Brendan Martin questions who will benefit from privatisation of state assets
There would have been no prizes for predicting, a year or two ago, that the fragile unity of the new South Africa would founder on government action to secure “black economic empowerment”. But how many sages foresaw that it would be the ANC’s alliance with Cosatu, rather than its coalition with the National Party, that would be the fault
You don’t have to be a trade unionist to wonder, when the South African government promotes privatisation as a vehicle for black economic empowerment, just which blacks they have in mind.
For Posts, Telecommunications and Broadcasting Minister Pallo Jordan, it is the 99 out of every 100 not connected to the telephone network. But if the experience elsewhere is anything to go by, the bigger winners could be the one percent who already are connected.
Deregulation and privatisation worldwide has certainly swung the balance of forces, and the economies of scale, from the state to private business in telecoms, producing a handful of transnational giants with the financial muscle, technology and know-how to tackle a challenge on South Africa’s scale.
The problem is that those companies have no shortage of similar investment opportunities in Asia, Latin America and eastern Europe. If they are to invest in South Africa instead, it had better pay.
South Africa is often compared with Brazil, but when it comes to privatisation perhaps Mexico has the more significant lessons. Certainly, until Mexico’s social uprisings, financial collapses and political scandals of the last year, international institutions such as the World Bank were fond of taking government delegations there to learn how it is done.
Yet a World Bank report on telecommunications privatisation in Mexico — while rating it a great success — is graphic in its identification of winners and losers. When Telmex was privatised, foreign buyers made gains of $12-billion in share values, in the first year, says the report, largely because tariffs went up so much that “the big losers are consumers, worse off by $33-billion”.
Built into the deal was an obligation on Telmex to meet a number of performance targets, such as increasing the number of lines by 12 percent a year for the first three
That looks exacting, but think about it. At the start, Mexico had six lines per 100 population. Twelve percent a year on top of that might be progress, but mass economic empowerment it ain’t. A similar rate of increase among black South Africans would see the number connected double to two in every hundred by the year 2000. Is that what Pallo Jordan has in mind?
Foreigners have not been the only big winners from Mexican privatisation. The 37 businessmen who already owned between them about a quarter of the country’s gross national product were (being the ones with the money) the main buyers in almost every case, resulting in “a worsening of the already skewed and concentrated pattern of ownership distribution”, according, again, to the World
In Britain, the biggest winners have been not the new owners but the old management, a fact well worth bearing in mind the next time you hear a South African utility boss claim that only privatisation will solve his company’s
In the month that British Gas announced plans to cut the pay of 2 600 of its lowest-paid workers by 16 percent, the company’s chairman took a 75 percent salary increase to o475 000 (about R2,5-million) a year. Lucky for him that his employees did not know at the time that he had also been party to awarding himself o600 000 (more than R3-million) in share options.
It has been a similar story in British electricity, which has rewarded directors for halving their workforce by making millionaires of men who a few years ago were public servants. In a paper for an international conference on the future of the industry, Scottish Power explained as follows the change in its ethos following privatisation:
“Firstly we focus on operating profit, seeking ways to build cash inflows by maximising revenues and reducing costs. Secondly, we focus on capital employed to optimise cash outflows, looking very carefully at the timing and extent of investment and taking a rigorous view on disposals. Finally, we focus on understanding the cost of capital and the implementation of balanced financing
No mention of providing electricity to all who need it in an efficient manner at affordable rates — and no accidental omission either. The document added: “This focus is in marked contrast to the priorities that the company had prior to privatisation (when) our primary role was the maintenance and security of supply to our customer base. Our approach to investment was to invest whatever was considered necessary on technical grounds to deliver an electricity supply to our customers.” Heaven forbid that an electricity company should see its “primary role”, and the point of investment, as the provision of
But the really unpopular privatisation in Britain has been water, described in the Financial Times as “a rip-off, a steal, a plunder, legalised mugging, piracy, licensed theft”. The whole rationale of privatisation was that there was an urgent need — as there was, and is — for investment to regenerate the service’s decrepit infrastructure, installed a century ago and little repaired since. Yet more than five years into privatisation, with prices rising exponentially and directors’ pay and share options even faster, there is still as much water leaking from cracked pipes as makes it to the taps in a county like Yorkshire, where this year long-suffering consumers were threatened with loss of supply on alternate days because of what the company (not being familiar with the real Southern African thing) called a “drought”.
In short, privatisation guarantees very little except that a few people get very rich, or “economically empowered”, if you prefer. South Africans should count themselves fortunate to have trade unions determined that empowerment begins at home, with proper consultation and negotiation, so that the restructuring which all agree is necessary can bring sustainable and equitably shared results.
Brendan Martin is an international consultant on privatisation and public sector reform and author of In the Public Interest?, published by Zed Books.