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Something different coming our way — twin reality checks of Austerity and Privatisation

Something different coming our way — twin reality checks of Austerity and Privatisation
President Cyril Ramaphosa. (Photo: Gallo Images / Beeld / Deaan Vivier)

While many have warned that the government is about to cut back services dramatically, President Cyril Ramaphosa has said that ‘fiscal discipline is not the same as imposing austerity measures’. He’s also claimed that it is ‘clearly not the case’ that parts of Eskom or Transnet are being privatised. While he may be quibbling over words, the government is obviously losing power to the private sector.

On Monday evening, President Cyril Ramaphosa gave a closing address to the ANC’s National Executive Committee (NEC) in which he denied that the government was imposing austerity measures.

This comes after a series of reports, first in Daily Maverick’s DM168 newspaper, that the government was preparing to cut back on services as its tax revenue had decreased.

This is largely because the commodities boom which exploded after the pandemic has now ended and prices for raw materials like coal have declined dramatically.

At the same time, the consequences of other long-term political choices are coming home to roost.

Perhaps most important is the fact that government workers received above-inflation increases for many years before the pandemic. While unions will always focus on how important it is to pay nurses and doctors more, many other public service workers, such as driving licence officials, who are often corrupt, have also received large wage increases over the years.

And despite years of promises that there would be structural reform of the economy, and even a claim of a “Hallelujah Moment” at the start of the pandemic, nothing has happened.

Even SA’s most powerful politician, Ramaphosa, has singularly failed to live up to his promise of a “social pact” to unite government, business and labour.

The confluence of these dire straits resulted in the government being saddled with high levels of debt which must be repaid as quickly as possible (as any homeowner knows, paying interest is essentially giving money to someone for nothing in return).

South Africa’s actual fiscal situation is not entirely clear.

Ramaphosa said in his address that Finance Minister Enoch Godongwana had reassured the NEC meeting that South Africa was “not running out of money”.

On Tuesday, EWN reported that Godongwana said in Parliament, “Our approach has been moderate of combining expenditure cuts, but bump up some borrowing in a sustainable way.”

This suggests that, as always, the National Treasury is looking for the middle path.

Within this comes Ramaphosa’s claim that “fiscal discipline is not the same as imposing austerity measures that will undermine our developmental agenda”.

The one and only option

While dictionaries provide different definitions for the phrases “fiscal discipline” and “austerity measures”, in reality, the government simply has to spend less. There is no other option.

This means that cutbacks in services are inevitable. It doesn’t matter what words are used to describe the situation, cutbacks will happen.

Of course, the issue now is the extent and the mapping of the cutbacks.

Already, many are mobilising against any kind of cuts, arguing that, for example, hospital patients and children should not suffer any more than they already do. However, the government and Ramaphosa will contend that service cuts are not “austerity”.

This is merely semantics — the fact is the government can’t afford to provide the services it has up until now, and services will be curtailed.

No matter how one looks at it, if there are fewer services, or poorer quality services, in a country defined by racialised inequality, this will “undermine our developmental agenda”.

Control and ownership

A similar word game is playing out over privatisation.

Ramaphosa is correct in his statement to the NEC that the state will continue to own Transnet and Eskom. No one is talking about those companies being taken into private ownership.

But that is not necessarily the same as control.

The busiest part of our busiest harbour, Pier Two in Durban, is about to be taken over by the Philippines-based International Container Services Terminal. A private company, and not Transnet, will be running the harbour.

This will weaken the control the government had, through Transnet, on the port’s operation.

There is a similar story at Eskom. It is not being sold — rather, it’s moving from a phase in which it owned and controlled all the means of electricity production, to becoming a purchaser of electricity.

Again, this may not fit the dictionary definition of privatisation, but it is another example of the diminution of government control of an enterprise.

The situation at SAA is different. Considering that once the deal is concluded (should that day ever come to pass), the Takatso Consortium will own 51% of SAA which fits the definition of privatisation. The government will no longer control SAA, an entity it has complete control of at the moment.

What happened to the naysayers?

Considering that privatisation had been opposed by the SACP and the trade unions, and also by the ANC (which at one point promised nationalisation), it is worth repeating how astonishing it is that there is now virtually no opposition to this process.

It’s almost as if the opponents of privatisation have simply vanished.

