Not a panacea for SA

2016-06-08 06:00
Unathi Henama- Social Obsever.

Unathi Henama- Social Obsever.

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THE recent lifting of the suspension of the South African Express airline was a perfect opportunity for the privatisation evangelists to play to the gallery.

The airline company was granted a precautionary suspension to comply with the necessary aviation regulations, yet failed in the interim to do so until suspension.

The call for privatisation was stirred up when the minister of Finance, Pravin Gordhan, during his budget speech indicated that South African Airways (SAA) and South African Express (SA Express) would be merged into one entity.

Privatisation is not a panacea to inefficiencies. The solution is governance and management.

For SAA and SA Express to succeed in their mandate, both need to have a strong management team and an effective and efficient board that has total shareholding support that is competent in aviation.

If privatisation were automatically successful, then private companies would never fail because they have a profit motive.

I hope the privatisation evangelists can tell us what happened to private companies such as Enron, Saambou Bank, African Bank and a plethora of airlines such as Velvet Sky, Sun Air, Skywise, 1Time and Interlink Airline.

In a paper titled What Washington Means by Policy Reform, John Williamson noted: “The main rationale for privatisation is the belief that private industry is managed more efficiently than state enterprises, because of the more direct incentives faced by a manager who either has a direct personal stake in the profits of an enterprise or else is accountable to those who do.”

My own view is that privatisation can be very constructive where it results in increased competition and useful where it eases fiscal pressures.

But I am not persuaded that public services are always inferior to private acquisitiveness as a motivating force.

The writings of Williamson would be immortalised as the “Washington Consensus’’.

South Africa’s own Growth, Employment and Redistribution (Gear) policy is a neo-liberal macro-economic policy that is in line with what the Washington Consensus prescribes.

Post 1994, South Africa did engage in some privatisation of state resources.

The classical example is that Iscor was sold to the Mittal family and this led the company applying import parity pricing, which meant they priced their steel locally at international prices, crippling the South African economy.

The experience of South Africa with privatisation has been very painful – hence the government has applied its mind to carefully understand that privatisation is not a panacea. Privatisation is the easiest means for asset transfer to the elitist class of society.

Williamson (2002), in a paper title Did the Washington Consensus Fail?, noted that “we have since been made very conscious that it matters a lot more how privatisation is done.

“It can be a highly corrupt process that transfers assets to a privileged elite for a fraction of their true value, but the evidence is that it brings benefits when done properly.”

Telkom was one of the first state-owned enterprises involved in partial privatisation through granting a private placement of shares to black South Africans through BEE shareholding and this culminated in the listing of Telkom on the Johannesburg Stock Exchange (JSE).

It was in deep trouble, until the South African government appointed a person who knew business, Jabu Mabuza, supported by a strong board, to rescue Telkom. The share price of Telkom has been one of the best performing for the past five years on the JSE following that critical decision.

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