The Financial and Fiscal Commission (FFC) has issued an urgent call to Parliament, highlighting worrying trends regarding the fiscal strain imposed by State-Owned Enterprises (SOEs). In a recent presentation to the Portfolio Committee on Monitoring and Evaluation, the FFC revealed a substantial increase in government transfers to SOEs, rising from 1% of GDP in 2015/2016 to 1.6% in 2021/2022. This significant upward trend signals critical concerns regarding the sustainability of SOE funding and the pressing need for immediate reforms.
The Commission’s significant analysis harks back to a decade-long commitment from the government. Between the 2008/2009 and 2019/2020 fiscal years, approximately R160 billion was spent bailing out financially distressed SOEs. Such historical expenditures underline the looming fiscal threat, which is exacerbated by the potential repercussions of the proposed National State Enterprises Bill. The FFC argues that this Bill does not sufficiently tackle the entrenched governance and accountability issues that have plagued SOEs for the past three decades.
“In the 2025 Budget, our analysis shows that from 2024/2025 to 2025/2026, total government contingent liability will rise by around R9.4 billion, predominantly centred on Eskom, Independent Power Producers, and Transnet,” the FFC warned. This projection raises eyebrows among stakeholders increasingly concerned about the implications of unchecked SOE financial practices.
At the heart of the matter, the National State Enterprises Bill proposes the creation of a State Asset Management Company, which aims to consolidate the State’s shareholdings in SOEs under a holding company where the State would be the sole shareholder. Yet, the FFC has vehemently opposed the Bill in its current form, labelling it insufficient in addressing the misuse of public funds and lacking provisions for consequence management regarding irregular and wasteful expenditure.
The Commission strongly recommends that a holding company should be funded from within the National Treasury’s budget baseline, a strategy intended to restore fiscal integrity in the management of SOEs. The FFC expressed concern, stating, “The Bill does not contain provisions for consequence management specifically in irregular, wasteful, and corrupt expenditure. Without that, SOEs may continue to be vulnerable to improper public fund practices.” Furthermore, the Commission raised alarm over the absence of financial accountability mechanisms and transparency within the Bill.
Treasury echoed these apprehensions during its appearance before the Portfolio Committee on Planning, Monitoring, and Evaluation, stressing the potential for malfeasance inherent in the current Bill. This concern was further reinforced by MP Mzwanele Manyi from the uMkhonto WeSizwe Party, who rejected the Bill outright, citing the exorbitant funding requirements, estimated at R615 million, as a financial risk that could threaten the nation’s fiscal health.
Members of Parliament also expressed scepticism regarding the viability of the innovative funding mechanisms proposed, highlighting serious concerns about the non-application of the Public Finance Management Act (PFMA) to the holding company and its subsidiaries. Treasury pointed out that this could fundamentally undermine transparency and accountability in SOE financial management.
The centralisation model proposed in the Bill poses further concerns, with lawmakers cautioning against increased political interference and the risk of State capture. They fear that consolidating oversight under a single holding company could exacerbate existing vulnerabilities rather than resolve them, leading to a scenario where decision-making becomes more opaque and less open to scrutiny.