How Private Enterprise Is Overcoming Government Incompetence in South Africa

Resilience can be defined as the capacity to withstand or recover quickly from difficulties. It is a national South African virtue that allows its people to adapt in the face of adversity. When free to rise to the occasion, the human spirit is capable of great strides. In South Africa, where the State is mismanaging its vast share of the economy, resilient free enterprise solutions are filling gaps and staving off social upheaval.

The “State vs. Private Sector” paradigm has long dominated the economic debate. This has played out, particularly in the “State Owned Enterprises” (SOEs) arena, where a coterie of socialists, trade unions and communists have consistently stymied all workable alternatives to rescue these pampered ailing enterprises from bankruptcy and collapse.

The irony is extraordinary. In a delicious twist of fortune, the purveyors of state control have seen the proverbial rug pulled from their feet. Private-sector-driven solutions have often filled the glaring holes. Stumbling in the dark, the sector has jumped at the opportunities occasioned by the State’s economic bungling.

Historical Development of This “Crisis for the Left”

A notable study on the South African economy in 1996 made the following surprising assessment: “South African economists in the eighties described the national economy as a free-enterprise system in which the market, not the government, set most wages and prices. The reality was that the government played a major role in almost every facet of the economy, including production, consumption, and regulation. In fact, Soviet economists in the late eighties noted that the state-owned portion of South Africa’s industrial sector was greater than that in any country outside the communist bloc. The South African government owned and managed almost 40 percent of all wealth-producing assets, including iron and steel works, weapons manufacturing facilities, and energy-producing resources.”¹ (emphasis ours)

The heavy investment of the State in the economy even prompted a timely and explosive 1977 book by A.D. Wassenaar: Assault on Private Enterprise: The Freeway to Communism.

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When South Africa transitioned to the African National Congress (ANC) government in 1994, the old order handed over vast state enterprises like ISCOR (steel), SASOL (synthetic fuel), ESKOM (electricity) and later TRANSNET (rail) and TELKOM (telecommunications). Other major enterprises worthy of note include the Passenger Rail Agency of South Africa (PRASA), the Post Office and the South African Broadcasting Corporation (SABC).

Indeed, the ANC inherited hundreds of State-owned enterprises² with varying degrees of government control. All followed standard business and accounting practices and thus tended to be profitable.

The establishment of the Industrial Development Corporation (IDC) in 1940 gave the government the means to further entrench the State’s hold on the economy. Thus, it created new parastatals like the Southern Oil Exploration Corporation (SOEKOR) and the Phosphate Development Corporation (FOSKOR).

Such a healthy inheritance should have served as a springboard for the new government, ideologically committed to socialism, to increase the State’s footprint in the economy. Had the administration kept the status quo running, it could have paved the way for further control and more State acquisitions.

Vastly different reality

The post-’94 dispensation followed another path. In the beginning, the new government committed to divest itself of some of its vast economic holdings. The promising measures, however, “were reversed following opposition from COSATU and the South African Communist Party. By 2007, an alliance of unions and leftist factions within the ANC had unseated President Thabo Mbeki, replacing him with Jacob Zuma. The new ANC policy aimed at expanding the role of SOEs in the economy, following the example of China.” ³

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Thus, where the government intended to project a vast array of flourishing enterprises—showcasing selflessness, service delivery and the superiority of State control, many of these enterprises are mired in corruption, bloated workforces, jobs-for-pals, mismanagement and ineptitude. Bankruptcy and bailouts are the order of the day. The best solutions are avoided due to the ANC’s aversion to free markets. Thus, while Eskom is the most commonly cited example of the country’s economic malaise, similar scenarios could be sketched for PRASA, Denel, Transnet, SAA, National Post Office and other entities.

Impressive paradox—Private Enterprise Fills the Gaps

In the face of failing government-owned companies, many South Africans have proven their resilience by adopting “free enterprise” solutions. The success of these initiatives speaks for itself.

The free enterprise interventions in many of these inefficient, bureaucratic behemoths could be vastly increased, but there are already major, promising inroads.

R.W. Johnson writing for BizNews (January 10), in an article titled “Policy dreams and Disasters,” posits a fascinating hypothesis to which few have probably given much thought. He notes that the World Bank rates South Africa ports as the worst run in the world. The water industry is also collapsing. Private companies are filling in the gap. Thus, he points out the irony that “South Africa will have one of the most free-market societies in the world, all brought about by the SACP and ANC.” ⁴ One could certainly contest this statement as overly optimistic, but it is thought-provoking.

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PRASA presents an interesting case study, for example. Benedicta van Minnen, DA Member of the Standing Committee on Public Accounts (Scopa), reporting on evidence led in a Parliamentary committee, noted, “Corruption and ineptitude have consequences, and nowhere is this clearer than in the decline in rail and rail usage in South Africa, and the cost of this failure is being borne on the shoulders of the poor. PRASA has declined so badly since its inception that the majority of working-class South Africans who use the affordable service for transport have had to turn to more expensive modes of transport, usually in the private sphere.” ⁵

Indeed, 80% of South African train commuters—about 550 000 people—have abandoned rail usage over the last decade. PRASA admits to losing millions of dollars due to the utter chaos at the entity. Today it relies upon government subsidies to survive. It also suffers from billions lost to theft and vandalization.

