Privatisation On Hold

Privatisation of large parastatals is not yet on the cards, says Public Enterprise Minister Stella Sigcau, but it hasn’t been ruled out. Duma Gqubule spoke to her about this vital issue

NOWADAYS, hardly a week passes by without a captain of industry or economist making a statement encouraging the government to start privatising state-owned enterprises to raise funds for the Reconstruction and Development Programme.

Public Enterprises Minister Princess Stella Sigcau explains the parastatals under the supervision of her ministry are Eskom, Transnet, Denel, Alexcor, Safcol, Sun Air, Transkei Airways and the Aventura resort group.

Other large parastatals, or companies wholly owned by the state, are accountable to other ministries. For example, Telkom is answerable to the minister of posts and telecommunications and Abacor to the minister of agriculture.

Although Sigcau’s ministry supervises huge parastatals with assets worth more than R100-billion and employing about 210 000 people, the ministry itself is one of the smallest in the new government. It employs just 21 people and received an allocation of about R8-million from the Budget last month. The new boss’ public profile matches the size of her department.

There is not much in Sigcau’s ministry that can raise significant funds for the RDP, with the exception of Transnet. For various reasons, not the least of which is its role in extending electricity to poor areas, Eskom would be difficult to privatise now. The government might object to Denel’s privatisation because of the company’s strategic importance.

Sigcau says her ministry is not opposed to privatisation, whatever the perception.

“What I said last month was that in this country’s unique context, share ownership may be transferred to an exclusive group without granting the nation as a whole an affordable and informed opportunity of benefiting from the privatisation process. We are studying with interest ways in which privatisation can empower those who were in the past excluded from full participation in the economic wealth of the country.”

Sigcau says she is impressed with the way Malaysia used privatisation to help empower the disadvantaged ethnic Malays, or Bumiputras, by devising innovative measures such as reserved share entitlement schemes and affirmative action unit trusts.

“We are studying cases where it is claimed that privatisation was a success story. It is a complicated exercise. If we rush the process without doing the necessary preparations, there is a danger that we might lose the benefits of the whole exercise. First, there has to be extensive consultations with all stakeholders, the trade unions, management, shareholders and the disadvantaged communities.

“Secondly, if you privatise tomorrow you have to first make provisions for ordinary people to raise the funds to buy the shares. And finally, we have to make sure that privatisation is not against the disadvantaged. Eskom is fairly tied up in a major electrification programme. The company is involved in other programmes which are contributing to the RDP. Could we be able to get a similar commitment from a fully private company?”

Sigcau says her department has already had discussion with a major Japanese financial services multinational, Nomura Securities, which has promised to send someone to give further advice. Other qualified overseas investors will be brought in to contribute.

For now the ministry’s emphasis will be on commercialisation and ensuring full transparency and accountability in the governance of the public enterprises. Affirmative action is another major drive and Sigcau will be making new appointments to the boards of the parastatals under her supervision in a major policy statement next month.

She stresses commercialisation and the study of privatisation will not continue “till eternity”.

“We know that there are certain things that have to be privatised. Maybe we can start with the physical assets of some of the former homeland governmments which are not in use now that provincial governments have taken over.”

Sigcau’s final word is that each country is different. “Just as Malaysia shaped a privatisation programme to suit its own conditions, South Africa must come up with its own unique version,” she says.

While privatisation has increased rapidly around the world, the results in many countries have fallen short of initial expectations, particularly of those who imagined instant riches or a fiscal panacea.

This is the finding of two International Monetary Fund economists in a paper entitled Privatisation: Expectations, Trade-Offs, and Results.

The authors say often an initial wave of unconditional enthusiasm generated by those who touted privatisation as a cure for all economic ills has given way to a more realistic view that not only identifies the economic benefits, but also recognises the trade-offs and compromises that have to be made to obtain particular benefits.

They say evidence suggests that productivity gains (in state- owned enterprises) will only materialise if privatisation is accompanied by extensive industrial restructuring. Just privatising is not enough: entire industries have to be restructured to ensure competitiveness if productivity gains are to emerge. Since this is costly, productivity gains may only be achieved at the expense of net proceeds from privatisation.

The implication for South Africa, as Bureau for Economic research economist Nils de Jager says, is that government should be careful not to just emphasise the proceeds that it can generate from privatisation.

“If government were to overplay its hand on fiscal policy by stimulating demand through privatisation, the end result would be rising inflation. The process will have to be accompanied by higher productivity, output and employment in the privatised industries to avoid this outcome,” he says.

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