Look at all sides of privatisation before we go jumping in

Often held up as the panacea to the country’s fiscal and structural woes is the idea of privatising some ailing state-owned enterprises that hang like albatrosses around the neck of its prospects. It’s rather tempting, isn’t it, when one considers the past decade of corporate governance collapse and corruption at virtually every single public-owned entity. The rot is so very deep and so much of our own doing that in some corridors the only real fix being contemplated is for South Africa to follow the course charted by Margaret Thatcher almost 40 years ago in the UK. When she came to power in 1979, privatisation was just a minor part of her Conservative Party’s manifesto, but by the end of her term in 1990 it was the central ideology. About 40 companies in factories, steel, transport, aerospace, gas, electricity, telecoms and even water were privatised.

Even after Thatcher’s time, the Labour governments of Tony Blair and Gordon Brown continued much in the same vein, even though it didn’t really fit into their core ideologies.

Looking at the state of our own state-owned utilities — such as Eskom, this week once again downgraded by a ratings agency, and SAA, on yet another turnaround plan — it does seem we’ve reached that point where policy makers are going to have to consider the merits of another round of privatisation.

It’s a subject that I’d rather have us consider soberly, without the political rhetoric that normally accompanies it. We should never find ourselves in a position where a Washington-based IMF suit is determining the future course of our utilities.

I’m not a proponent of a fire sale of all state-owned assets because of the structural faultlines in the economy. Some, such as Eskom, are open to partial privatisation, I suppose, but to simply take a public monopoly and shift it into private hands would be just as disastrous.

One of the big failures of early privatisation was the creation of

ArcelorMittal South Africa out of state-owned Iscor. All that happened was a monopoly being moved into the hands of Lakshmi Mittal, one of the world’s richest men. There was no benefit to any miner or construction firm, no cheaper steel as prices were determined against international benchmarks. This was the case despite a very beneficial deal with the Anglo Americanowned Kumba Iron Ore, through which the steelmaker got its chief ingredient at cost price plus 3%.

It seems in striking that deal there literally was no objective to ensure the country benefited from cheap steel produced by Mittal. That would have gone a long way in helping South Africa reap greater benefits from the Chinese-inspired super commodity cycle of years past.

After this bad experiment, there were some better examples, although their starts remained less than stellar. Here I am talking about Telkom, which floundered for much of its early years as a listed company but found steadier days when the government took a far greater back-seat role.

In our privatisation talks we are going to have to consider what the strategic importance of each asset will be to the country’s long-term prospects. Will SAA remain a burden to taxpayers; can it in years to come prove beneficial to our competitiveness in the region? In this case, the government should replicate the Telkom model — well, once it’s on solid ground, fingers crossed.

Along with the question of land, the future of our state assets should be considered without the rhetoric from a bygone era, and from both extremes. It may go against the concept of a developmental state, but one should be wary of governments that marry themselves to any one ideology. I’d rather have one that from time to time reviews its position. A review of our assets is necessary, and that’s not in any way to follow the extremes of Thatcher’s path, the outcomes of which are also in question.

One big failure in SA of early privatisation was creating ArcelorMittal