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SEMINAR REPORT ON INTERNATIONAL BENCHMAKRING SEMINAR (in collaboration with OECD). March 2011. OUTLINE. Introduction Objectives of the Seminar Summary of Attendees Summary points on the Seminar Working Paper Key Points from Presentations Summary of Input by Work Streams - PowerPoint PPT Presentation
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1
Presidential SOE Review Committee
SEMINAR REPORT ON INTERNATIONAL BENCHMAKRING SEMINAR
(in collaboration with OECD)
March 2011
2
Presidential SOE Review Committee
OUTLINE
Introduction
Objectives of the Seminar
Summary of Attendees
Summary points on the Seminar Working Paper
Key Points from Presentations
Summary of Input by Work Streams
Summary of RDU Analysis
Reflection: Were the Objectives achieved?
Conclusion and Recommendations
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Presidential SOE Review Committee
Introduction
The PRC, in collaboration with the OECD held a seminar on international
benchmarking of SOE reforms
The seminar was held in South Africa on 06-07 December 2010, at the CSIR
International Convention Centre
The seminar was addressed by Minister Malusi Gigaba, as the key note speaker
An international delegation of representatives from UK, Malaysia, Finland,
Namibia, and China were sponsored and hosted by the OECD to attend and
present at the seminar. NEPAD was also part of the OECD’s delegation
The seminar was hosted as an open seminar, where a varied group of
stakeholders representing Government, business, and relevant associations were
invited
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Presidential SOE Review Committee
Seminar Objectives
The objectives of the seminar were to:
Provide an introduction on various international SOE Reform models and topics to the
PRC
Share the preliminary international reforms with the PRC’s group of stakeholders
Provide a platform to share South Africa’s SOE landscape with the OECD and the
international delegation to forge partnerships on further benchmarking to be
undertaken by the PRC
To identify key trends and models emerging from the countries invited, to assist the
PRC in shaping its approach to benchmarking during its review
Elicit input from stakeholders attending the seminar on areas that are of importance
and concern to the stakeholders
The seminar was planned under the following themes:
− SOE Reforms Undertaken and Challenges and Successes Experienced;
− Governance and Ownership Models;
− Value Creation and Effective Performance Monitoring of SOEs; and
− Aligning the Strategic Role of SOEs with the State’s Development Objectives.
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Presidential SOE Review Committee
Summary of Attendees
The PRC invited approximately 140 attendees to the seminar. The attendees
consisted of:
– Parliamentary portfolio committees
– National departments
– Provincial departments
– Metropolitan municipalities
– Business formations such as BUSA
– Nedlac
– The B-BBEE Advisory Council
Of the 140 invitations, the seminar was attended by approximately 80 individuals
(c.57% of the total invited)
Representatives of national departments and metros were also invited to present,
and/or contribute on the discussants panels of the seminar. The seminar programme
is attached as Annexure A of this report.
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Presidential SOE Review Committee
Summary on Working Paper
In preparation for the seminar, the OECD produced a working paper on SOE reforms. This working paper pointed
out various themes on SOE reforms, with a summary on the experiences of various countries, such as UK, Malaysia,
Finland, and Namibia.
This paper is attached as Annexure B- Seminar Working Paper.
In brief the paper highlighted the following:
–In many countries, SOEs still represent a substantial part of GDP, employment and market capitalisation. Moreover,
SOEs are often prevalent in utilities and infrastructure industries, such as energy, transport and
telecommunication, whose performance is of great importance to broad segments of the population and to other
parts of the business sector. Consequently, the governance of SOEs is still critical to ensure their positive
contribution to a country’s overall economic efficiency and competitiveness, and the well‐being of its citizens.
–The design and sequencing of reform implementation vary significantly as each country has adopted a formula
according to its own conditions, organizational culture, political and administrative systems. In many countries,
special committees or commissions were initially established in order to launch a debate centered around SOE
governance and the design of necessary measures for improvement. In Brazil, the Commission for Corporate
Governance and Management of Federal Government shares (CGPAR) was established to serve as a locus to
discuss and develop the theme of SOE governance reform by engaging the main stakeholders in the process.
Similar organizations were formed in other countries like Hungary (National Asset Management Council) and Oman.
–The achievements of reform programs, as reported by the questionnaire respondents, vary according to objectives.
