Guest Column

OPINION: SOE's must stay state-controlled and out of the hands of business

2020-01-28 14:06
Uncertainty over the future of SOE's continues, as the state battles to keep the lights on at Eskom and SAA. The writer argues that it would be a grave mistake to privatise.  (iStock)

Uncertainty over the future of SOE's continues, as the state battles to keep the lights on at Eskom and SAA. The writer argues that it would be a grave mistake to privatise. (iStock)

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The country currently loses billions of rands through tax evasion, profit shifting and base erosion by the very private sector some seek to entrust with the economic development of our country, writes Sinawo Thambo

South Africa's economic situation is one that has been subject to extensive political debate of late.

High levels of unemployment and the regressive rate of economic growth has left many political commentators speculating on the economic fate of our nation and whether there are effective strategies to improve the situation.

At the centre of the debate on how to stimulate our economy and encourage developmental growth is South Africa's State-Owned Enterprises and key sectors of the economy such as land, banks and mines.

There are two sides of the debate around how to develop our economy.

On the one hand there is the belief that the privatisation of state-controlled assets and market-orientated developmental strategies are the direction South Africa must take to ensure job creation, stabilise our SOE’s and grow our economy.

Contrary to this is the belief that economic development be guided by the state - where sovereignty and the control of key sectors of the economy and wealth of the country are regarded as the formula to ensuring a growing economy.

Much has been said by the proponents of privatisation, that those who wish to build sovereign economic growth, and are against sacrificing the wealth and developmental aspirations of the nation to business are not producing sound arguments.

It is said that those who are against privatisation are in the business of narrative formulation and rhetoric, rather than providing sustainable solutions and objective critique.

This piece will therefore illustrate through the use of comparative case study why privatisation is a recipe for failure.

Further to that, it will outline the domestic consequences to privatisation, and provide a decisive way forward to the economic crisis facing our nation today.

READ | Mcebo Damini: Privatisation of SOEs will make poor black people poorer

The first case study that gives us a brief insight on how disastrous privatisation is as an economic growth model is post-Soviet Union Russia.

Emerging from a Cold War with nations fundamentally opposed to Communism and all its economic models, the Soviet Union had spent an incredible amount of money funding proxy wars and sustaining nations under its rule.

Competing in a global capitalist market proved difficult, and developmental initiatives were hampered by slow economic growth and collapsing industry.

The era post the collapse of the Soviet Union was one where economic recovery was paramount.

Perhaps more importantly, emphasis was placed on transitioning from the previously centrally controlled economy to a market economy, with little reflection as to what caused the failure of the centrally planned economy in the first place.

This reveals to us a political motive to privatise rather than rationalise for privatisation as a superior economic model.

The underlying structural issues that created failure, be it corruption or the hostility of global capitalist markets to the political outlooks of Soviet Russia were not considered, and privatisation was inexplicably presented as an anti-thesis to corruption and dysfunction.

This of course proved to be incorrect.

Shares to strategic state-owned enterprises in the energy, railway and telecommunications sector were placed on auction and bought up by oligarchs and proxies of state officials.

The attempts to diversify ownership by distributing vouchers to the working class to purchase shares in SOE's failed as many ended up selling their stakes to big companies and state leaders in order to alleviate immediate poverty.

More pointedly, however, these companies failed to make profit due to insider dealing, tax evasion and false declaration of profits made by the various SOE’s under the control of private business.

The drastic decrease of government control over these SOE's, and lack of regulation over profit shifting and tax evasion meant oligarchs and large companies ran SOE's into the ground, milking as much profit as possible at the expense of development.

READ | Pragmatists versus idealists: How to revive broken SOEs

This all occurred without consequence and simply because of the belief that any form of private ownership is better than state control, an attitude that is prevailing in South Africa.

The question then becomes this: what are the similarities in terms of conditions in South Africa, the character of capital and the legitimacy of auctioning and the privatisation process?

For one, the process of auctioning shares in State-Owned Enterprises has already begun and has been characterised by corruption and overpricing.

