PUBLIC SECTOR INSIGHTS | 8 APRIL 2019 State owned companies have a crucial role to achieve economic development Absa | Corporate and Investment Banking > Insights and Events > State owned companies have a crucial role to achieve economic development Steve Seaka ME: Public Sector and Growth Capital SHARE Africa’s current growth path requires massive infrastructure investments and a robust economic environment, a role that State Owned Companies (SOCs) can positively impact. State Owned Companies (SOCs) can play a significant and critical role in supporting the needs of this growing sub-region which, according to World Bank estimates in 2018, faces an annual infrastructure backlog of about US$93bn. In addition, the sub-region has the highest population growth measured globally, which in itself is creating demand for the development of urban corridors, mega urban regions and city regions. These evidently require massive infrastructure investments and a robust economic environment which need to be supported by effective SOCs as implementing agents. The success of this role however does not necessarily depend on whether the government is part, majority or full owner of these SOCs. The success of SOCs lies in strong financial management The success and effectiveness of SOCs as key levers for economic growth depends on strong financial management and governance controls, as well as clear strategic perspective of government, a clear understanding of its oversight role and a strong development plan supported by industries the government wants to focus on. Furthermore, private sector involvement at a management and board level could bring the relevant expertise required to run these SOCs as viable and profitable commercial businesses, thus allowing governments to deliver on their developmental mandate. An SOC is generally defined as a legal entity created and owned (wholly or partially) by a government to undertake in commercial activities on behalf of the government. SOCs also have a dual commercial and developmental mandate. The latter part of the mandate carries an obligation for SOCs to achieve various socio-economic goals of government. SOCs are the backbone of many countries, especially in the developing world, and if used properly, they can help spur growth. Therefore, private sector participation in partnering with SOCs to deliver on the provision of both economic and social infrastructure should be encouraged and expanded. There is therefore room for private sector partnership to fulfil the developmental and social role of SOCs in sub-Sahara Africa and contribute to sustainable economic growth across the continent. Accessing strategic equity partners In this respect, banks such as Absa could assist SOCs in getting strategic equity partners or provide balance sheet funding. Absa, as one of the leading banks in South Africa and with a presence in 11 countries across Africa, can play a catalyst role to assist and ensure SOCs ultimately achieve their developmental mandate. While the SOCs are currently busy recalibrating themselves, it is difficult for them to re-enter capital markets and attract investors. Investment banks such as Absa are well positioned to facilitate on behalf of SOCs which will also demonstrate that the big banks are supporting the efforts being taken by SOCs to rebuild themselves. Absa also has the expertise to provide advisory services and assist SOCs to access investors. For example, in South Africa, the government announced its intention to consider selling non-core assets and restructure various SOCs including Eskom and SAA. Through our internal expertise, there is an opportunity for Absa to support the SA government during this process. Steve SeakaME: Public Sector and Growth Capital https://cib.absa.africa/wp-content/uploads/2020/07/file_example_MP3_700KB.mp3 Related Articles PUBLIC SECTOR Getting African rail on track In 2009, the legendary US investor Warren Buffett made one of the largest investments of his career when he inked a $44bn deal in US rail operator Burlington North Santa Fe Railroad. Read more EVENT Macro Conference 2022 The Macro Conference is about showcasing Absa’s ability to help clients understand the world around them by bringing together global experts and utilising our thought leadership capabilities. Read more DEALS Greening Affordable Housing with Transcend We strive to enable sustainability by ensuring the needs of our clients, people and planet are met. Transcend Residential Property Fund Limited, in partnership with Absa, is positively contributing to this vision by providing green affordable housing. Read more
