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RED ALERT
An intellectual will not be surprised when others respond to his opinions about them - A comradely reply to Onkgopotse JJ Tabane
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Umsebenzi Online

Volume 8, No. 15, 2 September 2009

In this Issue:

Red Alert

Defend the parastatal sector!

By Jeremy Cronin

We are living in the midst of a major global crisis that is shaking the foundations of the world economy. The delusions that drove the global markets have plunged the world into this mess. Hundreds of millions of workers have lost jobs and factories have closed. Billions of dollars of retirement savings have simply evaporated into thin air. Hundreds of thousands of homes have been repossessed - all as a consequence of a global capitalist accumulation path that imagined it could forever defy gravity. This delusion was audited and pronounced fit by all the big corporate names in accountancy and consulting - the Arthur Andersens, Pricewaterhouse Coopers, KPMGs. It was given the stamp of approval and triple-A investment ratings by the venerable Fitches and Standard and Poors.

At such a time, you might think that there’d be a moment’s pause for thought among our mainstream financial and economic commentators. You might think that they would ask themselves: do we not need to evaluate some of our former assumptions?

Sadly, there is little evidence of this kind of introspection. One area in which this lack of self examination is evident is in commentary about SA’s parastatal sector. The Business Day, for instance, recently ran a front-page article lamenting the fact that our major state owned enterprises (SOEs) have a more generous deadline (6 months after the end of the financial year) for publishing their annual financial statements than private companies listed on the JSE. Private shareholders would never tolerate this kind of delay, we were told. Is this really the big issue of our epoch?
 
It is true that there are challenges, some of them serious, in many of our SOEs and other parastatals. But before we deal with these, let us remind ourselves that South Africa’s second quarter GDP statistics released in August underlined one important fact. While our economy continues to be in decline, there is one major sector that has continued to show some growth and therefore job retention and even job creation - and that is construction. Growth in this sector has everything to do with our state-led R787-billion infrastructure programme. And among the key drivers of this programme are our parastatals - among them Eskom, the Airports Company of SA (ACSA), Transnet, and the SA National Roads Agency (SANRAL).

Indeed, as Minister of Finance, cde Pravin Gordhan once more reminded us this week in parliament, our multi-year, R787-billion infrastructure programme is the core of our own, home-grown response to the global crisis, it is at the heart of our stimulus package. The infrastructure programme was begun BEFORE the global crisis hit SA, but we are able to sustain it despite the recession and despite the consequent loss of significant tax revenues for two major SOE-related reasons:

  • As the sole share-holder of key parastatals, government is able to place them under more than a simple market - (i.e. dividend maximising) - discipline. In particular, government can (or needs to) ensure that major SOEs have a longer-term strategic (developmental) agenda; and
  • Because we have held on to major parastatals (in spite of earlier endeavours to sell most of them off), we have major corporations like Transnet or ACSA with significant assets, and they are able to raise capital for infrastructure investments off-budget. This latter capacity is particularly important at a time when tax revenues are down (currently some R23bn below target according to Treasury).

Hilary Joffe of the Business Day is one of the more thoughtful and informed finance and economic journalists around. But even she, in my view, got quite confused about parastatals in a recent article (“What if you take private out of enterprise?”, 25 August). Joffe starts her article by generally agreeing with remarks I made at the recent release of the Airport Company’s financial results.

I said government expects state-owned enterprises to perform effectively in the market. But government also has a responsibility to impose a longer-term, public-interest, strategic discipline on SOEs.

ACSA, for instance, has been returning a healthy dividend to state coffers for several years. However, ACSA has now become one among several public entities driving government’s multi-year infrastructure construction programme. 

The major airport refurbishment and construction programme underway has required that ACSA borrow on the financial markets, its debt gearing is high. Despite an impressive increase in earnings for the past financial year, with debt servicing, ACSA has not paid a dividend to government this time around. The foregone dividend is more than compensated for by ACSA’s contribution to a number of national strategic priorities. Some of these have a relatively short term deadline (the 2010 World Cup). Others require both immediate and longer term concerns, foremost among them job retention and creation.

While perhaps agreeing with much of this, Joffe believes she is in disagreement with me on other matters. “How many state enterprises”, she asks, “really are the developmental entities with long-term vision Cronin has in mind?” It’s a legitimate question, and sadly the answer is that many are not. But why? Is it because of an inherent flaw in public ownership, or because too often there is an uncritical imbibing of private sector practices in public entities?

Many of SAA’s current problems, for instance, date back to the once heralded, former CEO Coleman Andrews. He introduced a gung ho private corporate culture of “unlocking share-holder value”, regardless of actual aviation performance as such (and in the process earned millions of rands in performance bonuses for himself). Andrews produced glowing earnings for SAA by selling off its fleet, and then…well yes, leasing it back - short-term hurrahs (before his contract ended), and a long-term mess which SAA is still battling with.

And, as the SACP has noted on several occasions in the recent past, much the same applies to the economic challenges now facing Eskom. From the late 1990s a confusing set of signals were sent from government to key parastatals like Eskom. Essentially there was a dominant drive to privatise these entities. The backlog in investment in generation capacity, which is now such a major problem, dates back to that period.

Yes, not all is well with all SOEs. But regardless of ideology, the global recession everywhere is making private capital more dependent upon its national public sector - for bail-outs, and rescue and stimulus packages. Given this, and granting that we have difficulties in some of our parastatals - then surely we are confronting serious challenges?

The most obvious of which is strategic incoherence in the state, with all of the attendant risks of spending billions in a scatter-gun fashion on random vanity infrastructure projects, adding up to less than the sum of their unsustainable parts. Worse still, where there is public money and strategic incoherence you create a breeding ground for corruption and collusion.

It is in this latter connection that we should salute and welcome this week’s announcement by the Competitions Commission that it will be pressing ahead with an investigation against all of the major private construction companies in SA. With the new Competitions Act, allowing for criminal charges to be made against those involved in collusive activity, this investigation becomes even more significant.

With the imperative of continuing our state-led infrastructure spend, but with fiscal constraints, the discussion we need to be having is what are the sustainable and long-term priorities? Is it free-ways, or is it rail-lines? More refurbished airports, or bus stations? I’m not suggesting any of these is a simple either/or choice. I am insisting that intelligent choices have to be discussed and made. And an effective, strategically disciplined public sector will have to be fostered around such choices. Let’s defend, but let’s also transform our parastatal sector!

Asikhulume!!

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