The trade union movement this week celebrated the assurance by Minister of Public Enterprises Alec Erwin that the wholesale sell-off of state-owned assets was off the menu and that labour would in future be consulted on the restructuring of state enterprises.
However, the Congress of South African Trade Unions (Cosatu) remained wary of aspects of Erwin’s watershed speech in Parliament, particularly his endorsement of private-public partnerships and the sale of non-core assets, and his stated intention to make greater use of initial public offerings of shares in state enterprises.
This suggests that conflict over the future of state-owned businesses is not necessarily over.
Two years ago Cosatu clashed with the government over its plans to accelerate privatisation, at what it saw as the behest of big business, the foreign investor community and agencies such as the International Monetary Fund.
Erwin told Parliament that Eskom, Transnet and Denel would remain state-owned, but that the private sector would be invited to finance and operate parts of the infrastructure “to build world-class levels of efficiency and capacity”.
This would be done through public-private partnerships, concessions and joint ventures rather than wholesale divestiture of state-owned assets.
The government’s objective over the next five years “is to locate Eskom, Transnet and Denel, as state-owned enterprises [SOEs], within a system of public-private partnerships” because of their importance to the economy. SOEs in the forestry, recreation, mining and information, communications and telecommunications fields will be dealt with differently, as they do not occupy central roles in their sectors.
Cosatu also welcomed Erwin’s commitment to placing employment creation at the centre of the restructuring process. Spokesperson Patrick Craven said the labour movement would work to ensure this was carried through in light of the ongoing “job-loss bloodbath” at state-owned enterprises.
However, Cosatu criticised the government’s plans to make greater use of public-private partnerships and sell about 20 companies to black empowerment companies, which would “lead to the transfer of companies to a new black elite”.
Investors signalled a protest by offloading rands earlier in the week, while the JSE Securities Exchange top 40 index lost nearly 100 points after Erwin’s announcement.
BusinessMap director Reg Rumney says Erwin’s statement represented a change in emphasis rather than a fundamental shift in government policy, as privatisation would proceed in a variety of ways: through public-private partnerships, joint ventures, concessions and the sale of non-core assets.
“Business would like a clear statement that [the] government intends to sell off SOEs, which sends a signal that it believes the free market system can work. By announcing that it is not doing this, [the] government is sending the wrong signal.”
Ebrahim-Khalil Hassen, head of public sector research at the National Labour and Economic Development Institute, said Erwin’s statement was good news for labour and business. “Of course, there will be disappointment among those in the business sector who stand to lose out on potential transactions, but for customers of SOEs this is good news.
“On the energy side, South Africa has the third cheapest electricity in the world and we want to maintain that competitive advantage. On the rail transport side, we need to start investing again in infrastructure and there is a consensus that if [the] government invests, business will follow.”
Independent economist Iraj Abedian said there was a growing realisation that aggressive privatisation of the kind pursued by former British prime minister Margaret Thatcher can be damaging to the economy. Without the appropriate regulatory framework, the government ran the risk of turning a public monopoly into a private one without external monitoring of quality standards and price restraint.
“What Erwin is saying is that running a modern economy is not a simple choice of privatisation versus nationalisation. Between these two choices there is a grey area that leaves space for private participation in a variety of ways other than privatisation.”
Privatisation of rail services in the United Kingdom resulted in under-investment and service cutbacks by the new shareholders in an effort to maximise profits. Few of the promised cost or service benefits materialised.
The body count of failed privatisation ventures elsewhere in the world, and one or two in South Africa, seems to have prompted a government rethink. Erwin said the private sector profit motive could not always be fully reconciled with the wider public good, and public sector management needed to balance these competing motives.
Erwin’s statement comes just a week after Telkom announced a 177% leap in profits for the current financial year. The utility was criticised for profiteering under monopoly conditions while shedding thousands of jobs.
The government intends to make greater use of initial public offerings (IPOs) of shares in state-owned enterprises, as happened with Telkom last year. Cosatu said it was alarmed at this statement as the Telkom IPO had been accompanied by a haemorrhaging of jobs and three-quarters of new phone lines had to be disconnected because they were too expensive for the poor.
The government’s target was to boost employment in the economy, though not necessarily in particular SOEs. It would in future focus on raising skills levels and “greater representivity in employment” in state companies.
Jane Barrett, policy research officer at the South African Transport and Allied Workers Union, says a troubling aspect of Erwin’s statement was the reference to core and non-core assets. “It’s still unclear what [the] government means by non-core. There has never been any discussion with us on this.”
This distinction between core and non-core assets had been used to unilaterally privatise vital operations that enhance the efficiency of state enterprises, added Craven.
Barrett said there might be a role for public-private partnerships, but the restructuring of SOEs needed to be tackled on a case-by-case, problem-solving basis. “If the problem is efficiency, then that’s what must be addressed. If it’s a question of investment, that must be tackled as a separate issue.”
Public vs private
One of the complexities bedevilling the privatisation debate between the union movement and the government is their respective definitions of privatisation.
The government appears to use a narrow definition — the sale of all, or a majority of shares in a state enterprise.
A Congress of South African Trade Unions document tabled at the National Economic Development and Labour Council in 2001 gives a wider definition, including:
The partial sale of a state asset;
Commercialisation or corporatisation of a state asset, where the asset stays in state hands but is run like a private company;
Private-public partnerships, already established in some municipalities in respect of water provision;
Concessioning of state assets to a private operator on a management contract. The state plans this in the Durban container port;
The introduction of private competition to a state monopoly. The state is planning this in the area of electricity generation.
Cosatu has, however, made it clear that it opposes privatisation only of “strategic” state enterprises providing basic services to poor people, including electricity, public transport, water and telephones. — Drew Forrest