South Africa’s economic situation is one that has been subject to extensive political debate of late. The 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 center 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 privatization of state-controlled assets and market orientated developmental strategies are the direction South Africa must take to ensure job creation, stabilize of our SOE’s and grow our economy. Contrary to this is the belief that economic development that is guided by the state, where sovereignty and the control of key sectors of the economy and wealth of the country is the formula to ensure a growing economy.

Much has been said by the proponents of privatization 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 privatization 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 privatization is a recipe for failure. Further to that, it will outline the domestic consequences to privatization, and provide a decisive way forward to the economic crisis facing our nation today. 

The first case study that gives us a brief insight on how disastrous privatization 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 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 political motive to privatize rather than rational for privatization 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 privatization was inexplicably presented as an anti-thesis to corruption and dysfunctionality.

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 to the ground, milking as much profit as possible at the expense of development. 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 what are the similarities in terms of conditions in South Africa, the character of capital and the legitimacy of auctioning and privatization process? 

For one, the process of auctioning shares in State-Owned Enterprises has already begun and has been characterized 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 (IPP’S) that are making bids to provide energy for the power utility 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 IPP’s, while required by NERSA to sell it at R0.9c per kWh. An inexplicable dynamic which simply means that IPP’s 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 purchase 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 setup 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.

The question then becomes 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 dysfunctionality 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 privatization 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 both economically and politically, and models that have shown sovereign economic growth. 

Nations such as 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, characterized 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. 

Today China is an economic powerhouse and Singapore is a model of modern transition from being a developmental state to a developed one. These are nations that should inspire South Africa’s political economy. 

There are persuasive strategies to ailing the decline of economic growth in South Africa and revitalizing our State-Owned Enterprises. In the case of Eskom as an example the Economic Freedom Fighters has suggested various strategies most notably the appointment of a capable permanent board of relevant experts in various fields, massive investment in renewable energy projects including wind, solar and water and the diversification of shareholder representation at the level of the state to ensure coherent and ethical oversight.

Further proposals which are in line with state guided methods of inward industrial development and economic growth the party has suggested are the establishment of a state-owned housing construction company, a state owned roads construction company, state-owned cement company, various state-owned banks, a state-owned pharmaceutical company, a state-owned healthcare equipment company, a state-owned mining company and a state-owned food stocking company. 

The sovereign economic growth to be reaped from such businesses, coupled with the necessary interventions in existing SOE’s is what South Africa needs for economic recovery.

The quick fix strategy of privatization is bound to fail in South Africa. This is a statement based on comparative analysis of nations that have been in transition, be it economically or politically. It is a known fact that the South African economy has not transitioned from its Apartheid character, which was a centrally planned economy and welfare state for a white minority. This lack of transition speaks not only to ownership patterns, but developmental indicators which prove that economic prosperity in South Africa is an experience of the few. To privatize further, in light of this reality of the concentration of our economy is simply madness.

Our economy requires guided intervention and decisive strategies. These strategies must nurture our country towards a transition to a socialist-orientated economy. These strategies must be people orientated, and not profit orientated. Privatization serves the interests of the latter, as business men and capital have no social responsibility to develop a nation and the inhabitants of it 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