There are three possible reasons for this:

  • They believe Ramaphosa when he says that this is not “privatisation”;
  • They have simply been defeated; or
  • They accept there is no other option, which is the most likely case. In the medium term, this should be good for our economy.

Already, independent power producers are successfully selling reliable power supplies to Eskom, thus alleviating load shedding.

It is likely that once the Transnet Durban Harbour deal is concluded, Pier Two will operate more efficiently and at a more competitive price.

The same should be true of the bid to allow a private company to run the Transnet railway line from Joburg to Durban.

If these major parts of our infrastructure do then run properly, the impact on our economy will be huge and could lead to economic growth as high as 3% a year (the SA Reserve Bank says load shedding costs around 2% economic growth a year, while the problems at Transnet reportedly cost about 1% per annum).

Of course, this would be good news, but not nearly enough to drive our economy to generate as much revenue as the government needs.

This means that government services, if they are cut, are unlikely to be returned to their current levels for some time to come — no matter what words or communication strategies are used. DM


Comments - Please in order to comment.

  • Denise Smit says:

    The thing they must cut at government services is the salaries which are bloated. The over paid public sector, including the ministers and their ministerial handbook and free for all must be revisited urgently. Not reducing services rendered. How do you improve productivity? That would be a big gain. Denise Smit

  • Bruce Danckwerts says:

    Two aspects of this article could have done with more expansion. The first is that the government could (and should) cut the bloated political elite. This would free up more than enough fiscal capacity to maintain and even improve service delivery. It is not that the doctors and nurses are being paid too much, but that the deputy under-assistant to the Ministry of Health is receiving any salary for doing nothing. The second is that privatization may seem like the philosopher’s stone (that turneth all to gold) but it has failed throughout Europe, the U.K. and U.S. to deliver on it’s promises. Public Utilities (like ESKOM, Transnet) are Common Pool Resources and not only did the late Elinor Ostrom find many examples of how these shared resources could be managed more effectively than either by government or private means, she also identified 8 principles that, if adhered to, would ensure that the resource was managed in an equitable and sustainable way. I don’t know Durban Harbour at all, but, it seems the privatization of Pier 2 is all but a done deal. To give us a standard by which we can measure the success of the Philippine Company I suggest that Pier 1 (or 3 or whatever other part of Durban Harbour might be appropriate) is put into the hands of a board with ELECTED representatives from all the stake-holders (ship owners, land-based transporters, goods traders, white collar workers, blue collar workers). I submit that this system will prove to deliver the better service.

    • Middle aged Mike says:

      Ja, privatization has failed all over europe. That must be why boatloads of economic migrants continue to flood there from their overwhelmingly state controlled economies. People are inherently greedy and cannot be motivated by anything more reliable than self interest. Communisting harder or more gently or to a better sound track will not change that.

    • Mike Walwyn says:

      There’s a good model for private sector involvement in ports just across the border in Mozambique. The government retains 51% while the private sector shareholder (a well-known multinational) has full operational authority. Sees to work quite well – surprise, surprise

    • Anon Cowherd says:

      Always funny when lefties cling to the hopeless delusion that the South African state will ever be able to successfully run a business, especially compared to the private sector.

      One could perhaps make a credible argument that some sectors that form a natural monopoly, like railways, are better managed by the state, but that assumes a semi-competent state, which we don’t have and won’t get.

      I’ve lived in Germany for a decade. Electricity generation is a competitive sector dominated by private companies. As a consumer you can choose between multiple providers. There’s no need for a government monopoly on energy generation.

      The same applies to the majority of the 700 or so South African SOEs.

      There’s no need for a state owned power company, airline, post office, bank, ports company etc.

  • William Kelly says:

    Cancel cadres. This will cut the ‘civil service’ to the bone. That will cut government spend on salaries. The less government, the better off we all are.

  • JDW 2023 says:

    Can confirm that trouble is coming. I work in a state hospital in the WC and we have been informed in no uncertain terms that big budget cuts are coming and that services are going to be pulled back. An additional problem is that nothing is stated in writing by Pretoria so the uncertainty it causes is real.

  • Gregory Scott says:

    Efficiency is what is needed in the business of government.
    South African tax-paying citizens need bang for their buck, translating into superior service delivery.
    To provide a top-notch environment in which business can flourish has to be the absolute priority. This priority will translate into much-needed employment, additional tax revenue etc. This will require employing the best person for a job with cadre deployment or any other policy being unacceptable.

