The South African economy is known for its unpredictability and volatility, with erratic shifts in economic performance. While economic problems are often discussed in terms of money, failing infrastructure, and lack of investment, another issue deserves far more attention — the capacity of institutions. Recent developments at Eskom and Transnet, two of the country’s major state-owned entities (SOEs), are encouraging, with Eskom reporting a R30.3bn profit and a significant improvement in the reliability of electricity supply.
Transnet has also returned to profitability, reporting a net profit of R4.6bn. These developments show that organisations once seen to be in permanent decline can improve when there is greater focus on management, financial discipline, and operational performance. However, it is essential to be cautious about what these numbers tell us, as a profitable year does not necessarily mean an institution has been fundamentally fixed. Eskom, for example, continues to face significant challenges, including more than R111bn in municipal debt.
Transnet’s improved financial position needs to be considered alongside the fact that a substantial part of its latest profit came from the disposal of an asset. Its freight volumes, though improving, remain below where they need to be. These factors do not mean that progress should be dismissed, but they present reasons to look beyond the financial statements. The real test is whether these SOEs can sustain the improvements over time, which brings us to governance.
Governance has a direct bearing on whether an organisation can perform, determining how decisions are made, how risks are identified, how executives are held accountable, and whether problems are dealt with before they become crises. This is particularly important for SOEs because their failures do not remain within the organisation. When Eskom struggles, it affects businesses and households, and when Transnet struggles, exporters and importers pay the price.
The proceedings of the Madlanga commission of inquiry have raised serious questions about the functioning of parts of South Africa’s criminal justice system. A functioning economy depends on functioning institutions, and businesses need confidence that laws will be enforced. Investors need confidence that their investments will be protected, and citizens need confidence that those entrusted with public authority will be held accountable.
The conversation about institutional reform is becoming increasingly urgent, especially with the emergence of artificial intelligence (AI) and other digital technologies that are changing the way governments, businesses, and institutions operate. AI can improve public services, detect irregularities, support decision-making, and possibly make organisations more productive. However, AI technology alone cannot compensate for weak governance.
To build a competitive economy, South Africa needs to restore trust in its institutions, which is not simply a governance objective but an economic necessity. Institutional strength matters long before a crisis becomes visible, and if the country is serious about attracting investment, improving infrastructure, creating job opportunities, and competing globally, it needs to invest in capable leadership, professional boards, effective oversight, and consequences for unmet responsibilities.
Key points
- Governance is crucial for institutional performance and economic growth.
- Institutional reform is necessary for sustainable economic recovery.
- AI technology alone cannot compensate for weak governance.