However, a common outcome has been a clear improvement in economic performance and quality of public
services. Other achievements that were cited included the separation of the state’s ownership function from its
regulatory functions in line with the OECD Guidelines in Finland, increased level of transparency on management
practices in Mozambique through regular publications of reports and accounts; and a heightened emphasis on
corporate social responsibility in Norway.
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Presidential SOE Review Committee
Summary on Working Paper …./2
On Governance models:
The 2005 Survey of OECD Countries defines three main types of ownership models: the decentralised or sector model,
the dual model and the centralised model. The most traditional is the decentralised model where state‐owned
enterprises are under the responsibility of relevant sector ministries. In the dual model, the responsibility is shared
between the sector ministry and a “central” Ministry or entity, usually the Finance Ministry or the Treasury. Finally, a
centralised model consolidates ownership responsibility for all or most SOEs under one main ministry or an agency. In
most cases this is the Ministry of Finance (Denmark, the Netherlands, Spain) or the Ministry of Industry (Norway and
Sweden). Belgium has a specific ministry, the Ministry of State‐Owned Enterprises and Participations. In a few cases, a
specific Agency has been established, and this Agency is more or less autonomous, usually reporting once again to the
Ministry of Finance (as in the case of France)
On development imperatives and performance measurement:
In order to create more value for their SOE sectors, a considerable number of countries have developed or revised their
SOE governance policies, whether through legislation, government approval of specific documents addressing specific
areas, or the approval of codes of conduct for SOEs. Some countries have launched extensive transformation
programmes for their SOE sectors (e.g. Malaysia) while others have targeted specific measures such as guidelines on
remuneration and employment of SOE directors (e.g. Finland, Norway and Sweden have all issued guidelines for the
remuneration and employment conditions of SOE managers.). Many countries such as Egypt, India, Mozambique,
Namibia, Oman, Pakistan, and Portugal have put emphasis on formulating SOE codes and guidelines as part of their
efforts for improving the performance of their SOE sectors.
While the OECD’s SOE Guidelines and other work on SOEs has not specifically addressed developmental objectives per
se, it is clear that a number of countries with which the OECD works actively, such as China and Malaysia, have
considered SOEs to be an important pillar in their overall developmental strategies.
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Presidential SOE Review Committee
Key Points from Presentations
Opening address by Minister Gigaba:
[SOEs] exist because the democratic South Africa has ever since its advent placed economic growth and
development squarely on its policy agenda, in order to address the urgent challenge of poverty, inequality and
massive joblessness.
A key challenge in the South African economy is to accelerate the industrialisation process and decrease our
reliance on resource exports. This involves developing intermediate and advanced manufacturing capabilities.
SOEs have a role to play in this process, both through procuring in a manner that promotes industrial
investment and through making direct targeted investments in these capabilities.
Minister mentioned that SOEs in DPE will be required to comply with the current governance framework,
namely the strategic intent statements, the shareholder compacts and the corporate plans. The contents of
these documents will mirrors the performance agreement between the Minister and the President and the
delivery agreement of the economic cluster.
Opening Remarks, Richard Boucher (Deputy SG, OECD)
This Committee can be an important catalyst to improve the effectiveness of South Africa’s SOEs and their
contribution to South Africa’s economy.
The OECD Guidelines provides recommendations on managing varied challenges, such as managing interests
of different constituencies by SOEs.
The OECD Guidelines call for establishing a neutral ownership entity with the overall responsibility for the
government’s ownership policy, and the separation of the role of the state as owner from its role as
regulator.
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Presidential SOE Review Committee
Key Points from Presentations …./2
Summary on Prof Eberhard:
Important to prioritise those SOEs that have the biggest economic and developmental impact
SOE reforms date back to 1960s when public ownership was emphasised, and later followed by a
privatisation era
Clarity on the roles of government as policy maker, regulator and shareholder
Improve transparency and information on performance of SOEs
Changing the political economy of SOEs such as reforming towards mixed-capital enterprises, and emphasising
performance measurement and monitoring.
SASAC China:
SOE reforms in China date back to 1980. Between 1998-2002, China underwent a reform on its SOE ownership
model, resulting in a SOE Group with subsidiaries of the Group listed. Small and medium sized SOEs were also
listed and/or privatized.
In 2009, China introducted a centralised ownership system, which provides oversight to 126 SOEs in 32
sectors. SASAC operates at national and local level.
Model on appointment of boards and senior management. SASAC appoints certain senior management directly,
and is responsible for all board appointments.