Any South African will attest to the role that the ubiquitous privately-operated minibus taxis have played in filling these gaps, conveying millions daily, both intra-city and across the country.

Eskom—the worst example of pillage and neglect

ESKOM is the most tragic example of State-owned company failures. Twenty-five years ago, it was the envy of the world, boasting some of the cheapest electricity rates and contributing some 100 billion rand (US$5.6 billion) annually to the economy. The largest corporation of its kind on the continent had at its disposal massive coal resources. Today it unbelievably operates at only 50% of capacity. Andrew Kenny writing for BizNews, summarises it well “The ANC has wrecked Eskom with massive political interference, with corruption, crime, incompetence, destructive racial policies such as BEE and cadre deployment, and mad policies and planning.” ⁶

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Diana Furchtgott-Roth, Director of the Centre for Energy, Climate and Environment at The Heritage Foundation, gives an assessment, quoting American Enterprise Institute senior fellow and former International Monetary Fund economist Desmond Lachman.

“Eskom is riddled with corruption and has been badly managed for the past 25 years. South Africa is now suffering from the worst electricity blackouts on record, which is affecting the economy badly. Eskom’s problems are emblematic of what has gone wrong under the past 30 years of ANC rule, which has come to be associated with a corrupt and incompetent State. Load shedding has become a normal facet of life in South Africa.” ⁷

The consequences of intermittent blackouts are catastrophic for the economy, resulting in widespread disruption, communications breakdowns, business failures, safety issues, food security, and supply of goods and service failures—in short, anything which depends on electricity supply.

Despite these woes, a “we-will-cope” spirit pervades the nation, resulting in massive opportunities for alternative energy generation. The country is dotted with solar geysers, and solar panels already appear on thousands of business premises and domestic dwellings. New buildings are already equipped with solar energy solutions. Trade in inverters, batteries, solar systems, generators and countless other “power-generating/saving mechanisms to “get by in the dark” is booming.

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“Solar provider Solana Energy says that South Africa is experiencing a residential solar installation boom, with households importing over R2.2 billion (US$123 million) worth of solar photovoltaic (PV) panels in the first five months of 2022 alone. With solar now becoming a regular feature for businesses of all shapes and sizes, residential users are investing in solar installations, and this growth is being accelerated due to prolonged load shedding,” Solana said. ⁸

Similar Crises in Other Parastatals—Market Interventions Save the Day

South Africa Express was one of Africa’s fastest-growing state-owned regional airlines before its recent liquidation and demise. Ch-aviation reported in September 2022 that South African Express had been placed into final liquidation by the South African High Court, with the government blaming the regional airline’s demise on deep-rooted corruption, fraud, years of mismanagement and state capture, exacerbated by the impact of the Covid pandemic.

It followed in the footsteps of South African Airways (SAA), South Africa’s national carrier. SAA consistently managed a thumbs-up for the best airline in Africa. A decade of financial mismanagement, along with 30 Billion rand (US$1.67 billion) down the drain in State bailouts, finally grounded the airline. Its return to the skies has been bogged down in political squabbling and controversy. Meanwhile, private airline companies have seen the gap in the market and grabbed a near monopoly of the domestic travel market.

In his fascinating article on Policy dreams and disasters, R.W. Johnson makes some interesting observations about other State entities. He makes the startling assertion, not without foundation, that “the ANC is steadily privatizing more and more of South Africa’s economy and society.” What a paradox!

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“For consider. In 1994 a very large proportion of all passengers and freight traveled by the (state-owned) railway. Today almost the totality of both has been shifted onto private trucks, buses or cars.” The reference is to “Transnet,” whose field is ports, railways and pipelines. Its fortunes have waned drastically, with various high-ups implicated in charges of corruption, fraud and money laundering. Rising to the occasion, thousands of long-distance haulers ply the major highways daily, transporting every conceivable commodity, while the railway network lies idle.

With the decline of police protection and public schools, private schools, colleges and security companies are flourishing. News 24 reports seven million dropped calls to Police call centers. ⁹ One of the consequences of this is the ubiquitous presence of private security companies. They have become massive employers with a presence literally everywhere and are often the first port of call for those under attack.

In 1994 Telkom had an almost 100% monopoly on telephone service. Now private cell phone operators dominate.

The Post Office is another disaster zone, which has created enormous inroads for entrepreneurs. Its near-total collapse has spawned a massive franchise of “postal shops” (Postnet). Hundreds of courier companies, some featuring incredibly innovative ideas, have mushroomed. They crisscross the country offering services which were formally the Post Office’s domain alone.

Privatization—a Dirty Word

Despite the national grid hovering on the verge of collapse and the State’s inability to effectively manage postal deliveries, transportation of people, goods or services, or even safety and security, and keep the lights on, only privatization remains a forbidden word!

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While ordinary entrepreneurs and larger free market entities have risen to the occasion, even while skating around in the dark, the shrill voices of the left, particularly those glued to “radical economic transformation,” continue to scream, “hands off!”

Free market initiatives provide obvious cures for failing parastatals. It is clearly visible on the ground. As the economy continues to choke, the leftist stranglehold may be forced to give way to common sense and the private sector’s successes. However, the left’s ideological commitment to socialism will always hinder such solutions since its goal is not prosperity but forced equality—an equality of misery and poverty.

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