Colin Coleman, MD of Goldman Sachs in sub-Saharan Africa, speaks to the Cape Town Press Club on Wednesday. Picture: TREVOR SAMSON
Colin Coleman, MD of Goldman Sachs in sub-Saharan Africa, speaks to the Cape Town Press Club in January. Picture: TREVOR SAMSON

SOUTH Africa should follow the Chinese example by modernising its state-owned enterprises (SOEs) as its current model is no longer working and can no longer be financed, Goldman Sachs MD Colin Coleman said on Thursday.

The Chinese government raised about $120bn through the flotation of state-owned companies over a 30-year period while retaining a controlling stake in them.

This gave rise to a "new era of high performing companies and unleashed the infrastructure programmes so essential to Chinese growth and development", Mr Coleman said in an address to the SuperReturn Africa Private Equity & Venture Capital Conference.

He urged the task team, which the African National Congress plans to establish, to investigate SOEs and consider such "radical structural surgery" as there was little doubt that unprofitable SOEs such as SAA, the Post Office and SABC would require further state funding, which the government could no longer afford.

What was not needed, however, was continued political meddling in SOEs.

There were hints that a new business model was possible when Finance Minister Nhlanhla Nene announced the Treasury would look to the sale of noncore assets to fund Eskom’s capital requirement of R312bn for constructing Medupi, Kusile and Ingula.

"The situation with SOEs specifically is of serious concern with long-term debilitating effects for the total economy," Mr Coleman said.

"Widespread governance and management issues (at Petro SA, SAA, Eskom, Post Office, SABC), operating and balance sheet traumas (Petro SA, Eskom, SAA, SABC, Post Office), labour strikes (Post Office, Eskom), and, generally, nondelivery of services (Eskom, Post Office, some water boards) bedevils the very delivery of essential economic and social services on which the country depends and acts as a significant drag on growth and a dampener of the spirit of transformation."

Despite the many challenges faced by business — chief among them labour instability and energy supply constraints — corporate SA has remained resilient, weathering the storms well.

Mr Coleman noted: "While foreign corporate acquisitions of South African counterparts have all but evaporated, the capital markets have maintained faith in the earnings power of South African corporates. Balance sheets are solid, earnings strong and recent deal making suggests corporates’ ability and potential to expand abroad."

More needed to be done, however, to encourage local companies to invest at home and capital investments and research and development should be further incentivised.

Goldman Sachs examined the top 40 companies that were domiciled in SA and had their primary listings on the JSE and found that they currently had $40bn in cash on their balance sheets and net debt (excluding banks) of $22bn.

The total earnings of these companies in the year to November was about 7% lower, which Mr Coleman said was "a defensive and solid performance given the overall deterioration of the macroeconomic environment in SA."

The total shareholder return including dividends of this group over the year was 15.6% in rand terms.

Renaissance Capital’s London-based chief economist, Charles Robertson, was confident about the continued growth of subSaharan Africa over the long term because of its "excellent demographics and the best-educated labour force the continent has ever seen".

The region was entering a period of lower commodity prices and would have to rely more on volume than value in future. Diversification would be key and would be helped by improvements in the ease of doing business, greater electricity supply and the wide wage differential with Asia.

"We continue to believe Africa will be a $29-trillion economy in 2050, larger than the 2012 combined gross domestic product of the US and the eurozone," Mr Robertson said.