Download Structures and Principles of SOE Governance on BRICS Member

Structures and Principles of SOE
Governance on BRICS Member
Countries
Presentation by:
Ms Matsietsi Mokholo
Deputy Director General, Department of Public
Enterprises
Republic of South Africa
18 November 2016
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Presentation Outline
• Significance of Good Governance in SOCs
• Orientation of SOE Mandates and positioning of State Ownership
• Structure of the oversight function in BRICS Countries
• Evolution of SOEs in South Africa
• Current reform process
• Conclusion
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Significance of good governance in SOEs
•
The changes in the global economy induced by the aftermath of the global economic crisis
has driven the pursuit of alternatives in the organisation of the national economies within
the context of globalisation.
•
This has placed an increased responsibilities on SOEs to drive national, regional and
international agendas of their respective countries. This increased responsibility requires
enhancement in the oversight and governance principles.
•
The development of new governance structures must be informed by the following
principles:
•
•
Improve transparency in the operations of SOEs
•
Improve public confidence in the management of State Assets that promote
development and equality
•
Recognise the unique positioning of SOEs in the national economies i.e. balancing
financial sustainability with developmental imperatives
The Growth outlook for the BRICS countries shows that a new growth model needs to be
pursued that will promote stability and unlock investments into the productive and other
sectors of the economy. This must ensure economic development.
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Positioning of Government Participation in the
economy
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Ownership arrangements
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Structure of the shareholder function
in BRICS countries
Overarching
Policy/legislation
China
India
Brazil
South Africa
Russia
No overarching
Policy/legislation
Centralised Model
Decentralised Model
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International reflection on Governance Models
•
Internationally, the fragmented approach to the exercise of ownership by various jurisdictions has made
way for a credible and strong shareholder policy/framework.
•
According to the OECD, a shareholder policy has the following advantages:
- It helps governments to avoid the usual pitfalls of passive ownership and excessive intervention, which
often follow from multiple and contradictory objectives.
- It serves as an effective tool for public communication and provides companies, the market and the
general public with a clear understanding of the state’s objectives as an owner and its long-term
commitments.
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Evolution of SOCs Policy post 1994
1994
•
1994 – 1997: Government Established as the office of privatisation focused on
disposal of SOC (with the intrinsic assumption that SOC had intrinsically
negative development impacts.)
• 1997 – 2004: Emphasise shifts to restructuring of SOC with focus on equity
partnerships, initial public offerings and concessioning of specific assets to
optimise shareholder value and economic efficiency.
• 2004 - 2008: Develop the SOC as focused sustainable state owned business
entities delivering on a specific strategic economic mandate.
• 2008 – 2009: Abandonment of privatisation as Government Policy and
repositioning of SOCs as key instruments of a developmental state
•
2010: Challenges faced by SOCs prompted Government to commence with a
new reform process (PRC Review)
• Post 2010 it was clear that SOCs faced challenges to deliver on the Sate’s
developmental requirements and that a comprehensive SOCs reform process
was necessary
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Key lessons from previous reform process
•
•
The privatisation of SOCs was largely informed by short term pressures
and undermined long term growth development and ability of the State to
influence the structure of the economy e.g.
• Disposal of Government shares in MTN & Vodacom created
monopolies that focused on profit maximisation rather than quality of
services and universal access whilst ensuring financial sustainability.
Government has introduced South Africa Connect to respond to these
challenges
• Disposal of Iscor to AMSA undermined the industrialisation
programme of Government. This resulted in the creation of monopoly
which did not invest in modern technology and equipment.
• Privatisation of SASOL saw privatisation of State’s intellectual
property for the benefit of the few
Introduction of the private as equity partners has not worked to the benefit
of the State e.g. SwissAir
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RSA current shareholder oversight
framework
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Objectives of the current reform
process
a) Outline the Rationale for continued State ownership given the current levels of development
b) Foster credibility and trust in the State as an owner, both externally – in relation to the public
at large, the SOCs’ customers, domestic and foreign creditors and partners – and internally
in relation to Parliament and public administration, as well as SOC employees and
management.
b) To separate Government’s role as shareholder, policymaker and regulator.
c) To strengthen the ownership function of the state and create a strong "institution”
responsible for improving SOC corporate governance, performance and developmental
contribution of the SOCs.
d) To improve company performance by setting explicit goals, injecting private sector business
disciplines and empowering their boards and management to monitor performance and
increase accountability.
e) To reduce fiscal risks and costs to the Government budget associated with SOCs.
f) To promulgate legislation to implement the shareholder policy and an overarching SOE
statute.
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Conclusion
• Governance of SOEs must be driven by a need to improve their
performance and contribution to the developmental imperatives of the
State
• Most of the countries in the BRICS have moved towards a centralised
model to ensure the optimum orientation of SOE Strategies to the
overarching developmental imperatives that have shaped industrial
and broader economic development goals
• The Governance models must improve transparency and
accountability to ensure that good governance is promoted within
SOEs
• There is an increasing trend of State and Private Sector Cooperation
in improving SOE performance
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