Gauteng forges ahead with plans for state bank and pharma company

Despite the woes of state-owned enterprises (SOEs) like Eskom, the Land Bank, and South African Airways, the Gauteng government is still pushing ahead with plans to launch a state bank and even a state-owned pharmaceutical company.

The government leading South Africa’s economic hub believes the two entities will address current market failures that primarily hurt the poor.

Gauteng Finance MEC Jacob Mamabolo confirmed on Thursday that due diligence work related to establishing a state bank and pharmaceuticals company has been completed, with both reports – which cost the province R4.1 million to compile – now in the hands of the provincial government.

Mamabolo added that the next item on the to-do list involves engaging Premier Panyaza Lesufi and other stakeholders on a way forward.

‘Legal hurdles cleared’

“The due diligence report clears the legal hurdles and provides Gauteng with a strong legal framework towards establishing a state-owned bank. We are now in a better position to move forward knowing very well that the work that we are doing complies with the legislation,” Mamabolo said.

Read: ANC looks for new levers to boost SA’s economy

According to Mamabolo, the envisaged state bank will play a crucial role in supporting small, medium, and micro enterprises (SMMEs) and unserved individuals in the formal financial sector.

The pharmaceutical entity is supposed to address, among others, supply chain management, medicine procurement, distribution of medicines to provincial healthcare facilities, and medicine inventory and dispensary to the public.

No guarantees

Independent analyst Khaya Sithole believes we are still a long way from seeing the establishment of both these entities.

Sithole tells Moneyweb that completion of the due diligence work is immaterial when considering that government still has, among other things, the task of developing clear mandates and assessing the feasibility of the entities as well as pleading a convincing business case for taking on this responsibility.

“It is insufficient for people to say, ‘Well we’ve always said we wanted it in the ANC, so therefore it must happen’,” says Sithole.

“All of these things must be supported by the business case, particularly because, obviously, the seed capital or seed funding is going to come from public resources. So there has to be a very clear business rationale for doing this. Otherwise, it will essentially be an entity that relies on bailouts from inception, and that’s not where we want it to go.”

No more SOEs

For Business Unity South Africa (Busa) CEO Cas Coovadia, there is no room in the country’s economy for additional SOEs, and simply put, both the government and the fiscus lack capacity to support the entities.

Instead, says Coovadia, it is in both the state and the taxpayer’s best interest to partner with private players already knowledgeable in the sectors to come up with solutions that will address the market failures government refers to.

“We don’t believe more state-owned institutions in areas that the private sector is, we believe very successful and effective in, are necessary,” says Coovadia.

“Firstly, the experience we have of the way state-owned institutions are run in South Africa does not fill anyone with confidence, and if these institutions fail, what it does is simply put a further hole in the fiscus because the fiscus would have to bail them out … ”

Coovadia is also a director of the Resource Mobilisation Fund (RMF) that was launched earlier this year at the request of President Cyril Ramaphosa to assist in capacitating the Presidency’s National Energy Crisis Committee (Necom).

One of the fund’s key roles is to source private sector funding and expertise to help the government tackle the energy crisis, which continues to cost the economy billions.

Read: Resource Mobilisation Fund ‘not an open-ended’ treasure trove for govt

For Coovadia, it would make more sense for the government to adopt a similar approach in addressing market failures in banking and pharmaceuticals.

“If these institutions are being formed because there’s a view in government that the private sector – in this case, the banking and pharmaceutical industries – is not servicing a particular sector of the market, then what government should be doing is saying ‘How can we work with the private sector with appropriate subsidies and guarantees?’.

Coovadia says that with such interventions the private sector could start servicing a market that is not viable, working with government assistance until it becomes viable.

Panel appointed

Mamabolo confirmed the appointment of an advisory panel comprising experts in the pharmaceutical and healthcare industry.

This panel, chaired by Cosatu Gauteng chair Amos Monyela, is supposed to help the government develop a business case for the pharmaceutical company.

“The panel will serve as an important mechanism for the proper regulation and oversight of the work to be conducted and will play a critical role in providing research and development support, disseminating proper information on medicines and addressing public health problems.

“We take the work of establishing both the state pharmaceutical company and the state bank very seriously,” he said, adding that this is why it has appointed three senior counsel to conduct due diligence work on the proposed entities.

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