Download South Africa - SOEs in Focus Namibia's Societal Acceleration Platform

Nampower
Convention
Centre
Windhoek
Dr. Andrew
Shaw
Namibia's Societal Acceleration
Platform
Prototyping Week
29 October 2012
South Africa - SOEs in Focus
Contents
1. Context
2. The South African Vision
3. The Role of State Owned Enterprises
4. Expenditure Plans for Public Enterprises
5. Transnet’s Infrastructure as a Driver for Economic
Growth - An example of SOE infrastructure expenditure
6. PwC South African Experience
7. Conclusion
PwC
October 2012
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1
Context
Context
 Market failure theory, the economic downturn, coupled with prevailing political
ideologies, resulted in governments seeing their role as being critical in developing
and maintaining key economic infrastructure through ownership of State Owned
Enterprises (SOEs)
 SOEs have been, and in certain cases continue to be, the primary vehicles for public
sector infrastructure investment, especially in developing economies
 Historically, SOEs have often been characterised by poor performance and there has
been a push for commercialisation, privatisation & other models
 Private sector participation in infrastructure investment has grown around the
world since the push for reform, but in most developing economies, infrastructure
remains in poor condition and inefficiently managed.
 Private sector participation may not be out of line with strong SOEs. The two
approaches could be complimentary & the trick may be to get the balance correct.
PwC
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Context (Cont…)
Unemployment
50% of 15-24yr olds are
unemployed (SAIRR,
2011)
The triple
challenge
(informing SA’s New
Growth Path)
Poverty
PwC
50% of SA live below the
poverty line of R500 per
month (2011, National
planning Commission)
Inequality
SA Gini coefficient is 63%
(World bank,
2009)
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2
South Africa’s
Vision
South Africa’s Vision
National Development Plan ...
A plan for ALL
 To make meaningful, rapid and sustained
progress in reducing poverty and
inequality over the next two decades,
South Africa needs to fix the future,
starting today.
 SOEs are central to advancing national
objectives through providing economic
and social infrastructure
 The major SOEs need clear public-interest mandates and straightforward
governance structures that enable them to balance and reconcile their
economic and social objectives.
PwC
Extracted from the revised National Development Plan – South Africa
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South Africa’s Vision - The Road Ahead
South Africa:
 Is a Developmental State with huge SOEs
 Has a strategic window with Infrastructure a central priority of
government
 Has a list of 43 major infrastructure projects (R 3.2 trillion over next
10 years)
 Projected spend R 845 billion over the next three years
 In the process of strengthening financial management in the public
sector in pursuit value for money with the greatest possible vigour to
ensure that taxpayers' money is well used
PwC
October 2012
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3
The Role of SOEs
Role of SOEs – The History
 The number of SOEs in South Africa has been substantially reduced
and experience gained by the Government through the process has
facilitated an increasingly coherent policy approach to the role that
SOEs can play to enhance the capacity of a Developmental State
 The key issue that defines an effective SOE in the context of the
Developmental State is that of strategic intent and purpose, namely:
 The certainty that clearly articulated objectives remain in place over the
long term
 Investment capacity should be matched with efficient and cost effective
operational capacity to ensure that sufficient revenue is generated from the
infrastructure such that investments are sustainable and do not pose a cost
to the State in the future
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Role of SOEs – Sustaining the Strategic Intent
 To sustain the strategic intent, certain key objectives have to be realised:
 SOEs have to be financially sound and stable in order to mobilise resources
in the national and international capital markets
 Whilst the state may capitalise SOEs in the start up phase and in other
defined circumstances, it now requires SOEs to be able to augment such
capitalisation from their own financial efficiency and from the capital
markets
