Mbeki goes for the feel-good gap

In a calculated gamble, President Thabo Mbeki has jettisoned the deep privatisation programme the markets want and set a deadline for the implementation of what is effectively a policy of prescribed assets.

But, despite risking the ire of business by signalling, in his State of the Nation address last week, that he will limit the sell-off of state assets, Mbeki still faces union opposition to his plans to concession parts of the Durban port and to create competition in the distribution and generation of electricity.

With growth measuring an unexpected 3,1% in the first quarter and manufacturing statistics reflecting a healthier economy, the government is banking on an economic feel-good factor to tough out what is undoubtedly a shift in the nuance and emphasis of its economic policy. Winning the World Cup 2010 bid helped, too.

This change in the emphasis of government policy has been coming for two years and is occasioned by lukewarm foreign and domestic investment levels. At its heart is a stronger role for the state and less reliance on markets to break the pattern of low growth and high joblessness.

While the Reconstruction and Development Programme favoured a policy of prescribed assets (which route investments into areas of national priority), the African National Congress eschewed these for almost 10 years. Under National Party rule, prescribed assets were legislated and pegged at much higher levels.

At last year’s Growth and Development Summit (GDS), the government and labour pushed for and secured an agreement from business that 5% of income available for investment would go to job-creation and infrastructure development. This is not small chips.

South Africa leads the world in private pension fund assets as a ratio to gross domestic product (GDP) — the agreement is worth more than R30-billion if one uses total pension fund assets as a yardstick. It is worth an annual R2,6-billion — with South Africans allocating R52-billion to pension funds every year. Mbeki put a deadline on fleshing out the GDS agreement, the first time he has personally adopted the campaign. World Bank research on sectors with greater job-creating potential is being studied by the Presidency to make recommendations on investment.

The government is planning to use all the levers available to it to achieve the growth levels it wants. Its biggest are the parastatals — it is clear after Mbeki’s address and the minister’s briefings this week that it intends to hold on to them.

Until this week, it has been received wisdom that Mbeki would deliver a privatisation timetable that involved big-ticket sales. The government owns between 600 and 800 public enterprises with a combined net worth of about R25-billion, but business is interested in plans for the leading ones such as Eskom, Telkom and Transnet.

Minister of Public Enterprises Alec Erwin revealed this week that the three were not being restructured for outright sale (as the government’s policy was sold to the markets in 2001), but would be used to foster growth by leading infrastructure investment, keeping economic input prices (transport; telecoms and electricity) low and training workers.

Erwin will make public his detailed plans in September, but the risks in the plans Mbeki hinted at are already clear. The ports, an Achilles heel in an economy increasingly dependent on exports, will be a site of first contestation in Mbeki’s second term.

“We will seek to work with Parliament to expedite the process of the restructuring of our ports to bring in new investment and lower the costs of moving imports and exports,” he said.

But unions, led by the South African Transport and Allied Workers Union (Satawu), are holding the line against private sector participation and the concessioning of the Durban container terminal, earmarked for first movement.

Satawu is waiting to meet Erwin and to restart the National Framework Agreement, the negotiating chamber for all privatisation. “To take the container terminal out of the state-owned port system would amount to cherry-picking,” says Satawu’s Jane Barrett, who leads the union’s negotiating team. “Container movement is relatively easy and highly profitable. The smaller, general cargo terminals would find it more difficult to make a profit and this would impact on the export potential of other export industries.”

A bigger brawl is brewing at Eskom, where the power stakes are extremely high. South Africa will run out of its existing electricity capacity between 2007 and 2011 and the government intends creating a competitive market for electricity generation.

It also wants to reshape electricity distribution by creating six regional electricity distributors (Reds). Currently, Eskom and local authorities distribute electricity. Mbeki pledged that the first Red will operate from June next year and the new system will be completed by 2007. A tender for private sector electricity generation would be issued by December and be awarded during the first half of next year.

But Ebrahim Khalil Hassan, a researcher at labour think-tank Naledi, says plans are so embryonic they cast doubt on the presidential deadlines.

Firstly, negotiations with local authorities to reach agreement on compensating them for the loss of revenue from electricity are not near completion, says Khalil Hassan. Neither is a policy on electricity pricing. Early research by PriceWaterhouseCoopers, suggested that tariffs would increase by an untenable 40%; more recent pricing work is also very complex. And finally, it is not clear whether a stake in Eskom will be sold to a private-sector distributor or whether moth-balled stations will be restarted and sold off. All of which sounds like a lot more than six to 12 months’ work, says Khalil-Hassan.

Though risky, Mbeki’s speech and the succession of ministers’ briefings this week were wily. The changes were nuanced and Erwin has been selling a continued commitment to privatisation in the financial press. That the markets have not responded negatively suggests that 10 years on the government enjoys a degree of trust with capital that has not come easily.

Economist Iraj Abedian says Mbeki has “struck the balance between growth and development. He is dealing with the bottlenecks.” The bottlenecks are infrastructure and institutional capacity in the state, he says, adding that the jury is out “on whether the state machinery can put delivery capacity behind [Mbeki’s] political leadership”.

Another reason a more rigorous privatisation policy has been avoided, says Abedian, is that money is no longer a binding constraint. Inflows from sell-offs have always come in below expectations and the government is now more cash-flush because of a reduced debt burden and better revenues.

In addition, experiences at Iscor, Telkom and Sasol have shown that “private sector monopolies are more harmful than public sector monopolies. Selling for a song in the name of privatisation for a government that doesn’t need the money is not a good idea,” concludes Abedian.

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