopolies needs to be the core focus of the reforms to fix these entities.

This is particularly true for electricity generation, freight rail services and dockside port operations in harbours. There is no reason these activities have to be dominated by a single firm, much less a subsidiary of a vertically integrated state-owned firm. This approach creates far too much market power for the SOEs — power that, in the absence of competition, results in higher costs and lower productivity. This is the heritage of muddled thinking about the developmental state.

We will know if progress is being made if specific reforms are implemented soon. These include accelerating Eskom’s transition to a systems operator active in a competitive market, restructuring Transnet’s freight rail services to ensure competition, and spinning out the ownership and management of ports from Transnet. In addition, Prasa’s commuter rail services should be handed over to the metros in which they are provided. Finally, bailouts for non-strategic SOEs should be denied and the assets of unsustainable SOEs sold.

No-one should doubt the difficulties of implementing all this. Bad thinking about the “developmental state” has consequences that won’t be simple to reverse. It’s time to confront the challenges and commit to a new approach. That is the only way to fix our SOEs.

Ann Bernstein is executive director of the CDE. This article draws on a new CDE report, ‘Solve the SOE challenge’, which is the sixth action document in the organisation’s ‘Agenda 2024: Priorities for South Africa’s new government’ series.

This article was published by the Sunday Times