Privatisation of SOEs is not the answer– expert

The push towards privatisation of state-owned entities in South Africa could drive prices higher, making essential services more inaccessible to the poor, according to an economist.

This was in the wake of calls to privatise the barely profitable South African Airways (SAA) and plans to split power utility Eskom into three companies, which some have seen as the first step towards privatisation.

Economist Peter Baur warned that privatisation could leave a vacuum in place of the mandates SOEs often operated under, such as addressing inequality and shielding the poor from price inflation.

“SOEs provide critical services, often at competitive prices, forming a type of price cap which the private sector may find hard to do. Privatising SOEs may not be the best idea, as it often leads to the establishment of monopolies within the private sector,” said Baur.

Telkom was one such example of a state entity going private, only to create a monopoly and drive the cost of telecommunication up, said Baur.

Telkom, while a profitable semi-privatised company since 2013, has done more for the company’s profitability and less for bringing down the cost of telecommunication services.

Telkom was partially privatised when a 30% stake was sold to a US-based company in 1996 and was listed on the JSE in 2003. While it is largely privately owned, government is still a major shareholder, holding a 39% stake in the entity.

But economist Mark Schussler argued that privatisation of SOEs could be done correctly if executed with the aim of breaking monopolies and encouraging competitiveness.

“Eskom prices have gone up higher than the general inflation rate, and it has been the same for the water boards, so privatisation can keep the prices low if you split up the monopolies,” said Schussler.

Privatising SOEs, argued Baur, could hamper their role in key development goals set by government towards ending poverty, inequality and unemployment.

– simnikiweh@citizen.co.za

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