  • A Rosebank Ratepayer says:

    Finding DM editorial policy more and more confusing. It seems to veer from preferring a highly interventionist and centrally state and is therefore disappointed about the very necessary increased private sector participation to make key economic sectors work properly, to grudgingly acknowledging that greater private sector participation is actually what is needed.
    This leads to the question, why articulate this shift as an adversarial contest between government and the private sector, “the government is obviously losing power to the private sector.”? What is SG/DM hoping to achieve by highlighting this?
    It would seem DM needs to read up on some Marxian analysis by people like Castells and acknowledge the “dominant problematic,” namely the reality played out many times on this and other continents, that strong governments, more often than not, are merely conduits for resources to the elites in government, SOEs and those corporates that rely on policy and patronage rather than delivering competitive products and services.
    DM and (some) of its journalists need to be careful what they wish for.

  • Grumpy Old Man says:

    There are a lot of people who believe that the answer is political change. The replacement of the ANC with perhaps a DA headed coalition. I don’t believe this will in fact achieve the desired results. All that will happen is ANC sabotage on steroids. We see it in our Cities & Municipalities each & every day.
    The only solution I think might work is a Government of National Unity – where if we are truly committed to the welfare & interests of our Country & it’s people, we work together to achieve that aim!
    We have run out of money, out of options & out of time

  • david clegg clegg says:

    I do not understand the purpose of the remark that paying interest on a debt is giving away money for nothing in return. I was lent capital to buy my house — thats what I got in return for the obligation to pay the interest!
    I’m sure it’s a rhetorical flourish to make a point but its so blatantly wrong-headed that I am mystified as to what the point is.

    • Anon Cowherd says:

      Exactly, that line annoyed me as well.

      Interest is the price you pay to get access to money you’d otherwise not have (aka a loan).

      Stephen comes across as economically and financially illiterate.

  • Jonathan Paul says:

    Privatisation could also lead to Oligarchy as what happened in Russia. It is a way to give cronies the ownership of large previously Nationalised government entities.

  • Robert de Rooy says:

    Please look at what Karpowership has been doing to the African countries it supplies with electricity. It cut their power when they were not paid. This ANC does not want to privatise, but they are only too happy to submit our country’s lifeline to foreign private companies.

    • Anon Cowherd says:

      This is of course the right thing to do. The culture of not paying bills, while convenient in the short term, leads to long-term ruin. In the end the state has to keep on bailing out SOEs because of bad debts, eventually putting the creditworthiness and fiscal position of the state at risk, which results in much worse outcomes.

  • Johan Buys says:

    Stephen, can you or DM please ask government for a stratification of public service and SOE salaries under a PAIA application?

    stratification is anonymous, just tables that shows:
    Number of people 0-100k per annum
    Number of people 100k-200k per annum
    1m – 1.5m
    1.5m – 2m
    2m – 3m
    Over 10m

    That data by government department and per SOE and per Agency would make interesting reading. The ANC is big talk about income equality, but when they give a R2m a year senior cadre a 6% increase the R120k increase is more than a low paid worker earns in total. The unions should press for freeze of salaries over R1m and all that is focused on paying low income earners more.

    Eskom AVERAGE is R800k per year which must mean a very large number of people must be paid well over R2m for the math to work.

    • Carol Green says:

      Great idea. We also need a breakdown of the percentage of people in admin, middle management etc. I suspect that those categories are overly bloated.

  • Middle aged Mike says:

    Thankfully the very large expenditure on lard for the president and his enormous executive blob in the form of luxury homes, german suvs, vip protection and the rest are not under threat. That would be a calamity. These clowns are bumping up against the reality that you eventually run out of other people’s money to misapropriate.

  • Mike Walwyn says:

    It’s clear that Government is terrified of the unions – hence the pussyfooting around the dreaded “P” word. They don’t seem to understand that a showdown with the unions is eventually inevitable, so they may as well retain some control by choosing when.

  • David van Rooyen says:

    My thanks to Stephen for his explanation. I wonder how these development fit into Anthea’s Jeffery’s analysis of the National Democratic Revolution as discussed in her recent book on creeping socialism ?

  • Johan Herholdt says:

    Great article thanx Stephen, I only have one beef. Our (incresingly less popular) prez (or maybe you) referred to “poorer quality (governmental) services”. I doubt whether that is humanly possible.

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