Proxies of current leaders of the state in the form of business entities and family members have stakes in Independent Power Producers (IPPs) that are making bids to provide energy for Eskom.

This at the level of generation and maintenance.

This already means that there has been a failure to regulate the manipulation of state power in privileging entities in the bidding (auctioning) process.

The power utility pays over R2 per kWH for energy to IPPs, while required by NERSA to sell it at R0.9c per kWh.

An inexplicable dynamic which simply means that IPPs are overpricing the sale of electricity and the Power Purchase Agreements the state has entered with them are a sophisticated looting of our coffers.

South Africa currently loses billions of rands through tax evasion, profit shifting and base erosion by the very private sector some seek to entrust with the economic development of our country.

As it stands the Davis Tax Committee estimates that South Africa loses R50 billion yearly as a result of tax evasion, base erosion and profit shifting.

As recent as 2017 major banks in this country were implicated in what is said to be a collusion to manipulate the rand with major international banks and investment firms.

The Competition Commission found as recently as last year that the private health care sector was overpricing in terms of the services it provides and health care facilities were part and parcel of this manipulation of costs for usually unnecessary services.

The final similarity that requires decisive rejection is the process of providing vouchers to the citizenry as a form of ownership or purchasing power.

This can be likened to arguments domestically that in order for land reform to occur citizens must be given security of tenure through title deeds.

As seen in post-Soviet Union Russia, the poverty of our people makes them vulnerable when they are set up to participate in the broader economy without protection and adequate reform.

The concept of individual liberty in a free market which has concentrated wealth and expertise, while subjecting the majority of people to abject poverty is ridiculous.

People will understandably part with commodities or resources that require sophisticated management in order to cater for the immediate needs that arise from poverty.

They have been excluded from these forms of commerce, and the rich will duly take advantage of their poverty and amass more wealth. The concentration of land ownership will then continue.

READ: Magashule tells KZN's ANC Eskom won't be privatised 

So, if South Africa has failed to regulate the private sector in what is relatively a substantive legislative involvement in the control of business in the country, how effective will the state be in regulating the private sector when it is in control of strategic entities that contribute to the very livelihood of our nation?

To present the private sector as immune to corruption and dysfunction is a lie that must be exposed.

It is a lie based on optimism of good governance by business due to the motivation the private sector has to make profit.

The crucial mistake that this optimism makes is that it assumes that the thirst for profit accumulation is a thirst for collective benefit, that it is logical and sees beyond itself.

More often than not the thirst for profit overwhelms even those who are overcome by it, and is more rooted in personal interest than sustainability.

The argument against privatisation, however, does not mean that nothing must be done.

We must look into growth and developmental models that cater to our economic reality while considering the structurally impeding nature of our past.

This is to say that the economic models we fashion ourselves towards must be from nations with similar historical experience economically and politically, and models that have shown sovereign economic growth.

Singapore and China are ideal examples.

Modern Asia finds itself where it is today due to progressive inward industrial development and state control of key sectors of the economy.

Job creation was founded on sovereign production, the roll-out of free education and increased emphasis on vocational training of citizens.

The state, characterised by a hostility towards corruption remained the primary mediator of how these economies engaged with the global economy and it did not relinquish control of energy generation and the like to the private sector.

These nations did not rely on direct foreign investment as is suggested in South Africa, but set the terms for investment in their nations and maintained control of their industries.

A quick fix strategy of privatisation is bound to fail in South Africa.

Our economy requires guided intervention and decisive strategies which must nurture our country towards a transition to a socialist-orientated economy.

These strategies must be people orientated, and not profit orientated.

Privatisation serves the interests of the latter, as businesses and capital have no social responsibility to develop a nation and its people.

The priority will be a profit-based roll out of services which will be a disaster for South Africa.

- Sinawo Thambo is a member of the EFF's Central Command Team and a student at the University of Cape Town

Disclaimer: News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.  

Read more on:    privatisation  |  state owned enterprises
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