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Electricity pylons carry power from Cape Town's Koeberg nuclear power plant July 17, 2009. (Picture by REUTERS/Mike Hutchings (SOUTH AFRICA ENERGY BUSINESS))

Government is unwilling to privatise state-owned enterprises (SOEs) because it believes that owning these companies gives government, and South Africa by extension, a strategic advantage.

In other words, government thinks that by owning these companies it can achieve some predetermined goal that would otherwise be unachievable.

That is simply not true. I could put that in stronger terms, but I do not discuss bovine digestion in polite company.

Firstly, by taking as a starting point the goal of improving the quality of life of each person and freeing their potential (as in the preamble of the Constitution) and how this might be interpreted by a socialist-leaning government, it is clear that owning companies that require billions in extra tax revenue taken from productive citizens does not improve anyone’s quality of life. These companies have consistently displayed a lack of improvement; and this money could be better spent on education, healthcare, and the various welfare cash grants etc. Only the quality of life of people like Dudu Myeni, Anoj Singh and various associates of Jacob Zuma is improved, but I don’t think the writers of the Constitution only had them in mind.

‘Ah’, you say, ‘they clearly said strategic and therefore we must judge this improvement over a longer time period.’

Okay; let’s do that.

If we consider that SOEs are likely to precipitate future tax increases, we see that the only way we can construe this refusal to sell non-performing assets as being strategic is if the companies in question somehow add more money to the pockets of South Africans than would be taken by these tax increases. There are two ways these companies could do this in the future: Either directly through the profit they generate and government distributes to citizens, or indirectly by making such brilliant investments that more value is generated and the economy grows faster than it would have otherwise.

The first scenario can be dismissed immediately. If SOEs were going to turn a profit in the future under economic conditions as yet unknown, what’s stopping them from doing so in the present with conditions that are much better understood? What new thinking has the government suddenly developed that they had no access to in the past? In doing the cost-benefit analysis in terms of the metric we’re using, what case have they demonstrated for the aforementioned risk of tax increases being outweighed by the expected value of future profits? If government had new ideas, we would know about them because of the oversight mechanisms of the Constitution and our government’s inability to keep secrets.

I think it’s safe to assume that government has no new ideas for making these companies profitable enough that we should be expecting profits to outweigh what they have already cost us, never mind what they’re going to cost us tomorrow.

What about the second scenario?

Is it possible that, even though these companies are unlikely to be profitable anytime soon, they’ll somehow still add value to the economy through the investments they make or, alternatively, the operations they undertake? Making good enough investments to add value to the economy requires the same ability to interpret market information that profitability requires, so if you can’t become profitable yourself (they have profitability as one of their stated goals) on what basis would you be able to make profit for others?

Maybe the operations these companies undertake represent a public good?

Even though they won’t positively affect SA’s economic performance through their investments, they might do so by providing goods or services to the South African economy that no one else is willing or able to provide and which in the absence of these state-owned enterprises would represent an added cost to the economy far outweighing the cost of taxing us to prop them up.

Again, this is untrue.

Let’s take Eskom, for instance. If Eskom is the only company willing and able to provide affordable electricity to the SA economy, why does government insist on maintaining their monopoly? As for price, when we had load shedding, being sold electricity at a price higher than the Eskom/NERSA price would surely have been worth it for some people, instead of having no electricity?

The truth is that when it comes to state-owned enterprises, government is showing every sign of what’s called the sunk cost fallacy. They made a political decision to keep pouring money into these companies and, because selling them now would require admitting their mistake, they double down on failures instead, even if it contradicts their own objectives (which I don’t agree with).

Prepare to be stuck with these lemons, barring a massive attack of voter common sense in the near future.

  • Erich Georg Kohlhöfer

    Who do these assets belong to and who gives the state the right to sell
    them? Don’t the present owners i.e. the tax payers have a say in this?

    • Mpiyakhe Dhlamini

      The taxpayers are not the owners, it’s not like taxpayers can call a meeting and vote to sell them. There’s no ownership if you don’t control something, the owners are currently politicians for all intents and purposes, that’s why they feel they can use them to transfer money they stole from you to the Guptas. Never mind the other aspects mentioned in the article like the ticking debt time-bomb that may precipitate further taxes being levied on all taxpayers.

  • Harald Sitta

    Mismanagement is not the privilege of SOE.Also private enterprises can be mismanaged.BUT the punishment for that comes quick. IN SOU there is nether a punishment for those who make the wrong decisions. To the contrary, the ones who are punished are taxpayers and workers.