South Africa’s state-owned companies used to be a beacon of hope for the ANC-led government that wanted to right the socio-economic wrongs created by the country’s past apartheid policies. However, these entities have now become more often sources of economic gloom in a country that is still trying to find its feet more than 20 years after the first democratic elections of 1994.
These entities have failed to generate money for the government, which in effect means they have stifled the government’s hopes of turning around the lives of the poor and instead have become a channel for draining the state’s coffers.
Two of the more popular cases are that of power utility, Eskom, and flag carrier, South African Airways (SAA). This does not imply that these are the only ones that are troubled. In fact most of them except for the rail operator, Transnet, are troubled in a country once rated as Africa’s biggest economy.
Eskom, which is the country’s major power utility firm, is failing to keep the lights on, impacting the economy big time.
From the second half of last year, Eskom implemented a programme of rolling blackouts to reduce demand and stabilise the power grid. These power cuts were the first since 2008. Eskom said the blackouts were a result of a very tight power system. “This risk has increased significantly due to the heavy rains over the last few days and an increase in technical problems experienced at some of Eskom’s power stations,” Eskom told Reuters at the time.
But the underlying problem is the increasing maintenance needs and unplanned outages at Eskom’s aging power stations, which have cut the margin of spare generating capacity to critically low levels and left it unable to cope with further disruptions Reuters added.
In a bid to fix these problems, Eskom appointed a new CEO, Tshediso Matona, in September last year. But this week Matona and three other executives were suspended. The power firm said on Thursday that it had suspended Matona to clear the way for an upcoming inquiry. The probe is set to look at the poor performance of generation plants, delays in bringing the new generation plant on-stream, expensive primary energy and cash flow challenges.
The government has also said it needs R23 billion ($1.8 billion) to help Eskom out of its financial quagmire.
In addition, South Africa’s national flag carrier, the South African Airways, is stuck in management problems and has put a strain on the government’s finances. In the last year, the airline received more than R6 billion worth of funding from the government, just to remain in business.
The company recently suspended its CEO Monwabisi Kalawe following a disciplinary inquiry. It has asked for another government guarantee and has been forced to close down other routes that were not making money.
South Africa is now being persuaded to relinquish control of these companies and hand them over to private firm. This, many assume this will actually lift them out of the doldrums. But a privatization strategy, however, doesn’t always prove effective as it assumes that the private sector can fix these entities while also making profits.
Private companies are always on the lookout for effective ways of making profit, including cost-cutting measures like trimming its payroll and cutting jobs. But South Africa’s public service has one of the highest employment rates in the world. In fact it was once alleged that South Africa had more civil servants than the US, the world’s largest economy and six times the population of the African giant. Should private hands assume ownership of these ailing public businesses, an estimated 21 million jobs will be threatened. This could be an unwise move by a government that is under pressure to create jobs as the country’s unemployment rate stands at a little more than 24 percent.
The government should therefore keep these businesses, while finding an effective, long-lasting fix. Also, should the private sector fail to turnaround these businesses, the government will again be called in for a bailout, an approach that is expensive and usually ineffective.