Global Policy Forum

By Neva Makgetla

In the past few months, signs have blossomed around Johannesburg for a patent medicine that will apparently cure anything from flu to AIDS to impotence. They remind me of the promises consultants make about privatisation. According to these companies, privatisation can get you anything you want, from higher pay for workers to better services for communities and huge government revenues. The magic tool to reach these diverse aims? Government regulation and contracts with private service providers. These will tame the raging market to achieve whatever the state desires.

This approach relies on two interrelated assumptions: first, that government has the capacity to control private suppliers; and second, that the private suppliers can make a profit no matter what government demands. If these assumptions don't hold, then the regulatory magic won't work. How do these assumptions hold up in SA? In a word: badly.

To start with, the history of our new regulatory agencies is hardly reassuring. With few exceptions, they have been unable to set clear targets and monitor them, much less make companies abide by their dictates. Weak regulators would not be a problem if meeting national aims were profitable. To the extent that government wants private companies to extend basic services to the poor, however, that is simply not the case.

All too often, the advocates of privatisation seem to think we are an industrialised country, with few poor people and a long history of infrastructure development. In these lucky countries, most people can afford basic services, and the cost of subsidising poor households remains low.

Unfortunately, in reality, SA is one of the most inequitable nations in the world, with just about the highest rate of unemployment of any middle-income state. According to United Nations Development Programme data, while SA might be one of the top 10 developing countries in terms of income, it ranks far lower for indicators of poverty such as malnutrition, child mortality and access to piped water and telecommunications. Simply put, then, the majority of South Africans cannot pay the full cost of basic services. Yet without those services, they cannot engage with the economy to raise their incomes.

What does this signify in the real world? Consider the situation for water and telecommunications. Multinational water firms admit they cannot provide water to the poor of the third world. Vivendi officials told a conference in Uganda private investment in water will only be viable in Africa in "big cities where the (gross domestic product) GDP/capita is not too low," and where governments guarantee revenues.

The CEO of Saur, the French water group, has told a World Bank seminar: "Even Europe and the US subsidise (water) services . Service users can't pay for the level of investments required, not for social projects . The scale of the need far outreaches the financial and risk-taking capacities of the private sector."

It is not surprising, then, that attempts to privatise water distribution in SA have failed poor communities. Thanks to apartheid, we have lower access to piped water than any other middle-income country, with one in seven in SA outside the grid.

Of the five cities where water distribution was privatised before 2000, Nkonkobe has cancelled the contract because of high costs and poor service; the Dolphin Coast and Nelspruit have seen tariff increases at well above inflation, with complaints of inadequate services from poor communities; and Stutterheim discovered the private supplier was not responsible for major repairs.

In the case of telecommunications, privatisation has moved us even further from universal service. Before Telkom was partially privatised, SA was above average for middle-income countries on fixed-line connections; today, we lag behind. True, the regulator set strong targets but it failed to control costs or ensure subsidies for the poor. As a result, 80% of the new lines have been cut off.

Given these experiences, it is odd many still urge privatisation as a matter of principle. Government proposals to privatise 30% of electricity generation are a particular concern. To date, we have not seen a single piece of serious research concerning the likely effect on employment, investment and prices. However, cheap electricity has always been a driving force for our economy.

It is unethical to suggest a single medicine can cure all the ills of the world and the same applies to privatisation.

There is no easy solution to restructuring the state, but only a hard slog to set clear objectives and then find ways to achieve them. That requires time and resources; but in the real world, the ills attendant on unwary privatisation will cost far more.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.