The centralised model has allowed for SOEs to be insulated from certain political dynamics
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Presidential SOE Review Committee
Key Points from Presentations …/3
Finland
SOEs overseen by an Ownership steering committee in the Office of the Prime Minister.
SOE classification based on whether the SOE operates under market terms or has a special task assigned to it
by Government
Separation of ownership and regulation is of important consideration to Finland. The Mnistry of Trade and
Industry is resposnible for various sector policies, and other Ministries responsible for regulation.
Finland cites its accomplishments to include separation of regulation from ownership, and having one point
from which state policy is implemented.
Over and above the Companies Act, Finland has an Act on State Ownership
Namibia
The legal framework governing SOEs in Namibia include the State-Owned Enterprises Governance Act, The
SOE establishing Acts in terms of which various SOEs were established, and New Companies Act, 2004 which
has a bearing on the operataion of State Owned Companies, particulary in terms of the general principles of
governance and the rights and obligations of shareholders. In the event of conflict the SOE Act overrides
other Acts
SOEG Council is a statutory body with the mandate and responsibility to provide oversight in respect of all
SOEs in Namibia. The Council comprises of the the Prime Minister-Chairperson, Minister of Finance, Minister of
Trade & Industry, Attorney-General, and Director of Natinal Planning Commission
The SOEG Council is supervised by Cabinet and performs functions assigned to it by the Act.
Challenges with implementation of the Act (since 2006) also outlined.
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Presidential SOE Review Committee
Key Points from Presentations …/4
NEPAD APRM:
Key Reforms that have been made by African countries include
– Enactment of legislation on the Governance of SOEs, Development of codes of conduct for SOEs
– New Rules for Board Selection, Clearer accounting and transparency requirements, Introduction of
performance contracts for SOEs and their managers, and Rethinking and reorganising the state
ownership function such as embarked on by South Africa.
Managing competing objectives inherent in state ownership
Experience shows that capacity of oversight or coordination bodies in Africa is usually weak
National Treasury. Key Questions posed to the Seminar:
What role have SOEs played in other countries to promote growth and development?
What regulatory frameworks are used to ensure that SOEs’ activities are aligned to government’s
objectives?
How do other governance models ensure a balance between the developmental objectives of the SOE and
financial viability?
What mechanisms are used to promote coordination between the government departments; spheres of
government and SOEs?
How is the developmental, operational and financial performance of SOEs assessed?
To what extent can international models for the regulation and governance of SOEs be applied to enhance the
South African model?
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Presidential SOE Review Committee
Were Seminar Objectives achieved?
Limited information was provided on models of value creation and operational efficiency
Limited information on quantitative indicators of SOEs role in development and transformation
Models and challenges in implementation on Governance and Ownership were highlighted
Legislative aspects were also provided
The success of the seminar was in:
– Fostering a stronger collaboration with the OECD, which paves the way for the PRC to collaborate with the
OECD further in conducting benchmarking
– The information provided was sufficient, at a high level, to provide the PRC with indicative models that can
be researched further in designing the benchmark approach and sample, and allowing the PRC an
opportunity to directly engage the countries
– The seminar also allowed the PRC to share the review perspectives, and international models, with a wide
group of stakeholders, which served provided useful communication and engagement between the PRC and
its stakeholders
Recommendations
– To enable the PRC to undertake the benchmarking exercises, it is recommended that further research on
other countries is undertaken to enable the Committee to finally select the basket of countries for
benchmarking, and to design the benchmarking approach.
– Recommended that this exercise is undertaken in partnership with HSRC given the preliminary research
they are undertaking on this aspect of the review.
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Presidential SOE Review Committee
ANNEXURES: Work Stream Inputs
& RDU Analysis
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Presidential SOE Review Committee
ANNEXURES:
RDU Analysis (see separate attachment)
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Presidential SOE Review Committee
ANNEXURES: Work Stream Inputs: G&O Work Stream
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Presidential SOE Review Committee
Seminar Content: Overview
Namibia: SoEs classified into three tiers
State Owned Enterprises Governance Act 2006, Act 2006, Act no 2 of 2000 as amended by the
State Owned Enterprises Governance Amendment Act no 5 of 2008
Aim: Covers the application and implication of the act in relation to the functions, roles
and responsibility of the State Owned Enterprises Governance Council and the portfolio or
shareholding minister
SOE governance council( 6 Ministers) which as I’ve said is chaired by the prime minister and
how the line ministry has power to appoint the board of directors, but at the same time is
being assessed by the governance council
The line minister vis a vis a portfolio minister. In some instances it is used interchangeably,
but in the SOE Governance Act is defined what a portfolio minister is and what a line minister
is. But in also some companies where you are supposed to have a line minister like for
instance, our airline, Air Namibia, it is supposed to be under a line minister with is the ministry
of works and transport, but because of the huge debt and assistance it gets from government
its put un the ministry of finance.
