The Department of Public Enterprises

1

• The Department of Public Enterprises
• The Role of SOEs in Economic Development
• Presentation to Conference on Urban Development

2
Problem Statement

• Although the economy grew by 25 between 1994 and
  2002, formal employment creation growth was
  limited, often as a result of the introduction of
  labor shedding technologies.
• E.g. in metal sector while value add grew an
  average 3.5 per annum between 1994 and 2004,
  employment decreased by 0.86 per annum in this
  period
• Between 94 and 04, while services share of GDP
  has grown, manufacturing share has actually
  shrunk by almost a percent and growth,
  investment and exports in manufacturing has been
  dominated by upstream, capital intensive,
  resource based manufacture whilst labour
  intensive manufacture has shrunk
• Present rate of unemployment is approximately 27
  representing over 4,2 million people
• Government has the key objective of reducing
  unemployment and poverty by 50 by 2014

How can the DPE and SOEs contribute to meeting
this challenge

3
Public Enterprises Vision

• Facilitate economic growth by locating SOEs in an
  optimal industry structure and ensuring the
  efficiency of their operations and the economic
  effectiveness of their investment programs
• Play a leadership role within the economy in the
  areas of corporate governance and national policy
  implementation
• Catalyse regional and sectoral economic
  development opportunities

Optimise the developmental impact of SOEs
4
DPE Mission

• Agree optimal industry structure with policy and
  regulatory departments
• Thereby ensuring a clear policy and operational
  environment for the SOE.
• Monitor enterprise efficiency and risk exposure
  of the state
• Exemplary owner and shareholder management and by
  implication corporate governance
• Optimise SOE investment to enhance sector and
  regional economic development potential, with a
  strong focus on the Second Economy.

DPE is a facilitator and negotiator

5
Shareholder Management

• Shareholder Management
• Needs to reflect the special public purpose of
  the enterprise
• Enterprise level sustainable enterprise
  delivering competitively on market demand and
  inspiring private sector confidence to invest.
• Industry level Design of division of labor with
  private sector to ensure optimum delivery in
  partnership with policy departments.
• Sector and regional development level
  Optimising SOE impact in catalysing industrial
  and regional development.

6
Enterprise Level Shareholder Management

• Objective is to ensure that the SOE adds to the
  competitive advantage of the economy as a whole
  through lowest cost sustainable competitive
  service provision and investment programs that
  inspire private sector confidence
• Activities
• Strategic, business and investment plan reviews
  to ensure support for government economic
  strategy
• Definition of best practice governance processes
  incorporated in shareholder compact
• International benchmarking
• Key performance indicator definition and target
  setting and monitoring
• Gatekeeper between SOE and policy departments to
  ensure compliance to statute and consistency of
  approach.
• Compliance with key regulations
• Risk analysis

7
Industry Level Shareholder Management

• Objective is to ensure that the key input
  industries within which the SOEs operate are
  characterised by efficiency.
• There are three levels of intervention which are
  developed in partnership with relevant policy
  departments
• Definition of an optimal industry structure
  through the identification of an optimal division
  of labor between the SOE and the private sector
  to ensure overall efficiency.
• Facilitation of the desired level of private
  sector participation as defined by the role of
  the private sector in the optimal industry
  structure.
• Definition of a competitive pricing regime for
  the SOE based on ensuring national
  competitiveness, the promotion of strategic
  industrial and commercial investment and a fair
  playing field for the private sector.

8
Sector and Regional Development Level

• Objective is to work with economic cluster and
  dti to catalyse sectoral and regional economic
  development through leveraging SOE capabilities
  and assets.

 
9
Joint Project Facility Initiative

• Objective to facilitate the rapid development of
  projects to the point where an investment case
  has been accepted by financial community and
  operational companies.
• Four areas have been identified
• ICT creation of a competitive fibre-optic spine
  and BPO pilot
• Property optimise SOE property portfolio e.g.
  back-of-port developments aerospace parks,
  tourism development at ports.
• Africa specialised SPV to manage new
  continental investments
• Human Resource Development leveraging of SOE
  training facilities
• Highly skilled project managers who report to DPE
  and the committees of chair-persons and CEOs.

10
SOE Capex Program

• Eskom and Transnet are planning to spend R133
  billion on their capex programs.
• This program will add between 1.5 and 2 to GDP
  depending on our ability to competitively
  optimise local content
• A number of key sectors, some of which have
  significantly downscaled over the last twenty
  years, will be significantly effected by the
  program
• Construction
• Electrical and non-electrical machinery
• Transport equipment.
• DPE and the SOEs are exploring mechanisms to
  optimise the impact of the program in these
  sectors.
• Collaborative supplier forums.
• Longer term strategic supplier partnerships
• Optimise industrial participation component
• Targetted short and medium term government
  support

11
SOE Social
SOEs can play a critical role in social
development although in certain instances this
may require special subsidies.

• Examples
• The provision of telecommunications
  infrastructure and electricity to rural areas
  plays a critical role in enhancing the welfare of
  marginal rural communities, and in certain
  instances, enabling economic activity.
• Special SLA critical as SOE are commercial
  ventures and thus use their balance sheets to
  fund investments
• DPE developing pilot call centre to prove
  commercial viability of rural call centre
• The maintenance of branch line rail services to
  rural communities enables economic activity that
  would otherwise not be viable.
• Branch lines can either be subsidised through the
  more profitable lines on the network or through
  direct state subsidies.
• Innovative projects have been developed to
  leverage rural rail networks to provide rural
  communities with social services e.g. medical
  services Phelophepa Train.

12
Relevance to Urban Development
SOEs can play a role in facilitating urban
development in a number of areas

• The provision of electricity and logistics
  capacity to support urban economic development
  and investment promotion plans
• The development of manufacturing clusters
  relevant to the Capex program, particularly if
  the City provides rapid site allocation and
  relevant infrastructure.
• The release of SOE land for strategic industrial
  or residential development
• Back of port logistics nodes
• Establishment of IDZs