The third biggest SOE that is pioneering clean governance in South Africa

SAFCOL is leading the SOE landscape in South Africa

South African Forestry Company Limited (SAFCOL) is the third largest state-owned entity (SOE), while it is not often reported on in the media, might be the best case study for other SOEs in South Africa.

It tells a story of good, clean governance that demonstrates that with the right leadership, government entities can be run successfully. The outgoing CEO, Tshepo Monaheng, joined in December 2017 and has managed to turn SAFCOL around. During the 2021/22 financial year, revenue increased by 33% to R1.2bn, and operating profit grew from R40m to R387m. The after tax loss of R45m improved to a profit of R84m.

This is an encouraging tale of an unsung hero. These results were achieved while its peers Eskom, Transnet, SABC, SAA, PetroSA, Denel and others are perpetually in the news for the wrong reasons and continually seeking bailouts from government.

According to the WOW report on forestry and related services industry in South Africa, SAFCOL has eucalyptus, pine and wattle plantations in KwaZulu-Natal, Limpopo, Mpumalanga and Mozambique, and a sawmill that produces structural timber in Limpopo. It manages 189,000ha of plantation areas in South Africa and 100,000ha in Mozambique.

The company has received three consecutive years of an unqualified audit opinion, meaning its financials appeared fair and transparent. Irregular and wasteful expenditures amounted to less than R1m in financial year 2022.

Previously it had received many qualified audits and irregular wasteful expenditure of R600m in financial year 2018. With revenue of about R1bn, the R600m highlights the extent of maladministration due to incompetence, theft, and corruption.

The fact that SAFCOL has come back from such depths illustrates that no task is too momentous and cannot be done. It is no surprise that the government is looking to Mr Monaheng to replicate his achievements at Denel.

Lessons learnt from SAFCOL

The appointment of Monaheng in 2017 led to the turnaround. He was able to bring all the management layers on board for this incredibly difficult journey and reach his objectives through focused and unrelenting efforts in achieving transparent and clean governance.

Not to downplay the effort, SAFCOL’s staff complement of 1,736 would have made the transition more manageable than it would have been at Eskom, with 40,000 employees, and Transnet, which had 55,827 employees in 2022. The World bank pointed out that Eskom is at least 50% overstaffed. The recent Eskom investigation by German consultancy, vgbe energy pointed to complex, confounding and unnecessary levels of management being counterproductive.

While it may be harder and it will take longer at other SOEs, the example of SAFCOL should not go unheeded. It is evidence that in the face of major challenges, a state-owned company can be turned around given the right leadership and the political will.

If SAFCOL’s achievements are replicated at other major SOEs, government’s credibility can be restored, and this could be a prelude to better public acceptance of establishing new SOEs such as the state bank or NHI. Without supporting evidence that the state can oversee the efficient running of such institutions with a clean governance record, doubt will always shroud these plans.

During Monaheng’s presentation to the Parliamentary Monitoring Group (PMG), he committed to keeping costs down and improving efficiencies. He further explained that had appointed an independent entity to investigate those who were responsible for SAFCOL’s irregular expenditure and thereafter initiated a consequence management process.

The importance of SAFCOL in a changing world

SAFCOL has an important role to play at a time when the world is grappling with the effects of climate change. It must do this while navigating the complexities of running an SOE which requires concerted efforts to address governance, financial, and operational challenges.

SOE’s, if well run, can drive economic development, and contribute to sustainability goals.