Short Note 18 July 2014 Privatising SA anew by Cees Bruggemans words 660 Privatisation. It is an old idea that was very new when injected into the SA of the 1990s. It could be making a comeback, via the back door so to speak. Dire necessity may be doing most of the driving as politically there is little appetite. But do we actually have much choice, especially in specific areas? Privatisation has been present in a growing guise these past two decades in response to a failing state. Health care, personal security and education are most noteworthy, with quoted companies today in the forefront of offering quality care, safety and schooling for those able to circumvent the states increasingly poor offerings. Despite egalitarian resistance, these tendencies are likely to still intensify, especially in schooling, in direct response to the growing state failure, not only in providing quality education, but also inducing slower economic development, greater labour market distortions and hiring practices, placing an ever greater premium on quality education. Such social delivery competition may be about to see another plank of strategic privatisation added to our daily reality. It concerns pure finance. Sheer mismanagement at key state owned enterprises these past twenty years, along with the condition the country finds itself in generally, foreclosing on the overall state finances, has created a squeeze that is steadily getting critical. Key areas such as electricity supply (Eskom) and air travel (SAA) are finding that past misadventures have weakened their business models, balance sheets and cash flows. Though still going concerns, these entities are not generating enough surpluses to sustain their capital budgets in the longer term. And the longer term has increasingly become short term as replacement delays are no longer feasible, at a time when the state has itself run out of runway too, and simply no longer in a position to be generous with either regulated tariff increases (market resisted), direct capital injections (limited budget space), limited means to provide debt guarantees (burdening its own creditworthiness) or loading the taxpayer (caution about deepening disincentives and tax revolt). We arent quite there yet, though in some instances very close, where all windows have closed and one obvious option remains. Selling existing assets, and/or allow greater market share penetration to invading private operators. Eskom is a case in point. A projected cash flow shortfall of well over R200bn, an unsympathetic regulator (one hopes, for how high do we really want to push tariffs, destabilizing our economic structure?), a state self-preoccupied with its own budgets, debt levels, taxpayer revolts and hawklike rating agencies in attendance, and an underperforming economy making all these performance metrics steadily worse. Apparently, Eskom is contemplating selling assets (power stations?) in order to augment its future cash flows and stay in the game. Doing so would accelerate the stake of private electricity supply in the overall context. This would be no unwelcome development if it were to bring greater efficiency, cost control and stabilisation of supply. Something similar appears to be facing SAA. To the uninformed eye they manage a fleet of well-maintained aircraft but apparently balloons have been floated for R60bn of new state capital injection to fund fleet replacement purchases. In a R4 trillion economy it shouldnt be too difficult to find R60bn amortized over 10 or 20 years. But apparently it is. Seeing the national carrier go one day may be mourned by some, yet this has happened all over the world. We are no exception if not managing these state assets more properly. More of these examples probably abound, small and large. It indicates a failing economic performance and the state not coping as it once did. What is needed is better performance through better management of the wider economy and better management of state owned enterprises. We are struggling to do so on both fronts. For which reason more privatisation beckons, or alternatively ideological driven power blackouts and possibly other disasters. Cees Bruggemans Consulting Economist Bruggemans & Associates Website bruggemans.co.za Email [email protected] Twitter @ceesbruggemans LinkedLn
Posted on: Fri, 18 Jul 2014 08:45:16 +0000
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