South Africa

ANALYSIS

After the ANC government’s many failures, will it be big business to the rescue?

An Airbus A320-200 passenger jet operated by SAA at OR Tambo International Airport. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | A locomotive pulls freight wagons loaded with coal through the Transnet rail depot in Ermelo, South Africa. (Photo: Dean Hutton / Bloomberg via Getty Images) | Vapour from the cooling towers of Eskom’s Matla coal-fired power station in Mpumalanga, South Africa. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Since the ANC won power at the beginning of our democratic era, one of the main tensions within our society has been the extent to which the government should control and run certain aspects of the economy. There have been strong indications, though, that there could soon be a greater role for the private sector.

The ANC’s position is that South Africa has a “mixed” economy in which the government runs certain parts of the economy while the private sector runs other parts of it.

Over the past few months, there have been strong indications that the balance in this debate is shifting towards a greater role for the private sector. While there could still be major changes in how this debate plays out, it is possible that this may indeed be the beginning of a longer-term shift. This is because of the ANC’s own internal dynamics and because the state failed in its delivery and now lacks the capacity to continue providing services through state-owned enterprises (SOEs).

The ANC is in an alliance with the South African Communist Party, which believes that the “commanding heights” of the economy should be nationalised. At the same time, within the ANC itself there have always been tensions on this issue.

Considering that, as ANC Chairperson Gwede Mantashe once put it, “economics is the very essence of politics”, it is no surprise that a political party in government would want to control as much of the state as possible.

Also, considering our history, and the way the apartheid government used its political power to control the economy, there was and is a need to transform the economy. The biggest agent available to do that is the state and the resources that it commands.

And so, up until this point, this has been a major plank of ANC economic policy. It has been said that the government, through SOEs and other agencies such as the Public Investment Corporation, should help transform the economy and properly deracialise it.

However, in the last few months, there have been strong indications of this policy changing.

First came the decision, from no less a figure than Public Enterprises Minister Pravin Gordhan, to sell the majority stake in SAA.

While the final details are still not public (and neither are SAA’s financial results for the last few years) it is envisaged that the Takatso Consortium will have 51% ownership of what is left of the airline. This is after the SA government has spent nearly R50-billion propping up the airline since 2007.

Second has been the announcement, confirmed again this week in a new white paper, that private operators will be able to use government-owned railways. Technically, these railways are a national asset.

But now Transnet will lease time on the lines to the private sector. The hope is that this will bring in more investment and a semblance of service to the people of this country.

These developments are concrete examples of what the ANC is now formally proposing. While the final drafts of its discussion documents have not yet been released, certain leaks have suggested that they are moving very much in this direction.

Bloomberg has reported that the documents state that the SOE model is “dead”.

Other reporting has suggested that the documents, when finally released, may well point towards a measure of privatisation, or at least a greater role for the private sector. 

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There is much to consider here about why the debate may be shifting towards a privatisation model.

First is the simple lesson of SAA.

Nearly R50-billion has been poured into the ailing airline, with no benefit for anyone. It is not just that SAA was looted during the State Capture era. It is that despite all of this state support there is nothing left. From what is known about the Takatso deal, the government will still have to pick up the bill for its remaining debts.

And this is despite the moral problems that emerge from a system in which the liberation movement government of the most unequal country on Earth subsidised an airline that only the rich and the middle class could use.

But SAA is far from being a solitary example.

Transnet has major problems making its railway systems work. The pandemic, the associated theft of infrastructure and other assorted problems brought the need for as much capital as possible.

In the provision of electricity, President Cyril Ramaphosa himself has said it is a grave risk to rely only on one single entity, Eskom, for power generation.

For those who favour privatisation, the failure of Eskom, partly through the ANC’s own mistakes and partly through people like Brian Molefe, Anoj Singh and Matshela Koko during the State Capture era, is an important example of how an entire critical enterprise can collapse.

Many would also agree that allowing the private sector to produce electricity and sell it to the grid is the only way to ensure that there is enough power and that the national network enables the rich to subsidise the poor. And to ensure that we are not condemned to a future in which the economy fails because of no reliable power supply and where only golf islands have light while the poor languish in the dark.

They would argue that only the private sector can rescue these entities, and provide proper services to people, companies and the economy.

In short, if private sector money can ensure that trains are run properly on Transnet railways, then Exxaro will no longer lose so much money because it cannot export coal during a commodities boom.

The same can be said for SAA and so many others; it is hard to argue in favour of government ownership when every organisation it runs has failed and most of them are a systemic risk to our country.

However, there are also important pitfalls which must be avoided. And those who oppose privatisation have valid arguments they can make.

