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Python in the Garden of Eden

Published Feb 13, 2014


Amid a rand that is hammered from one corner of the exchange rate boxing ring to another, calls for nationalisation in the build-up to the elections are regularly emanating from the EFF (Economic Freedom Fighters) and Numsa (National Union of Mineworkers of SA), while Amcu (Association of Mineworkers and Construction Union) is trying to become a mining house by a strike takeover that would scuttle investor interests and make mineworkers the prime stakeholders.

The ANC – unlike during the Mandela and first years of Mbeki – is fundamentally opposed to privatisation of public assets.

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While not calling for nationalisation itself, the ANC’s regurgitation of Marxist faith in a government-led and manipulated economy is closer to the EFF’s utterances than to the ANC of the ’90s that tasked Jeff Radebe to pursue the privatisation of Eskom, Transnet, Denel and other state-owned enterprises (SOEs).

While the ANC leadership in the 1996-2001 era envisaged the large-scale privatisation of SOEs to finance the rolling out of quality services, education and health care to the masses, the rank and file remained more committed to the control dogma of Marxism and the replacement of Mbeki by Zuma was, to a large degree, built on mobilising those anti-Mbeki sentiments. (Not that Mbeki could be classified as a neoliberal, as he was portrayed by his opponents in the ANC).

The political arena is, in the main, occupied by forces that sing the praise of SOEs. Can SOEs lead the way to the Garden of Eden of economic freedom?

The history of the SOEs over the past 15 years tells a different story.

Were it not for SOEs, South Africa would have experienced a far higher growth rate, would have benefited more from the surging demand for commodities and would have delivered far improved services to the rank and file of the population.

Let us consider the performance of a few of the SOEs (even government is not certain how many of these exist in reality, but at one stage they were rumoured to tally 140).

Since the Freedom Charter reads a lot like the first chapter of Genesis, let us start with the “Let there be Light…”

Unlike Genesis 1, the light is not coming on automatically. From a well-financed state utility (albeit not considering the needs of the majority of the population), Eskom has transformed itself into a giant, rolling out services without investing timeously in building sufficient generating capacity.

In fact, some of the mothballed stations that could have been mobilised to assist over peak demand were dismantled, the pebble-bed nuclear generators that held so much promise were scuttled and there was an embarkation on construction of large, coal-fired power stations with benefits for Chancellor House (the ANC’s investment arm) and to the detriment of the environment… Cost overruns and delays are a hallmark of this poorly managed entity.

Instead of providing sufficient energy to enable manufacturing investment and expansion, Eskom’s inability:

* torpedoed the envisaged aluminium smelter at Coega;

* has caused numerous black-outs;

thereby successfully becoming a strong agent for non-investment in, as well as disinvestment from, South Africa.

With electricity income being the lifeline also for the vast majority of local municipalities, Eskom’s inability to generate sufficient energy also undermines the financial viability of the already largely unsuccessful sphere of governance.

This hasn’t prevented Eskom’s directors and top management from voting substantial performance bonuses for themselves. It is the only commercial entity in the world I know that is running a costly campaign asking its consumers to use less of its product. Indeed, a textbook example of how a company should not perform. (The electricity supply problem in the last week at Richards Bay Coal Terminal due to supply lines of the municipality being 35 years old and uMhlathuze local municipality not having planned for replacement, is a further example of public sector reaping without considering sowing).

And the government, as sole shareholder, looks around and finds it, as Genesis records, “good”.

Transnet, with its monopoly of both freight rail and commercial ports (where they are in competition with SAA, which only survives with taxpayers being milked year after year when its single shareholder – government – decides to bail the airline out yet again), is another SOE that is costing the country an arm and a leg.

The following is sufficient evidence of the drag Transnet is on the economy:

* According to the Ports Authority, the cost of container exports from South African harbours is 800 percent more than the world average.

* Delays at the country’s harbours and the turnaround time for ships are also much worse than the world average.

* Rail traffic is slow, unreliable and lacks capacity. Concerning this, Arcelor Mittal has to transport products from Newcastle to Durban by road at a much higher rate than freight rail would be, since the capacity of the latter is insufficient and unreliable.

In order to meet export obligations, Arcelor Mittal even had at one stage to transport iron ore by road from Sishen to Saldanha – undermining the profitability (and, therefore, competitiveness) of South African iron and steel exports.

* Despite the Richards Bay Coal Terminal (a private investment of several coal producers) having upgraded its capacity to 92 million tons per annum several years ago, Transnet has not been able to upgrade the capacity on the rail line from Ermelo to Richards Bay to enable South African coal exporters from utilising that export capacity that they had invested in.

Transnet transported a record 70.43 million tons of coal to Richards Bay in 2013, but despite that record, the incapacity of Transnet is an opportunity cost of R17 billion.

Just on coal export forfeited due to Transnet’s inability, the rand is weaker, the turnover of our coal export companies is lower and the company tax that could have softened the budget deficit is lower.

Transnet is clearly incapable of adhering to Planning Principle 1 that it espouses in its Long-term Planning Framework: “Providing capacity ahead of demand to lead economic growth”.

It is not leading economic growth, it is retarding it, and Brian Molefe in a PowerPoint presentation indicated that the capacity to export 92 million tons will only be reached in 2022/23…

And the government, as sole shareholder, thinks it is “good”, rests forever and scolds the BHP Billitons for not availing more of their export capacity for small coal miners…

While in the Richards Bay area, consider the non-performance of the SOE of the KwaZulu-Natal government, the Richards Bay Industrial Development Zone (RBIDZ).

In the 2011/12 financial year, the RBIDZ received a grant of R26 million from the provincial government and R6.6m investment income (on seed capital received from the government).

It had operating expenditure of R30m, of which the cost of the 28 staff members was R19 163 358 (in the financial statements), although in the human resource component of the report it is stated at R10 281 000. Despite being in operation for 12 years, the RBIDZ has not been able to conclude a single contract resulting in an industry being established in Richards Bay.

SOE is, therefore, not the acronym for state owned enterprises. In reality it stands for sabotaging our economy. The government should rather not talk about a state-led new growth path – it is more a railway to recession. But thanks to Eskom it is a steam train, and one that will run out of coal due to Transnet’s incapacity.

The main contribution to the economy is the consumer expenditure based on directors’ fees and inflated wage bills.

* Wessels is CEO of Rural Urban Integration Consultants in Durban North

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