SOEs and their Role in the Economy of BRICS Member Countries Presentation by: Mr Mogokare Richard Seleke Director General, Department of Public Enterprises Republic of South Africa 18 November 2016

Presentation Outline Economic Performance of BRICS Member Countries Influence of economic performance on economic systems and models Role of State Owned Enterprises (SOEs) in the economy Evolution of SOEs and their influence in international business Emerging role of BRICS’ SOEs Conclusion

Economic Performance of BRICS Member Countries The period between 2000 and 2008 saw acceleration in the growth rate of BRICS countries. This was driven largely by commodity boom emanating from China’s rapid industrialisation and high demand of consumer goods. Post 2008/09 BRICS countries have struggled to increase their growth level to the pre-crisis level. Growth performance in Brazil, Russia and South Africa are projected to remain below the global average growth. Source: IMF, 2016

Implication of the economic performance on economic systems and models The global economy continues to remain weak and key questions have been raised around the capitalist economic system that drive resource allocation and distribution of benefits. The economic crisis showed that an alternative economic model was necessary to alter the principles of the free market system that have dominated the management and distribution of resources. The growth outlook for the BRICS countries shows that a new growth model needs to be pursued that will promote stability and unlock investments into the productive and other sectors of the economy. This must ensure economic development.

Role of SOEs in the economy: Rationale Government involves itself in the market in a variety of ways. One of the ways that the State intervenes in the market is through the creation of a State-owned company (SOC). It is increasingly recognised that State intervention in economic activities is necessary to correct a market failure and/or drive investments into sectors that are critical for long term growth and broader economic development. Accordingly, governments in developing economies must constantly engage in business activities which, in more developed countries, are carried out by private firms. The secondary justification is the belief that only government is capable of providing sufficient investment for technical modernisation of major national industries. The State-owned enterprises are developed to support these national industries.

Evolution of SOEs Last two decades of the 20th century saw an increased influence of Bretton Wood institutions in the economic policy discourse with the following implications: Systematic reduction of Government influence on the economy and allowing of private interest to determine resource allocation and distribution of benefits; and Introduction of privatisation policies that encouraged the creation of private monopolies that disadvantaged the working class. This saw a reduction of the role of Government in the economy and the thriving of a free market system. The economic crisis of 2008/09 has challenged the policy posture that were advocated by Bretton Wood Institutions. New economic systems and models are being investigated and what is emerging is that Government has a role to play to drive economic emancipation of all.

Influence of SOEs in the global economy There has been a growing number of SOEs that are forming part of the Global 500. In 2014, 23 percent of the Global 500 companies were SOEs from 9 percent in 2005. SOEs have also become major players in Foreign Direct Investments and “are investing beyong their domestic borders”. Source: PWC, 2015

Emerging Role of SOEs in BRICS Countries BRICS SOEs Drive investment in the developing world Drive technology development Promote equality Accelerate South-South Trade SOEs are expected to look beyond their financial sustainability in both their domestic economies as well as in host countries. Other objectives must influence their investment and operational decisions, which are critical for the development of countries of the South. SOEs must ensure long term sustainability (financial and operational) as oppose to maximisation of profits in the short term.

Conclusion The current economic context has elevated the role of the State in influencing economic discourse. SOEs have been growing their influence in international business and becoming global players. SOEs have a significant role to promote the realisation of the BRICS founding principles.