First, it may be important to ensure that government assets are not sold, or given, or stolen, through corruption. The hollowing-out of the Russian state in the 1990s and the oligarchs that were created during the Yeltsin era are clear examples of what to avoid.

Also, those who are able to invest in what used to be owned by the state could reap the rewards for many years to come and possibly overexploit the opportunity. This runs the risk of re-entrenching South Africa’s inequality, leading to greater problems.

To ensure this does not happen, very careful decisions must be made.

For example, the new policy of allowing private sector operators to use government-owned railways may be correct, as it allows access but does not simply sell the asset to the highest bidder. And it must be possible to quickly overturn or change contracts if necessary.

Also, allowing private sector investment into our power sector, but not changing the ownership of Eskom itself, may also be correct, for the same reason.

It is important to note what has changed within our national debate in this regard.

In 2010, 2011 and to an extent in 2012, the ANC discussed, seriously, nationalising privately owned mines. Then, at Nasrec in 2017, the debate became about expropriating land without compensation.

The mine-nationalisation argument ended when Julius Malema was expelled from the party. The land expropriation resolution was eventually adopted, but the ANC appears to have abandoned attempts to change the Constitution on the issue.

Now, it appears that what may be the most contentious issue in an ANC conference is around privatisation or a greater role for the private sector.

This signals a complete change of course, from moving leftward, to travelling in a business-friendly direction.

While some will blame only Ramaphosa for this, it is certainly not the first time. As early as 2014, under then president Jacob Zuma, there was strong evidence that the ANC was moving to the right.

However, instead of real policy changes, Zuma had other, narrowly personal, ambitions.

This time, the shift to the right could be more meaningful and change our country in a fundamental way. DM

 

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    • The private sector is responsible for the mess South Africa is in.

      Consider the case of Medupi The initial expected cost of R80 billion (2007 Rands), was revised to R154 billion (2013 Rands). 2019, the cost of Medupi was independently estimated at R234 billion. (2019 Rands)
      There was widespread corruption on the project by Hitachi – which in 2015 was prosecuted and fined US$19 million under the US Foreign Corrupt Practices Act for bribing South Africa’s ruling party– and many other contractors. This was all well known by World Bank President Robert Zoellick, who nevertheless arranged his institution’s largest-ever project loan for Medupi: US$3.75 billion. In 2005 Eskom contracted Black & Veatch to manage the construction of Kusile, situated in Mpumalanga, for R100 million. By the end of December 2017 and after changing the contract and amending the scope of the job six times the power utility had paid the US firm a total of R14.9 billion.

      • Eskom is not the private sector. The private sector would have procured Medupi and Kusile as fixed-price, turnkey projects and they would have been delivered on time, on budget, and they would have worked properly. Eskom did have the people who knew how to do this, but they were sidelined.

  • Non BEE based privatisation of SOE’s and much of government service delivery is our route for growing our economy and giving real hope to the poor

  • South Africa is being detroyed so corrupt big business can profit. Mass media and all the major political parties conspire to hide the role big business in corruption !!!

    An Economic Hit Man Confesses and Calls to Action

    John Perkins describes the methods he used to bribe and threaten the heads of state of countries on four continents in order to create a global empire and he reveals how the leaders who did not “play the game” were assassinated or overthrown. He brings us up to date about the way the economic hit man system has spread from developing countries to the US, Europe, and the rest of the world and offers a strategy for turning this around.
    youtube.com/watch?v=btF6nKHo2i0

  • Medupi might be a big failure for the govt. However it is a big success for Hitachi !! They are probably all eating sushi now !!! They should be made to leave the country but the talking heads
    will say this will scare off the investors !!

  • Doesn’t big business want to own everything? Is a buy- out a rescue? Somehow the title of the piece sticks in the craw of the mind as a foregone conclusion about the moral lovliness of big business, even if the actual article were to conclude with some healthy observations on the common valid criticisms of the growth aspirations of juggernauts. Did big business rescue Iraq? Greece?
    Now I’ll read the aricle….laughing smiley face…

    • An Economic Hit Man Confesses and Calls to Action

      John Perkins describes the methods he used to bribe and threaten the heads of state of countries on four continents in order to create a global empire and he reveals how the leaders who did not “play the game” were assassinated or overthrown. He brings us up to date about the way the economic hit man system has spread from developing countries to the US, Europe, and the rest of the world and offers a strategy for turning this around.

  • See the same old faces emerge as oligarchs. The big auditing companies must be very busy improving the ways to hide corruption. And all the profits wl go offshore.

  • There is a weary cynicism at play when even the slightest hint of sensible decisions emanating from the ANC, raises little more than eyebrows. The government is not renowned for anything other than self-interest, and to hell with the needs of “our people” – a patronising phrase if ever there was.

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