Paper short abstract:

This paper analyses the outcomes of the South African government's attempts to turn state-owned enterprises into instruments of a 'developmental state', using procurement to advance domestic manufacturing capabilities and advance racial transformation of the economy.

Paper long abstract:

This paper analyses the political economy of state-owned enterprises (SOEs) in post-apartheid South Africa. Its focus is on the efforts of the African National Congress (ANC) government to turn SOEs into instruments of its proposed 'developmental state'. Using document analysis, financial data from the major SOEs and material from key informant interviews, the paper examines the central role of SOEs in the ANC's rendering of a developmental state. Lacking the more conventional 'reciprocal control mechanisms' Amsden (2001) identified as central to industrial transformation elsewhere, the ANC has used SOE procurement - in particular from the electricity and logistics utilities, Eskom and Transnet - as key means of economic intervention. Selective rent distribution by SOEs has been for both industrial policy and to pressure for racial transformation of the economy. Procurement specifications have pressured multinational firms to increase domestic manufacturing capabilities, to nurture nascent black-owned small and medium-sized enterprises, and to pressure the established white-dominated private sector to adhere to government's black economic empowerment objectives. The outcomes of this process are complex. Areas of apparent success are overshadowed by severe financial strains, and by multiplying incidences of unproductive rent-seeking related to SOE procurement, which has led to accusations of 'state capture'. The paper argues the developmental potential of the South African SOEs to lever private sector transformation has been undermined by the multiple contradictory objectives they attempt to fulfil - in particular a continued dependence on international capital markets - and by insufficient attention to disciplinary measures embedded within rent distribution.