The most crit­i­cal job in SA: fix­ing Eskom

Sunday Times - - Business Times - By Ron Derby

We’ve all been in that de­bate, or at least heard it, the one where we all pon­tif­i­cate about the def­i­ni­tion of a healthy econ­omy. Is it one where the state acts as a stim­u­lant or one where there is a small gov­ern­ment that just sets the rules and lets en­trepreneurs and big busi­ness get on with driv­ing in­no­va­tion and mak­ing profit. Most of­ten used as the best ex­am­ple of cap­i­tal­ism is the emer­gence of Sil­i­con Val­ley in the US, where over the past decade the world of tech­nol­ogy has be­come the Master of the Uni­verse, re­plac­ing the Wall Street bankers. But it’s in­cor­rect to say that the emer­gence of tech­nol­ogy gi­ants such as Google and Face­book that have be­come this gen­er­a­tion’s ver­sion of John D Rock­e­feller’s Stan­dard Oil was achieved with­out any state spend­ing. The US gov­ern­ment was cen­tral to much of the re­search spend that en­abled the dom­i­na­tion of these com­pa­nies. The Chi­nese have fol­lowed that tem­plate and have seen their tech ti­tans rise and start to threaten Sil­i­con Val­ley’s supremacy.

One could go back in his­tory and find count­less other ex­am­ples of in­dus­tries that were stim­u­lated by gov­ern­ment spend. Toulouse in France is the cen­tre of global avi­a­tion, all achieved in a coun­try that’s long been crit­i­cised as hav­ing an over­bear­ing state. Again, China has em­u­lated this and will soon be a com­pet­ing cen­tre of avi­a­tion.

So the gov­ern­ment has a role, and quite a sig­nif­i­cant one, in at least es­tab­lish­ing an in­dus­try and leav­ing it to the pri­vate play­ers to ex­ploit the op­por­tu­nity. SA is a case in point with the es­tab­lish­ment of Eskom al­most 100 years ago, when the gov­ern­ment ap­pointed Dr Hen­drik

Jo­hannes van der Bijl to chair the com­pany. It trig­gered in­dus­tri­al­i­sa­tion in SA. To this day the com­pany is the mas­sive fac­tor in the com­pet­i­tive ad­van­tage that SA has over most of Sub-Sa­ha­ran Africa.

To­day, through poor pol­icy choices dur­ing the Thabo Mbeki era to the past decade’s crip­pling of gov­er­nance at the in­sti­tu­tion for ne­far­i­ous pur­poses, Eskom has shifted from be­ing an in­spi­ra­tion to the econ­omy to be­ing a mas­sive bur­den. It’s the back­bone of the econ­omy, and had the right pol­icy de­ci­sions been made over the past decade, no mat­ter how un­pop­u­lar, it would still be sin­gled out as a strength of the econ­omy, not its great­est risk, as was once again high­lighted by rat­ings agency S&P Global Rat­ings this week.

Sta­bil­is­ing Eskom is the most dif­fi­cult and im­por­tant job in SA. On our fee­ble growth, de­spite our emer­gence from a re­ces­sion this week, a CEO of one of the lead­ing banks con­sid­ered just how much the state of Eskom has fed into the real nuts and bolts of the econ­omy. If you were a man­ager re­spon­si­ble for any sort of spend in an in­sti­tu­tion such as Eskom, would you at this junc­ture be spend­ing on any­thing with­out vir­tu­ally en­sur­ing you have the sign-off of not only the board but the pub­lic en­ter­prises minister him­self? It makes ab­so­lute sense that there’s an is­sue with coal pro­cure­ment at the mo­ment. Now, if pro­cesses at Eskom, the sec­ond-big­gest com­pany in the coun­try, are frozen, there’s an im­pact on growth. This frozen state, as we are learn­ing from the Zondo com­mis­sion, among oth­ers, is, or rather should be, a symp­tom across all state-owned en­ter­prises such as SAA and the SABC.

The state makes up about a third of the South African econ­omy and if in its var­i­ous guises it is not pay­ing its bills on time to its sup­pli­ers in the pri­vate sec­tor, it tells a story of how de­pressed our growth prospects re­ally are. As we all fret about just where growth is go­ing to come from in an age where the knowl­edge econ­omy be­comes in­creas­ingly dom­i­nant, it’s in get­ting the state par­tic­i­pat­ing in a pos­i­tive and sus­tain­able form in the over­all econ­omy that ef­forts have to be con­cen­trated. Eskom is sup­posed to be a stim­u­lant of the South African econ­omy, an in­vestor in re­new­able en­ergy and other tech­nolo­gies, thereby keep­ing the coun­try mov­ing for­ward. Get­ting back into that po­si­tion is go­ing to re­quire the guts of France’s Em­manuel Macron, not nec­es­sar­ily the tac­tics.

If pro­cesses at Eskom are frozen, there’s an im­pact on growth

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