 A strong balance sheet and the ability to partner with private capital is
therefore critical
 This is not a simple issue because if the enterprise is defined by some long
range strategic intent then it needs to maximise economic outcomes rather
than the narrower financial bottom line
PwC
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The Role of SOEs – In Summary
 Provide infrastructure capacity ahead of demand
 Grow revenues through increasing volumes
 Manage balance sheets strategically and in a capital efficient way and
place no reliance on government financial support
 Improve operational efficiency
 Play a role in the provision of essential infrastructure required to
safeguard security of supply to the economy
 Contribute towards job creation and skills development
 Price competitively and earn a return on funds invested to provide
capacity in the economy
 Invest in research and development
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The Challenges of SOEs
Operational efficiency
Poor quality policies and implementation plans
Procurement reforms too slow
Lack of appropriate technology & systems to support to
support operating models
Resources – skills, funding & innovation
Lack of effective M&E to achieve political, economic and
social mandates
Lack of strategy for promotion of green economy and
reduction of cost drivers across the economy
State ownership is considered key for long term survival and
sustainability
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Expenditure plans
for public
infrastructure
The “public infrastructure pipeline”
2500
•
Extent of mega-projects in different sectors to reach R3.2T
•
Full Transnet MDS investment of R300B
•
Private sector investment potential in transport of R150B would total for transport to
R850B
Value of transport projects
may rise to R850 Bill
Mega-projects under consideration (2012-20)National Treasury (2012)
2500
Rand (Billions)
2000
Exclude
tender and
construction
projects
Include full
MDS and
possible PSP
1500
1000
500
0
2000
1500
1000
500
0
Concept
Pre-feasibility
Feasibility
Financing
Detailed design
Tender
Construction
Ongoing
Transport
Electricity
Transnet MDS
Complementary PSP
Source: National Treasury (2012), Transnet MDS presentation (2012), Engineering News (10 April 2012)
PwC
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Infrastructure spending as a % of GDP
SA - just above the average infrastructure public spending for middle income countries, but
lags larger BRICS players such as India
12%
10%
8%
6%
4%
2%
“The South African economy
continued to suffer from
supply shortages, including
those resulting from
infrastructure bottlenecks and
skills shortages”
Standard and Poor’s Africa Chief
Economist Jean-Michel Six
0%
Source: World Bank (2010), South African National Treasury (2011), Indian Planning Commission (2011)
PwC
October 2012
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5
Transnet’s MDS
as a driver
for economic
growth
Transnet – Expected growth in volume
Transnet is dependent on sustained growth in demand and price for commodities, such as iron
ore, coal and manganese.
General Freight
Mill/tons
Export Coal
113%
2011/12
Mill/tons
44%
2011/12
2018/19
50
100
150
200
Containers
Thousand TEUs
2011/12
2018/19
50
100
150
Eskom Coal
Mill/tons
2011/12
0
305%
2018/19
0
500
1000
Autos
Units
2011/12
1500
2000
338%
2018/19
200
400
600
800
50
100
Domestic Iron Ore
Mill/tons
134%
2011/12
2018/19
0
10
20
30
Manganese
Mill/tons
2011/12
40
144%
2018/19
0
PwC
2018/19
0
119%
57%
2011/12
2018/19
0
Price Taker
Export Iron Ore
Mill/tons
0
5
10
15
Liquid Bulk
Mill/tons
20
46%
2011/12
2018/19
0
5
10
15
0
1
2
3
4
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Transnet’s 7 yr MDS Capital Investment plan (CIP)
•
More funding allocated to TFR compared to other Divisions in the next 7 yr CIP
•
On average this plan spends 4 X more annually than in the previous five years
2009/10
2011/12 to 2018/19
Capital investment split
by Division
Capital investment split
by Division (7 Year
programme)
GE’s Model C3OACi
Other
TPT
TPL
TPT
TPL
TRE
R21.9B
per
annum
TNPA
PwC
TFR
TNPA
Other
R42.8B
per
annum
TFR
TRE
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Externality impact of Transnet’s MDS
•
The MDS may lead to 660,000 jobs at its peak in 2016/17.
•
Much of the MDS programme is predicated on attracting freight that would normally
have moved by road. The net externality benefit of this shift estimated conservatively at
R11.3B
•
The externality benefit over 15 years (to 2027) would amount to R36.6 Bill.
