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There is no denying that years of poor performance and inefficient operations by state-owned enterprises have led to increasing calls for the South African government to embrace privatisation as means of fostering economic growth, curtailing rising public expenditure and stabilising public finances.
At the medium term budget policy statement Finance Minister Tito Mboweni announced plans to restructure ailing state-owned entities and, since then, a host of voices supporting privatisation have gained prominence over those who oppose it (although the debate has largely been characterised by ideological sloganeering than evidence based pontification).
While South Africa is flirting with the prospect of privatising some of its state-owned entities, in England there is serious consideration for reversal of privatised industries, which doesn’t help the cause of privatisation in developing economies.
This is not only a debate in the abstract but compels the country to review the macroeconomic relevance of state-owned entities.
The precarious state of some of these entities has been well documented.
The real danger is found in their apparent inability to reorientate themselves on to a profitability path despite numerous government backed debt expansion which has led to unsustainable government debt levels.
In the context of discredited public ownership, many commentators with vested interests have punted privatisation as an alternative but fall short of demonstrating how privatisation of state assets will improve fortunes of these companies and by extension relieve the fiscus of the burden.
In South Africa there have been three interesting cases of privatisation – the privatisation of Steel manufacturer Iscor (1989, 2002), the privatisation of petrochemicals company Sasol (2000) and the partial privatisation of Telecoms company, Telkom (2002).
While all of these cases occurred under different circumstances, they all provide us with enough evidence to decide whether to privatise.
Furthermore, all three have had mixed outcomes with others more successful than others hence wholesale privatisation without consideration of sector specific peculiarities is likely to be disastrous.
While there is no denying the inefficient outcomes of state ownership as illustrated by the various bailouts needed to rescue state-owned entities, privatisation does not inherently offer better outcomes.
Telkom is a case in point. From a profitability perspective, Telkom appears to be doing well for its investors (profit maximising).
For users of its service the experience is different, with users beset by high data costs and cheap bandwidth being elusive in township and rural areas.
Therefore, profitability should not be the sole litmus test for privatisation.
The sale of Iscor presents another interesting case study. Iscor was established in 1929 with sole mandate of supporting colonial industrialisation.
The process to privatise it was initiated by the erstwhile apartheid government in 1989 and later unbundled and sold (2002) by the democratic government to Anglo American and the Mittal family.
This sale not only entrenched foreign ownership of key sectors of our economy but had an adverse effect on the entire steel value chain.
ArcelorMittal went on to sell steel to downstream domestic companies at a price equivalent to what it would sell to the international market, a process called import parity pricing.
This led to the unfortunate closure of many companies who could not afford the price of steel, leading to many job losses and accelerated de-industrialisation of our economy.
This experience shows while privatisation may work for investors, the experience for country can be the opposite.
The structure of the economy in 2018 is similar to that inherited in 1994. This has led to poor distributive outcomes (along class or race lines) and has reduced industrial performance at an aggregate level.
Therefore, any talk of restructuring state assets has to take place within the context of changing this path by reshaping structure and diversifying ownership and control of the economy.
Previous governments have supported privatisation in South Africa with the objectives of facilitating the promotion of black economic empowerment and promotion of skills transfer, however none of these objectives have been fulfilled.
This is illustrated by the sad case of Telkom which had a 3% shareholding by a BEE consortium (Ucingo).
Sadly, this consortium was forced to cede the stake to financers due to the inability to finance it at listing price levels.
While South Africa needs to have a serious debate about the future of state ownership, it ought to be more evidence based and less laden with ideological mudslinging.
The ultimate decision to experiment with privatisation should not only be based on a singular variable, which is profitability, but should also take into consideration other variables such as impact on value chains linked to that state-owned entity, market competition and socioeconomic effects of privatisation.
Without consideration of past experience, any new embrace of privatisation will ultimately lead to the same outcomes highlighted above.
Restructuring state-owned companies must be done with the aim of not only improving the profitability of these companies but with the long-term plan of achieving national objectives such as inclusive growth and changing ownership patterns of this economy.
• Hlumelo Ncopo is a master of commerce (local economic development) student at the University of KwaZulu-Natal