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Presidential SOE Review Committee
Seminar Content: Overview
UK: Strong on selling
“South Africa is different because you have developmental objectives. So we don’t have the
assets if we want to develop something in the economy. We don’t have the assets to do it, we
have small assets, the biggest asset is probably ..(unclear) Mail, after that all the other
businesses are quite small, so if there was something along the lines of job creation or some
other sort of developmental social side of things, it will be quite difficult to do using SOE’s in
the UK”
Malaysia:
“Books”
SOE’s are called Government Linked Companies
GLIC: Government Linked Investment Companies which is the holding company
Protégé Committee: Headed by the prime minister. So the PCG made up of about four
ministers and plus ten other private sector people: reviews the performance of GLC’s, the G20
every year.
Every year all these companies will have to present their KPI’s, why they have not met their
KPI’s, if not why. Normally they are given about three or four KPI’s
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Presidential SOE Review Committee
Seminar Content: Overview
UCT: Prof Eberhard
Survey of state owned enterprises across 23 African countries
in all the major infrastructure sectors, electricity, telecoms,
water, transport: a very clear pattern emerged that where
there was direct political ongoing intervention in the SOE’s, as
opposed to an arms length corporatisation shareholder kind of
agreement
Give specific weight to those which have the most
developmental impact
Some kind of centralised ministry which looks after the state
owned enterprises separate to the policy ministry.
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Presidential SOE Review Committee
Seminar Outcomes
From G&O perspective:
Ownership/ Shareholding Models
Oversight
Governance Issues:
Legislative Frameworks: Very Limited
Relationship and Collaboration between Ministries: very Limited
Board Remuneration Issues: Very Limited
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Presidential SOE Review Committee
Way Forward
More benchmark work on:
SoE legislative frameworks
Collaboration between Ministries
Remuneration Issues
Care should be taken not to encumber SoEs more than they are currently.
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Presidential SOE Review Committee
ANNEXURES: Work Stream Inputs
BC Work Stream
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Presidential SOE Review Committee
Agenda
Key observations
Potential gaps
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Presidential SOE Review Committee
Key Observations
SOEs play a key role in any country that calls itself a
Developmental State.
National agenda, long-term vision and political will is
key. In the case of SA it has not been clearly articulated and
communicated i.e. if it exists.
The alignment of the SOE mandate to that of a
shareholder is crucial.
Need to separate policy from oversight role.
In SA different macro-economic policies have been
developed and implemented e.g. RDP, GEAR, ASGISA,
NEPAD etc. Lack of consistency and no follow through
seems to have been one the main challenges.
The harmonisation and coordination of fiscal, trade (i.e.
Industrial Policy) and monetary policies is a key ingredient.
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Presidential SOE Review Committee
Key Observations…/2
It is imperative to balance commercial and non-commercial
imperatives. SA needs to identify specific areas where the intervention is
needed.
Collaborative opportunities, where SOEs collaborate with each
other was highlighted.
The performance evaluation and monitoring of SOEs should be viewed as a
long-term project. Maintaining financial discipline is critical, more
especially, where mandates are not clear.
SOEs should be allowed to divest from sectors/investments that
are no longer strategic.
Strategic partnership with the private sector is crucial.
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Presidential SOE Review Committee
Key Observations…/3
There is a need to assess SA ‘s SOE model (current)
and seek to identify the root cause of the problem.
Could this be a legacy challenge or agency problem etc?
The training and development of SOE executives and
directors was a common thread in all case studies.
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Presidential SOE Review Committee
Potential Gaps
How does one begin to evaluate the effectiveness of SA’s SOE model in the absence of a long term strategy/ vision?
Benchmarking of SA’s SOE model in relation to developed and developing countries.
The performance measurement tool and metrics used to evaluate SOE performance, specifically, non-commercial SOEs was not addressed.
The relationship between and among SOEs operating in different spheres (i.e. National, Provincial and Local) of government did not receive the attention that it deserved.
Regional economic integration
How does service delivery at Municipal level link up with National/Provincial Agenda?
How does we address the proliferation of SOEs?