South Africa’s Privatization Program: A Parting of the Ways?

By Scott B. MacDonald

TPrivatization is always a potentially contentious political issue. Any decision to sell state assets carries with it concerns over how such assets and the services they provide will be used. What kind of balance will be made between the public good and profits? This is clearly one of the key issues facing the government of President Thabo Mbeki of South Africa.

Since the apartheid era ended in the early 1990s, first the Mandela and then Mbeki government have followed prudent economic policies, including tight fiscal policies. As a result, the fiscal situation is well under control, stronger economic growth appears to be taking root, and inflation is low. Despite some tough challenges, the South African economy remains one of the powerhouses in Africa, with the best industrial infrastructure, most skilled work force and most sophisticated financial systems.

The soft underbelly for the South African economy is high unemployment (28.8% according to the IMF for 2001). Together with still considerable discrepancies between rich and poor, partially along racial lines, the issue of privatization is highly emotional in national politics. At the core of this issue is the question – will privatization entail greater unemployment as the private sector ownership seeks greater cost efficiency in a former public enterprise? The answer to this question has become a divisive issue between the ruling African National Congress (ANC) and two of its long-term allies in the struggle against apartheid – the South African Communist Party (SACP) and Cosatu, the country’s largest labor federation.

The government’s challenge is to maintain and strengthen economic growth, improve the standard of living and address social inequalities. To do this, it requires some degree of foreign investment. To attract foreign investment, the ANC has stepped away from its neo-Marxist roots and adopted a more pragmatic approach, part of which embraces privatization. Last year the government budgeted for $1.8 billion in privatization revenues, a clear sign that it expects to move forward on this issue. Although the process has been slow, the restructuring of public enterprises that was launched in 2000 is gaining momentum. Telkom, the state telecommunications company, is now expected to be divested by March 2003 and the restructuring of Denel, the state defense corporation, is well ahead of schedule.

Along side with the restructuring and sale of state enterprises (also referred to in South Africa as parastatals), amendments to the country’s labor legislation are about to come into law. These entail more flexible work practices and streamlined arbitration and conciliation procedures. While such advances may win accolades from foreign investors, South Africa’s private sector and the International Monetary Fund, they are becoming a bone of contention with the SACP and Cosatu, the latter of which has members in the government.

For the SACP and Cosatu, state-owned enterprises should be used to reverse the effects of apartheid by delivering affordable services to poor people. As a spokesman for the SACP stated in July: "The SACP calls for the retention of public ownership over parastatals and for them to be strongly aligned with functional government departments." The SACP is basically calling for the government to maintain control of large public corporations in order to redistribute the national wealth – or at least part of it. The Mbeki government raises the not inconsiderable issue of who will pay for it. The last thing South Africa needs is a substantial increase in state spending. Indeed, prudent fiscal policy has been a landmark of the two ANC administrations.

Cosatu is now threatening a two-day national strike in October to protest against possible job losses from privatization. In particular, the union accuses the government of having implemented macroeconomic policies that had destroyed employment and deepened poverty since 1994.

President Mbeki has responded to the attacks from SACP and Cosatu by maintaining his government’s policies and in late July by pulling out of the opening address of the SACP annual conference. The snub was intentional and related to the growing contention over privatization.

The privatization issue is a clear reflection that South African politics are entering a new era. The old parties of apartheid have largely been dismantled, while the opposition parties operate on the margin, appealing to a limited segment of the white, colored and Asian populations. In contrast, the ANC has largely represented the majority black population. Although the ANC’s roots were neo-Marxist, the party has steered a moderate and pragmatic course through difficult waters of the post-apartheid world. Despite many predictions that an ANC would be a disaster for the South African economy, the party of Mandela and Mbeki has pursued policies that are largely market-oriented.

Now, ideological differences are resurfacing within the ruling coalition, which could give rebirth to a right-left divide in South Africa, placing the majority of the ANC leadership on the center-right. The SACP and Cosatu are gradually evolving into a center-left opposition. The difficult task ahead is how the country’s political elite will manage those differences ahead of the next elections in 2004. In the year ahead, there will be ongoing pressure to move back from privatization. This will be a critical test for the Mbeki government. If Mbeki postpones the Telekom privatization, the center-left will be emboldened to go for greater clout in economic policymaking and that in turn could jeopardize the ability of South Africa to continue along a moderate and prudent path to sustainable economic growth, aided in part by foreign investment.