Why South Africa’s SOEs keep paying more for less

South Africa’s state-owned enterprises (SOEs) cannot modernise infrastructure while procurement remains reactive, compliance-heavy and vulnerable to inflated costs. TJAKA SEGOOA says smarter demand planning and digital tools are becoming essential to institutional survival and resilience. 

The global economy is being reshaped by artificial intelligence, automation and data-driven decision-making. Yet procurement across South African state-owned enterprises (SOEs) still relies on processes designed for another era.

This matters because procurement is not simply about buying goods and services; it determines whether critical infrastructure is maintained, operations remain reliable and scarce public funds are used effectively. In strained SOEs, poor decisions can cause service failures, rising maintenance costs and further pressure on the fiscus.

The question is not whether procurement rules should be relaxed. It is whether existing strategies are sophisticated enough to meet policy obligations while delivering value, reliability and accountability.

Open tenders can produce unintended costs

SOEs often favour open tenders to encourage broad participation and support transformation under South Africa’s B-BBEE framework. These objectives matter, but tenders can create unintended consequences where specialised equipment or proprietary technology is involved.

Original equipment manufacturers (OEMs) usually operate through supply networks that include accredited service partners, dealers and smaller businesses. These ecosystems can support small, micro and medium enterprises (SMMEs) while preserving technical standards, warranties and accountability.

When SOEs bypass OEM-linked structures and appoint independent intermediaries, several subcontracting layers may emerge. Each layer can add a mark-up, slow down communication and blur responsibility when performance falls short. The institution may pay more for the same component while losing control over quality, delivery and aftersales support.

The risks deepen when ageing infrastructure requires discontinued parts, specialist software or certified maintenance. A supplier may win a contract on price and compliance, yet lack the technical capability needed to keep equipment operating.

Deviations are a symptom, not the disease

South Africa’s procurement framework prioritises open, competitive bidding to protect fairness, transparency and transformation. However, specialised operating environments do not always fit neatly into a standard tender process.

Where an OEM is the only supplier able to provide compatible parts, software updates or certified repairs, a deviation from competitive bidding may be justified. Problems arise when deviations become frequent, poorly motivated or necessary because planning failed. Excessive reliance on deviations creates governance concerns, particularly in a public sector scarred by corruption and irregular expenditure. Yet rigid adherence to lengthy tender processes can be equally damaging when an urgent infrastructure failure cannot wait months for an award.

The weakness often lies earlier in the procurement cycle. Poor demand management means institutions fail to forecast maintenance requirements, monitor asset lifecycles or analyse supplier markets before a need becomes critical. Procurement then becomes reactive, with officials forced to respond to breakdowns, expired contracts and shortages under pressure.

Demand management must come first

Demand management should determine what an organisation needs, when it will need it and which sourcing strategy is most appropriate. It requires technical, financial and procurement teams to plan together rather than operate in silos.

For SOEs, this means mapping critical assets, identifying single-source risks and forecasting parts and maintenance requirements over several years. It also means distinguishing between products that can be sourced competitively and systems where direct OEM involvement may offer better lifecycle value.

Stronger planning would reduce emergency purchases, limit unnecessary deviations and give institutions more time to negotiate suitable contracts. It would also allow supplier development initiatives to be designed deliberately, rather than inserted into structures that add cost without transferring meaningful skills.

Lowest price does not equal best value

Many procurement decisions still place too much emphasis on bid price and compliance scoring. These are important, but they do not reveal the full cost of ownership. A cheaper component may fail sooner, invalidate a warranty or require more maintenance. An intermediary may appear competitive until its mark-up, response time and dependence on an OEM are examined. A contract may satisfy procurement rules while exposing the organisation to greater operational risk.

Price analysis should therefore become a core capability. Procurement teams need to benchmark prices, examine cost structures and identify excessive margins created by subcontracting. They should assess supplier reliability, compatibility, maintenance requirements and the consequences of downtime. With Treasury constrained and bailouts less certain, SOEs cannot afford technically compliant but commercially weak procurement.

Technology can strengthen oversight

AI cannot fix poor governance, but it can improve procurement decisions. Digital systems can analyse supplier performance, flag unusual pricing, forecast demand and detect patterns associated with fraud or collusion. They can also compare direct OEM sourcing with intermediary arrangements and model lifecycle costs over time. This would allow procurement teams to move beyond one-dimensional assessments and consider reliability, compatibility, maintenance and long-term value.

The greater challenge is cultural: technology will achieve little if procurement remains viewed primarily as a compliance checkpoint. South Africa’s SOEs need professionals who can interpret data, understand markets and challenge sourcing models that appear compliant but make little operational or financial sense.

Procurement reform is not about choosing between transformation and efficiency. It is about designing systems that can achieve both. Without stronger demand management, sharper price analysis and better use of data, SOEs will continue to pay more, react later and receive less from limited public resources.