SOEs and their Role in the Economy of BRICS Member Countries.

1. 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
1
18 November 2016

2. 2
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

3. • 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.
3
Economic Performance of BRICS
Member Countries
Source: IMF, 2016

4. 4
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.

5. 5
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.

6. 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.
6

7. 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”.
7
Source: PWC, 2015

8. Emerging Role of SOEs in BRICS Countries
8
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.

9. 9
• 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.
Conclusion