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State owned enterprises shouldn’t be used as pawns in South African politics

South Africa’s finance minister, Malusi Gigaba, has had to look towards selling off state owned assets to plug a fiscal hole. REUTERS/Rogan Ward

State owned enterprises are vital to many economies, but are particularly vital to those seeking economic development.

This is true in South Africa too. Which makes it odd that the South African government – and much of the policy debate – never sees any value in trying to work out what role they should play in growth and development.

Finance Minister Malusi Gigaba’s interest in selling off government shares in telecommunications group Telkom, to bail out South African Airways is the latest example of a trend in which state owned enterprises are seen as useful pawns in government plans but not as national assets whose use should be thought through carefully.

The importance of South African state owned enterprises was spelled out in a 2015 Organisation for Economic Cooperation and Development policy brief. It estimated that their revenues correspond to 8.7% of the country’s gross domestic product. They also, it found, play a vital role in providing services:

The population’s access to water, electricity, sanitation and transportation is almost entirely dependent on the state, operating through corporate vehicles. They are concentrated in strategic sectors – infrastructure, transport, energy and water – and are “among the main sources of employment” in cities.

The Organisation for Economic Cooperation and Development might also have mentioned that State owned enterprises are also a key source of racial change. According to the 2016/17 report of the Commission for Employment Equity, black people occupy just under 75% of top management jobs in state owned enterprises – black Africans 57%. In the private sector, the figure is 24.5 % - only 10.8% are black African.

Given this, one might expect that the government would make it a priority to work out what the most appropriate role for parastatals is in the economy’s development. But it isn’t a priority – nor has it ever been.

Rule of short termism

State owned enterprises have been seen as a route to private investment, enrichment for the connected or a site for political battles but never as a key element in the development mix.

In fairness, private interests have shown no great interest in debating the role of state owned enterprises either. They have preferred taking sweeping positions for or against privatisation. But, given state owned enterprise’s role in governance, government should take the lead in thinking through what State owned enterprises should do.

The reality is different. Gigaba’s interest in selling off government holdings in state owned enterprises has much more to do with pressures for patronage than placing privatisation back on the agenda some 15 years after president Thabo Mbeki was forced to ditch it. It would be a strange turn if appeasing demands for public money revives a market friendly option which Mbeki had to abandon. And it certainly would not suggest a government committed to finding a development role for state owned enterprises.

It seems that the Mbeki government wanted to sell off shares in state owned enterprises not because it had a considered view that this would achieve the goals parastatals were designed to serve. The motive, rather, seemed to be to enhance private investor confidence and state revenues. Many might support these goals. But neither has to do with a long-term view on the contribution these enterprises could make to the economy.

A balancing act

Nor has Gigaba revived privatisation because he and his advisors have thought through the role for state owned enterprises which his predecessors ignored. He is, rather, trying to balance the two pressures he has faced since he became minister earlier this year.

On the one hand, he does not want to become the latest finance minister to face pressure for not giving a state owned enterprise what it needs. On the other, he does not want to preside over a second round of rating downgrades because he spent money the government did not have. The only way to square the circle is to sell off shares in one state owned enterprise (Telkom) to pay for the bailout in another, South African Airways. The government’s stake in Telkom is over 39%.

It’s hard to see how this strategy is sustainable. The South African Airways bailout request will not be the last. And it’s clearly not workable to keep on selling off national assets whenever state owned enterprises want cash injections.

Nor is this likely to protect the minister from political flak. There is sure to be principled opposition to the strategy and patronage politicians will also notice that the prospective piggy bank is being sold off and will rebel.

But even if Gigaba does manage to bring off the trick, it’s obvious that this move has everything to do with balancing political pressures and nothing to do with a development strategy.

Between Mbeki’s strategic retreat and Gigaba’s strategic balancing act, state owned enterprises have not been quiet backwaters. They have been, and still are, key battlegrounds in the war between the ruling party factions as officials and politicians in its patronage group try to turn them into vehicles for making deals and accumulating goodies while their opponents try to stop them.

Lately, this battle has been played out in parliament – first over the South African Broadcasting Corporation, now over state owned power utility Eskom. South African Airways has been a battleground throughout and other state owned enterprises have been quieter sites of conflict.

Economy pays the price

This trench warfare, in which both factions seeking control of the ANC make gains after pitched battles but neither ever wins the war, may shape the future of the ANC and government’s role in the economy. But again, the issue here is a political fight for power, not considered positions on the role of state owned enterprises.

The economy pays an obvious price for this failure to care about their development role – missed opportunities for growth and the exclusion of many who go without wages and salaries. But, given the factionalised nature of politics, which is likely to continue, it is unrealistic to expect serious thinking from the politicians on the role that state owned enterprises can play in growth and inclusion.

This makes it urgent that private interests take this issue much more seriously, replacing the stereotyped debate with considered proposals for change. State owned enterprises are too important to be relegated to pieces on a chessboard. But nothing is likely to change until everyone with an interest in the economy’s future develops ideas on how state owned enterprises fit in and presses politicians to take notice.

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