Futuregrowth Asset Management, a South African money manager overseeing more than R190-billion of fixed-income assets, says the government’s draft legislation meant to address inefficiencies at state entities is “ineffective, overdue, vague, and contradictory”.

The National State Enterprises Bill aims to establish the State Asset Management, a holding company to consolidate the state’s shareholdings. But the draft law does little to address critical failures at the country’s government-owned companies, according to Olga Constantanos, head of credit at Cape Town-based Futuregrowth.

“Significant clarification and amendment are seen as essential to make this legislation effective and address long-standing issues in South Africa’s SOEs,” Constantanos said in a note to clients. “The performance of SOEs could continue to pose a significant risk to the nation’s economy.”

South Africa’s key state-owned companies have been hamstrung by allegations of corruption, maladministration and mismanagement. In February, the Finance Minister Enoch Godongwana announced a R254-billion State bailout for the cash-strapped power utility Eskom Holdings over three years. Meanwhile, the board of country’s embattled ports and freight rail operator Transnet has asked government to take a portion of its R130-billion debt, according to reports by the Business Day.

The limitless powers granted to the president over the appointment of the holding company’s board members and business activities without any direct guidelines, oversight, or limitations pose a risk, according to Futuregrowth, which holds Eskom bonds. Some of the issues it identified include:

* Lack of legislative cohesion with other laws such as the Companies Act and the Public Finance Management Act
* No specifications on the fiduciary responsibilities of directors increasing the risk for accountability at board level
* Vague outline of standards and metrics for the holding company, making the interpretation of efficiency and accountability ambiguous and difficult to measure.

The draft law was released for comment in September by Public Enterprises Minister Pravin Gordhan. Should the Bill pass in Parliament, the new company will likely be established after the next government takes office following next year’s election.