Parastatals: mismanagement and corruption has cost quarter of a trillion; privatisation will help solve crisis

The partial or full privatisation of big parastatals such as Eskom, Armscor and Transnet will ensure better service delivery on the one hand and save the South African public billions of rands in bailouts on the other.

Parastatals lie at the heart of the ANC's "developmental state" model, but the truth is that most of them are now blocking South Africa's development. The most recent symptom of this failure is the critical vacancies at the top of many of our State Owned Enterprises (SOEs).  The leadership vacuum was created because the ANC government regards parastatals as a playground for cadres and has now, after gross mismanagement and corruption at many of these institutions, run out of cadres to deploy to these posts.

A critical ideological shift is required: private capital needs to be injected through privatisation. This will bring with it top-level private sector management skills - one area where South Africa has world-class talent.

The state should not be trying to run businesses; especially not those critical to our economy like Transnet and Eskom. This "developmental state" approach has brought on numerous costly recent catastrophes in the SOE sector:

• SAA's CEO Khaya Ngqula was fired for alleged tender rigging to the tune of R1 billion;
• Transnet still has no CEO, with operations having been left in the hands of an acting chairman and Chief Financial Officer. At Transnet Freight, the CEO Siyabonga Gama has been on suspension following allegations of fraud.
• SABC is beset by corruption and mismanagement, and received a R200 million bailout in state money in the recent Medium Term Budget. It currently has an interim board filled with ANC cadres.
• The situation at the Land Bank deteriorated to the point that government oversight had to be shifted to the National Treasury. They also received an additional R1 billion bailout because of the severe losses resulting from mismanagement.
• And at Armscor, CEO Sipho Thomo has been asked to resign by the chairperson of the board after being charged with a litany of failings - amongst them, the fact that he needed to undergo counselling for his management style, a disciplinary hearing in relation to a sexual harassment case which cost the taxpayer more than R1.8 million to resolve, and the fact that he prompted a virtual "revolt" by senior managers who accused him of creating a "general atmosphere of intimidation and victimisation".

Cumulatively, the extent of mismanagement and corruption at parastatals has cost the South African public almost one quarter of a trillion rand in the past four years.

In response to a parliamentary question posed by the Democratic Alliance, the National Treasury has declared a total of R241 billion in financial aid to parastatals in the 2005/06 to 2008/09 financial years (see table below).

[* Denel disputes these figures. Their response can be found here - Editor]

The ANC's approach of appointing cadres to run key institutions, fully owned and controlled by the state has failed. The immediate injection of private capital into the SOEs - through either full or partial privatisation - will be a quick and efficient way to ensure quality leadership is introduced.

This will help to turn around the management of these institutions, and will ensure better service delivery for all South Africans.  It will also stem the generous flow of cash from the Treasury to the deep wells of financial mismanagement at the parastatals.

If we don't act now we could face another quarter-trillion rand bill in four years time.

Statement issued by Tim Harris, MP, Democratic Alliance member of the select committee on finance, November 23 2009

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