Editorial: Is It Time For South Africa To Privatize State Corporations?

By Kevin Mwanza AFKI Original Published: January 23, 2015, 3:49 am
Thinkstock

In November last year South Africans woke up to news from the country’s state-owned electricity supply, Eskom, that it was going to roll out power blackouts across the country as it upgrades its old power generators.

The energy crisis that analysts say could last a couple of years has already hurt investors’ confidence in the country that has for long been seen as the best investment destination on the continent owing to its high per capita income, political stability and advanced infrastructural disposition.

Eskom’s disappointment is just but one of the many failures by state corporations in the Africa’s second top economy over the year.

The country’s state carrier, South African Airways (SAA), has been struggling to keep its fleet in the skies with a crippling debt of $1.5 billion and has had to receive a couple of state sponsored bailouts, including a recent 6.5 billion rands ($560 million) guarantee to keep liquidators off its back. This adds to a 5 billion rands guarantee already in place for the Treasury.

Industrial unrest also shut down the South Africa’s post office for much of 2014, leaving it short of income. The Post Office had been experiencing a sharp dip in revenue and posted a loss of more than 500 million rands last year after the government withdrew its subsidies.

These are just but a few heavily subsidized public enterprises that have fallen short of their mandate and the state might need to review its investment in them if it wishes to make them efficient.

Across the world most governments have had to sell state-owned firms after decades of poor performance and inefficient operations. The World Bank estimates that more than 100 countries have privatized well over 100,000 medium and large enterprises in one form or another in the last two decades.

In the past the African National Congress (ANC) Party, that has ruled the country since the apartheid regime fell in the early 90’s, has been opposed to privatization plans on fears that it will deny the county’s blacks control over key economic resources of the country even after they achieved political control.

Unwillingness to privatize

State enterprises, such as TELKOM and SAA, were at some point during the Government of National Unity transition considered for privatization with the state selling some part of its state to private investors but this idea was shot down after ANC took over.

But with the recent spate of state entities blatant failures, the ANC government seem to be softening its stance and risking the wrath of powerful labor union in the country, to invite private investors to help in running these state corporation.

Already there is a pending legislation in parliament that seeks to allow independent energy companies – which currently supply approximately five percent of South African power – to sell into the national grid. The government is also pushing ahead with a controversial nuclear-energy programme, together with Russia’s state-owned nuclear company Rosatom, that could cost morethan $86 billion.

Privatization has been a thorn in the flesh for the South African government for over two decades now, but it is time the Jacob Zuma led government let go of some inefficient parastatals. ANC’s Unwillingness to trust the private sector will only work against the government and will continue hurting  the country’s economy which is already struggling to maintain positive growth.

Sign up for the AFKInsider newsletter — the most compelling business news you need to know from Africa and the African diaspora, delivered straight to your inbox.

Tags: , , , , , ,