Estimate of externality benefit of moving freight
from road to rail (2012 Rand)
Job creation impact of MDS on South Africa
600
Rand (Billions)
Economy-wide Jobs
700
500
400
300
200
100
0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
Transnet (incl contractors)
Indirect jobs
3,50
3,00
2,50
2,00
1,50
1,00
0,50
0,00
Containers on rail
Eskom Coal
Liquid Bulk
Autos
Manganese
Economy wide impact
Additional possible economy wide impact (formal&infromal jobs)
Source: Transet MDS presentation (2012), Additional possible economy-wide impact based on high-level Quantec and R Botha multipliers (2012)
Externality benefits based on 2006 estimates from KZN forestry industry, Externality benefits assume that not all commodities may be moved from to rail to
road, i.e. some projected manganese and all projected increases in export coal and export iron-ore would be lost to the economy without MDS
PwC
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Commodity export benefit of Transnet MDS
•
The greatest overall benefit of the Transnet’s MDS is its ability to open up bottlenecks on
commodity exports. Just in the years of implementation this would lead to additional
exports of R254 Billion.
•
The benefit of reduced cost of export (lower cost of rail transport of containers and autos)
has not been estimated but would be significant.
Estimate of commodity linked year-on-year benefit of opening up the bottleneck on
iron ore, coal and manganese
80
70
Rand Billion)
60
50
Manganese
40
Export Iron Ore
Export Coal
30
20
10
0
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
Source: Transnet MDS presentation (2012), Estimated 2011/12 price ton per commodity type. Average Rand/Dollar exchange rate (2011) = R7.57.
PwC
October 2012
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PwC South Africa
Experience
The PwC South Africa Experience
Presidential SOE Review
SCOPE:
The review was undertaken through Five (5) work streams, namely,





Development and Transformation;
Ownership and Governance;
Viability and Business Case;
Strategic Management and Operational Effectiveness; and,
Research and Development.
The move to review the SOEs recognised the need to inculcate alignment,
efficiency and viability within them while concurrently ensuring that the
entities fulfil their public mandate through ensuring that social and
infrastructural goals are met. The themes were grouped as follows:






PwC
Developed
under the
auspices of the
Presidential SOE
Review
Committee
(PRC) in terms
of the Presidents
Act No. 142 of
2010
Strategic Importance
Value Creation
Viability
Funding
Organisation Restructuring
Organisational Capacity
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The PwC South Africa Experience
SUMMARY HIGH LEVEL FINDINGS
 State ownership is key to SOE survival
 Although aligned to their Mandates, these have changed over past 5
years due to political, social and economic circumstances
 Dual reporting and ownerships challenges was a significant inhibitor
 The current model of the state is consistent and effective and it pertains
to the SOEs business models
 Past and planned investments have and will support integration of
previously disadvantaged areas.
Developed
under the
auspices of the
Presidential SOE
Review
Committee
(PRC) in terms
of the Presidents
Act No. 142 of
2010
 SOEs believe that they do create meaningful job opportunities for school
leavers and graduates entering the job market.
 SOEs believe that alternative methods of funding should be explored in
order to address the current debt burden.
PwC
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The PwC South Africa Experience
Transnet
PwC
•Transactional advice on procurement of rolling stocks
•Capital programmes management and assurance
•Risk management services
•Assist with IMS implementation of IT policies, frameworks,
charters, standards and operating design
Eskom
•Executing financial management, HR and SCM training
development and implementation
•Executing engineering training development & implementation
to Sept ‘12
•Change management on all training implementation
SAA
ACSA
Telkom
•SAA & ACSA = Joint external auditors
•Telkom = Joint internal audit
Other
Providing all or some of transaction advice, financial management
and SCM support and implementation of turnaround strategies to
DBSA, PetroSA, SASOL, IEC, CEF, IDT, IDC, SABC
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Conclusion
 SOEs can be a very effective vehicle for
infrastructure investment if, as is currently the
case in South Africa, provided they have a clear
long term strategic intent
 Sustaining this intent requires:
 SOEs to be financially sound and stable in
order to mobilise resources in the national
and international capital markets
 Operating efficiencies to be at, or close to, the
levels of international benchmarks
 A growth orientation to sustain the
investment programme
 Cross border infrastructure can be successful if
there is joint commitment from both sides to
invest to meet demand
PwC
The future is a matter of
choice.
We need energising visions,
personal leadership and
passion to imagine a better
tomorrow
October 2012
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Andrew Shaw
Associate Director
T: +27 (0) 11 797 4000
D:+27 (0) 11 797 5395
F: +27 (0) 11 209 5395
M: +27 (0) 82 941 6257
[email protected]
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