STUART THEOBALD: Government’s exit from vital sectors shatters taboos

The government’s exit from important economic sectors is a runaway train crashing through taboos at an accelerating rate. The “developmental state” model propounded by the past two administrations, which envisages the government directly driving the economy, is collapsing around us.

By default, we are turning into an economy driven far more by the private sector than before.

SAA is still in business rescue. The Post Office is in provisional liquidation and likely to be put into business rescue shortly. The SABC, which is about to announce a R1bn loss for its last financial year, is on the verge of business rescue too. There are others in just as dire a position, such as Denel, the Nuclear Energy Corporation of SA, SA Express Airways, Alexkor and more.

It is hard to know just how many of the 700 state-owned enterprises (SOEs) are sustainable. Of the 20 reviewed by the auditor-general, just two received clean audits: the Development Bank of Southern Africa and Land Bank, though the latter defaulted on its debt obligations and is still reporting losses. Nine more were unqualified but with findings, including the SA Forestry Company (Safcol) which is a rare beacon of profitability in the state sector.

Among the universe of SOEs, only Telkom, which is listed with the state as a minority shareholder, has consistently contributed dividends to the national fiscus.

The two behemoths that are too big to fail, Eskom and Transnet, are also retreating gradually from their marketplaces. Eskom is now just one electricity producer among many.

In the past year, new projects adding up to 4,000MW have been registered with the National Electricity Regulator of SA, which when on stream will add to 10,700MW procured through the independent power producers’ programme, some of which is still to come on stream. As it stands, at midday on a typical day when solar is contributing, private providers are generating about 4,000MW for the grid while Eskom’s traditional coal and nuclear output adds up to 21,000MW. The trend has been in favour of independent producers and is very much set to remain so.

Transnet is trending towards increased private sector involvement as it faces up to it not having the capital or operating expertise to manage its ports and rail. Alarm bells have been ringing loudly about the sharp deterioration in the performance of rail, which has meant big losses in sales for mining companies, and the woefully uncompetitive state of our ports. In both, Transnet is making steps towards concessioning out operations.

Calamitous exit

This cannot be called privatisation, as no state asset has moved into private hands. Rather this is a calamitous exit of the state from various industries it previously operated in. Privatisation would, in retrospect, have generated far more value for the state while the assets it operated were still worth something. This exit might have happened much sooner, but the government has been content to continue pumping funding into the unprofitable businesses, despite the damage done to the national balance sheet in the process. The change has not been one of ideology, but of necessity. If the government did not close the taps, the whole state would have ended up in default, resulting in a crisis that would have handed sovereignty to our lenders.

The largely unmanaged and chaotic exit also means the cost to the economy is much higher than it could have been. Electricity, for example, was meant to have been restructured two decades ago, in a way that would have optimised transition to a mixed and competitive industry. Instead, it is happening with huge collateral damage to the economy in the form of load-shedding. The Post Office, too, should have years ago been stripped of its legislated monopoly to deliver all packages of under 1kg, and is now collapsing with, in theory, no competitor to step into the breach (though in reality, couriers are doing many deliveries that breach the legislation). At least the collapse of SAA could pass almost unnoticed by those trying to get a flight.

It is also, however, with a high cost to social services. Many SOEs (SAA most obviously) had no reason to exist from a public service perspective. But the Post Office and SABC play an important role in reaching all parts of the country, through postal distribution and the airwaves. The SABC continues to have by far the biggest audience in the country and carries great responsibility to educate and inform us all. The collapse of these two institutions in particular will harm our democracy and the ability of our people to participate in it.

However, while the change has been unmanaged and calamitous, the result is an economy with the potential to be far more competitive than ever before. The electricity system that is gradually taking shape, is going to have multiple generators competing to sell electricity into the grid, which will result in the end of spiralling tariffs and restore energy security. The same is happening more slowly in logistics. In the long run, we will be better off for it.

What we really need, though, is a government that has not ended up in this position by default and against its ideology. What we need is a government committed to making it work effectively and regulating it accordingly.

Stuart Theobald is chair of Krutham.

This article first appeared in Business Day