South Africa urgently needs privatisation for economic revival

In South Africa, a prevailing narrative within the government vilifies the private sector, opting for state-led economic development. Minister Khumbudzo Ntshavheni accused the private sector of hindering progress. However, the root cause of issues lies in government mismanagement, hindering private enterprises. Privatisation is the solution, offering lower spending, efficiency, and accountability. Unleashing the private sector on entities like Eskom, Transnet, and SABC can revitalize infrastructure, eliminate delays, and foster competitiveness, fostering a path to recovery for South Africa.

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Privatisation necessary to kick-start SA’s recovery

By Nicholas Woode-Smith*

The overwhelming belief across the South African government and prominent political parties seems to be that the private sector is bad, and that economic development should be state-led and, as much as possible, centrally planned.

Recently, the Minister in the Presidency, Khumbudzo Ntshavheni even claimed that the private sector “has no interest in developing the country” and “wants to collapse the government.”

This is dangerous rhetoric, and typical of a failing power wanting to throw blame at anyone to avoid accountability.

The truth of the matter in South Africa is that the government is the fundamental cause of most of our problems. Either because they aren’t taking the correct action to fix the issues plaguing our society, or that they are exacerbating them with ill-considered policies, sabotage, and corruption. More and more, the latter is becoming the case.

The private sector is actively impeded by the government, regulated into obscurity, sabotaged by racial quotas and political appointments (masquerading as BEE partners), or crushed by greedy unions with political backing.

All the while, state-owned enterprises run the country into the ground. Eskom continually fails to expand electricity production, while the grid itself decays, and municipalities fail to collect payments necessary to fund the parastatal. Transnet has overseen the demise of our infrastructure, causing catastrophic shipping blockages and railway collapses.

This is not to mention the SABC, which has actively lobbied to regulate and destroy streaming services because it can’t keep up with the times.

There are cavalcades of state-owned enterprises in South Africa. A handful function fine. But the most important perform their services inadequately, dangerously incompetently, and at the expense of the taxpayer.

And the solution to this problem is a process of privatisation that will have tangible and marked benefits for South African citizens.

Virtues of privatisation

Across the board, privatisation will mean lower government spending, which will allow for a more responsible budget that can either redirect funds to more important projects (like policing) or ease the burden on the taxpayer. The funds made from selling off state-owned enterprises can also go a long way towards debt repayment.

But ridding the budget of these costly entities isn’t the only benefit of privatisation. The private sector inherently performs better than government-owned businesses. Without getting too bogged down in the economics, private enterprises have three things that the government does not: proper incentives, access to market signals, and accountability.

If a private sector business fails to perform well, it makes a loss. If it does well, it profits. When a state-owned company performs badly, it gets subsidies and more money. This is a perverse incentive for government that rewards failure. Private sector businesses have to do a good job, or they fail

The private sector also has access to market signals. These are pieces of information that come in many forms, like rising prices, supply-chain shortages, skill-shortages, and so forth, that help businesses make informed and good decisions. The government tends to lack these, as they do not have to worry about supply or skill shortages, and muddles along with inadequate physical and human resources. The government only ultimately cares about electoral outcomes.

Finally, businesses are easier to hold accountable. If a business is competent or makes bad decisions, consumers will stop supporting it. They will lose money and then bankruptcy threatens. And if they fail and close down, this is sad for them, but ultimately doesn’t hurt the consumer – as a competitor will form to fill in the gap. Competition keeps businesses accountable and forces them to keep performing better and better.

How can privatisation fix South Africa?

It is clear that anything the South African government manages turns into a corruption-laden, incompetent cesspool that can’t fulfil a basic task. So the solution is to rid the government of as many of its ostensible responsibilities as possible.

Eskom has already had its burdens eased by allowing an increasing number of micro-generators to feed into the grid. But even this is not sufficient. Eskom needs to be unbundled and its assets sold to as many responsible, competent private sector businesses as possible. Additionally, regulations must change to allow the complete privatisation of the electricity industry, and to allow competitors that will hold each other accountable.

With a vibrant private electricity industry, there will be no more risk of grid collapse. Companies will be incentivised to produce electricity reliably or go bankrupt. Loadshedding will become a thing of the past.

The same must happen to Transnet. Our infrastructure is far too important to leave in the hands of corrupt cadres now. Ports and railways need to be sold to private companies, and the responsibilities of Transnet must be outsourced to the private sector as much as possible – if not completely taken over.

The shipping delays will ease and disappear as the private sector fixes supply blockages and expands infrastructure, as it is within their interest to process as many containers as possible to get paid. This will lower prices across the board for consumers, and lead to becoming a globally competitive shipping destination.

SABC, and others like SAA, are easy to privatise, as they aren’t performing a public good. SABC should be privatised and forced to compete with the more dynamic private sector. Either they perform well, and the privatisation proves successful, or they fail,, which would also be good, as we shouldn’t be propping up failing enterprises that would collapse without parasitising the taxpayer. The same goes for SAA – government has no business running an airline. The private sector fulfils that task admirably already.

Privatisation doesn’t only save money – it also leads to competence and sustainability. The sooner we privatise more and more of the government’s functions and its failing state-owned enterprises, the faster we’ll be able to start our path to recovery.

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*Nicholas Woode-Smith, an author, economic historian and political analyst, is a contributing author for the Free Market Foundation. He writes in his personal capacity.