PETER ATTARD MONTALTO: Our threadbare institutions need a redesign, not just patching

Posted in: Economics, Politics, SOEs, South Africa, Sovereign risk on April 6, 2021


This column was first published in Business Day. 

There has been a lot of focus of late on recapacitating the state. It’s a simple model — if public sector employees are the coal on which the machine is running, better to have the highest quality possible (unlike the stuff going into Eskom power plants). There is certainly a need to refocus talent, hire and retain it, while  improving training for incumbents. Yet the “state lacks capacity” response to diagnosing SA’s problems it far more complex.

First, there is the risk aversion built up by many decent public servants during the Zuma years, where the informal mycelium network of making things work below the surface in the government — the subtle linkages and relationships between spheres of government — were destroyed as the drawbridge was pulled up. This is the grit that gums up the machine from operating properly.

Then there is the lack of leadership or decisive vision that is often endemic and must sap the most public spirited. This is especially important where there are many areas of the government or even individual departments, creating thiefdoms and siloisation. Infrastructure and its associated functions are probably the worst area for this.

But what about the machine in which all these people are working? This is, as a pure issue in and of itself, far too often overlooked. The people are only (maybe even less than) half the issue if the design of the institution is wrong.

The punch-drunk hangover of state capture has left SA too often risk averse to challenging and changing institutions, especially independent ones that sit apart from the government yet are still “the state”. Two voices trying to push this conversation, however, have been Miriam Altman (who has done so much to push the envelope of the National Planning Commission’s activity and impact on this and other topics), and Operation Vulindlela.

The “Tito paper”, which emerged almost two years ago, proposed a relook at regulators, including a new transport regulator. This has morphed into the Avengers-like reform outfit that is Operation Vulindlela. A central question there is what the state can achieve through institutions and how. If Operation Vulindlela (and the president) are to have a long-term legacy, it will be through building sustainable well-functioning institutions.

There is the opportunity to create new institutions — especially in water with a water investment authority and a water regulator in the next few years. In transport too a regulator is already being set with legislation arriving in parliament.

But what lessons can be learnt from existing institutions to apply to these new ones? There is the good, the bad and the ugly.

The good is probably the Competition Commission. With its own clear enabling legalisation it has — in a relatively short space of time (even if you disagree with some of their stances or investigation outcomes) — become an effective and robust machine. A key factor is its multiple levels of internal checks and balances ensuring self-correction and internal self-sufficiency that safeguard independence.

This contrasts strongly with the bad: the Independent Communications Authority of SA (Icasa). The current spectrum auction derailment in the courts is the result of mistakes made more than six years ago in a threadbare institution that doesn’t have the internal processes to self-correct or drive at speed towards an end goal. This is why — bar some major creative thinking — we are likely to be stuck within a completed spectrum auction for some time to come.

The ugly is the National Energy Regulator of SA (Nersa). The entity probably has the lowest level of respect of its stakeholders of any industry regulatory, with companies trying to navigate its lack of clarity to generate power. What is it even for? It is unclear it has any vision for the future of the energy or electricity space and simply rubber-stamps ministerial decisions for new power procurement. The recent public hearings into a section 34 determination to procure nuclear energy were an embarrassing set of questions from Nersa to presenters that showed inherent bias and old thinking — and I say that as someone who is instinctively not anti-nuclear.

To remain independent, institutions need methods of self-correction that drive a clear sense of purpose of their role, and in particular of what their industry is doing and where it is going in a rapidly changing world. The Competition Commission has that, Icasa has the latter and not the former, and Nersa doesn’t seem to have either.

The Independent Power Producers Office (IPPO) is another example of an interesting, young, institution that gained status and respect through the sheer force of personality of its founding head — Karen Breytenbach — to push it, stealth-like, from a Treasury idea, through a department of mineral resources & energy office to an independent institution.

After Breytenbach’s abrupt departure the institution looked increasingly wobbly, but now under new head Bernard Magoro, who comes with his own credibility from his work at Eskom, so the IPPO can reaffirm its credibility. (Though this is not to say it won’t be tested — especially trying to procure coal power in December.)

The ultimate examples of institutions with credibility have come from speaking truth to power. Most famously was Thuli Madonsela as public protector, but her departure showed how quickly an institution can crumble and lose credibility with the wrong person leading it. A different situation has happened with the auditor-general, where Tsakani Maluleke is strengthening an already strong institution.

Personalities are important. Phindile Baleni’s appointment as director-general in the presidency has aroused interest, as she is seen as someone who can make the government work. The presidency as an institution has seemed somewhat listless for some time as a broader institution (rather than just a few good people here and there).

If Baleni is to succeed at the presidency, culture will be key. The best institutions — such as the Reserve Bank and the National Treasury, which have a strong and deep culture that is identifiable from their most senior to most junior employee yet exists independent of each individual — are greater than the sum of their parts. The two institutions in their two towers seem to have a lasting hold; a legacy that is passed on down through transitions and could even survive state capture and a weekend special.

The government needs to think more about institutions. They are hard to correct when they go wrong — as can be seen from the logistical maze to get rid of the public protector let alone the politics of it, or the problems trying to correct for mistakes Icasa has made. Maybe the process for reinvention — a large red button that (say under judicial and parliamentary oversight) can blow up an existing independent institution and start it over — is worth thinking about.

Institutions are hard to build, there is probably a certain degree of luck (the right people in the right place at the right time), but there is a recipe. This involves leadership and personalities, sheer force of will, internal self-correcting design structures that reinforce their independence and a clear sense of what they have to do and where their policy area or industry is going.

Operation Vulindlela seems to get this, but does the rest of the government?

Attard Montalto is head of Capital Markets Research at Intellidex, an SA research-led consulting house.

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