THE private sector’s role in stabilising the economy was highlighted in Finance Minister Pravin Gordhan’s budget speech.
The
budget and President Jacob Zuma’s state of the nation address last
month provide useful indications of where to start looking for
opportunities.
Gordhan stated in "energy, transport, telecommunication and urban development, there are many opportunities for joint public and private investment and facilities management". He also focused on "appropriate" private sector participation in the financial uplift of several state-owned entities (SOEs). Gordhan spoke of three key priorities in the restructuring of SOEs: entities that are no longer necessary should be "phased out"; SOEs with overlapping mandates should be rationalised and potential private sector minority interest investment in such rationalised SOEs should be explored; and "co-funding partnerships" with the private sector should be considered to bring in private sector investment. "Phasing out" entities that are no longer relevant to the "development agenda" could see the disposal of noncore assets as the government looks to unlock value in the process.
The last wave of rationalisation of SOEs in SA was during the late 1990s and early to mid-2000s when there were a number of high-profile transactions following the government’s approval of the disposal of noncore assets. The resources raised or saved were redirected to the balance sheets of SOEs, allowing them to focus on their core mandates.
For example, in the mid-2000s Transnet pursued a successful rationalisation programme, selling off a number of assets that were no longer part of its core mandate. Commenting at the time of the sale of the V&A Waterfront in Cape Town, the state-owned logistics company said this was "part of Transnet’s strategy of selling its noncore assets and enables Transnet to pursue its vision of being the custodian of the ports, freight rail and pipeline businesses in our country".
In his state of the nation address, Zuma emphasised that the government was looking to "streamline and sharpen" the mandates of SOEs and ensure that, where entities have overlapping mandates, rationalisation options will be pursued.
Gordhan identified the government’s investment in four South African Airways (SAA) entities and referred to the possible merger of SAA and SA Express. He also proposed to engage with a potential "minority equity partner".
The concept of a minority equity partner is likely to evolve into a "strategic equity partner" as has been the case internationally and in SA previously, when there is a disposal or dilution of state entities.
The strategic partner is generally expected to bring management competencies into the SOE. Often, the minority stake is specifically coupled with a management agreement and some freedom to implement market-based reforms at the entity.
The sale in 1997 of a 30% stake in Telkom to a consortium that included Southernwest Bell Corporation (now AT&T) and Malaysia Telecom paved the way for an initial public offering of Telkom on the JSE, with the government retaining a material minority interest. It gave Telkom access to capital and put it on a more secure economic footing.
With balance sheets of several SOEs "stretched to their limits", Gordhan identified a range of co-funding opportunities with private sector investors. The renewable-energy procurement programme run by the Department of Energy was identified as a model for cofunding initiatives. An important feature of this programme, which distinguishes it from more traditional public-private partnerships, is that the private sector makes all the investment in the energy-generation facility and takes all of the risk on the asset.
These assets do not come onto the government’s balance sheet. The investment is secured and financed based on a power purchase agreement for the output from the facility. Similar types of initiatives, in terms of which private sector assets contribute to service delivery, but the government simply purchases the output from them, are likely to find favour with the Treasury.
All indications from Zuma and Gordhan are that partnerships with the private sector are likely to be a significant feature of the economic landscape in the next few years, in the hope that private sector capital and expertise can trim the exposure of the fiscus to underperforming SOEs and harness the investment that is essential to get the economy back on track.
• Davids is chairman of the corporate/M&A department and Tucker is head of the public law & regulatory practice at Bowman Gilfillan Africa Group
Gordhan stated in "energy, transport, telecommunication and urban development, there are many opportunities for joint public and private investment and facilities management". He also focused on "appropriate" private sector participation in the financial uplift of several state-owned entities (SOEs). Gordhan spoke of three key priorities in the restructuring of SOEs: entities that are no longer necessary should be "phased out"; SOEs with overlapping mandates should be rationalised and potential private sector minority interest investment in such rationalised SOEs should be explored; and "co-funding partnerships" with the private sector should be considered to bring in private sector investment. "Phasing out" entities that are no longer relevant to the "development agenda" could see the disposal of noncore assets as the government looks to unlock value in the process.
The last wave of rationalisation of SOEs in SA was during the late 1990s and early to mid-2000s when there were a number of high-profile transactions following the government’s approval of the disposal of noncore assets. The resources raised or saved were redirected to the balance sheets of SOEs, allowing them to focus on their core mandates.
For example, in the mid-2000s Transnet pursued a successful rationalisation programme, selling off a number of assets that were no longer part of its core mandate. Commenting at the time of the sale of the V&A Waterfront in Cape Town, the state-owned logistics company said this was "part of Transnet’s strategy of selling its noncore assets and enables Transnet to pursue its vision of being the custodian of the ports, freight rail and pipeline businesses in our country".
In his state of the nation address, Zuma emphasised that the government was looking to "streamline and sharpen" the mandates of SOEs and ensure that, where entities have overlapping mandates, rationalisation options will be pursued.
Gordhan identified the government’s investment in four South African Airways (SAA) entities and referred to the possible merger of SAA and SA Express. He also proposed to engage with a potential "minority equity partner".
The concept of a minority equity partner is likely to evolve into a "strategic equity partner" as has been the case internationally and in SA previously, when there is a disposal or dilution of state entities.
The strategic partner is generally expected to bring management competencies into the SOE. Often, the minority stake is specifically coupled with a management agreement and some freedom to implement market-based reforms at the entity.
The sale in 1997 of a 30% stake in Telkom to a consortium that included Southernwest Bell Corporation (now AT&T) and Malaysia Telecom paved the way for an initial public offering of Telkom on the JSE, with the government retaining a material minority interest. It gave Telkom access to capital and put it on a more secure economic footing.
With balance sheets of several SOEs "stretched to their limits", Gordhan identified a range of co-funding opportunities with private sector investors. The renewable-energy procurement programme run by the Department of Energy was identified as a model for cofunding initiatives. An important feature of this programme, which distinguishes it from more traditional public-private partnerships, is that the private sector makes all the investment in the energy-generation facility and takes all of the risk on the asset.
These assets do not come onto the government’s balance sheet. The investment is secured and financed based on a power purchase agreement for the output from the facility. Similar types of initiatives, in terms of which private sector assets contribute to service delivery, but the government simply purchases the output from them, are likely to find favour with the Treasury.
All indications from Zuma and Gordhan are that partnerships with the private sector are likely to be a significant feature of the economic landscape in the next few years, in the hope that private sector capital and expertise can trim the exposure of the fiscus to underperforming SOEs and harness the investment that is essential to get the economy back on track.
• Davids is chairman of the corporate/M&A department and Tucker is head of the public law & regulatory practice at Bowman Gilfillan Africa Group
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