Government and the Market: State-Owned Enterprises in South Africa

Governments have roles to play in economies. The debate is more about the extent to which governments play roles in economies. This chapter argues that the government in South Africa has a major role in the economy. The chapter shows that the government is the biggest economic anchor through its role as the employer, producer and a consumer. For the longest time in the democratic South Africa, the government remained the biggest employer which has created fiscus burden through large public sector wage bill. Another way through which the government participates in the economy is through production of certain goods and services. There are several State-Owned Enterprises (SOEs) which were established to correct market failures. These SOEs however have recently been underperforming and even failing to render their primary services. The fiscus burden of these SOEs is enormous as they are struggling to stay afloat and must be bailed out through tax revenue. The impact of government failure seems to outweigh that of market failure lately. The focus of the chapter is on SOEs, and the analysis found that SOEs have a negative shock on economic growth at least in the short run and the effect dies out in the long run. It is important that the government reinforces economic institutions, tackles corruption and promotes good governance in SOEs. This is to lay a foundation that is conducive for the private sector to thrive, rather than having the government solve all economic challenges.