The implications of deteriorating state‐owned enterprise performance on the South African economy

Abstract

This paper constructs and uses a recursive dynamic general equilibrium model for South Africa to examine the economywide consequences of a continued deterioration in performance of state-owned enterprises and rise in foreign interest rates. A decline in state-owned enterprisesproductivity has substantial negative ramifications on the rest of the economy. Government would increase its domestic borrowing and therefore hamper private investment, leading to a decrease in gross domestic product and rising unemployment, particularly the unskilled. The model shows that the effects get worse in the long run compared to the short run and when foreign interest rates increase. Preparedness and awareness of these economywide consequences point to the importance of addressing the problems of competitiveness in the state-owned entities.

State-Owned Entities in an African Emerging Market Context: The Role of Entrepreneurial Intensity and Capabilities in Performance

“…However, South Africa also has one of the highest inequality rates in the world and is characterised by a massive infrastructure backlog legacy, corruption, and a lack of services delivery where many citizens continue to struggle with access to elementary services such as electricity, housing, water, and sanitation (Organisation for Economic Co-operation and Development 2015; PricewaterhouseCoopers 2015). Moreover, a decline in SOEs productivity has shown a substantial negative impact on the rest of the economy (Chitiga-Mabugu et al 2021).…”

“…The relevance and importance of this study is based on the significant role which SOEs play in the South African economy. Many SOEs were established during the apartheid era to counter the impact of international sanctions against the country (Chitiga-Mabugu et al 2021). Today, SOEs play a lead role in key sectors such as electricity, transport (air, rail, freight, and pipelines), and telecommunications, where limited competition is allowed in some of these sectors (i.e.…”

“…Deficiencies in SOEs' service delivery, especially in electricity provision, combined with corruption scandals in procurement and administration, have been a source of discontent and have led to demands for reform in South Africa (Chitiga-Mabugu et al 2021). Moreover, the financial performance of many SOEs in South Africa continues to deteriorate, intensified by the COVID-19 pandemic and its implications for business, deferring their ability to deliver on their mandates without significant government backing (Statistics South Africa 2022).…”