The Anc Dares To Break Another Taboo: Privatization

During its more than three decades as an underground opposition party, the African National Congress called for nationalization of South Africa's basic industries. But now that the ANC is the country's ruling party it is switching from socialist to free-market policies and breaking old ideological taboos.

Thee biggest turnabout: privatization of state-owned industries. Selling off state assets is a politically tricky about-face for President Nelson Mandela, who once insisted that the economy's "commanding heights"--banking, mining, and other big industries--belonged to the people. Nevertheless, a privatization effort seems certain to get rolling. Analysts have begun sizing up state-run enterprises as candidates for sell-offs that could eventually total at least $20 billion.

ROLE REVERSAL. Deputy President Thabo Mbeki first suggested the ideological reversal in late October in a speech about South Africa's broad economic strategy. The government will consider "full or partial privatization of state assets," he said, "to reduce government debt and boost the reconstruction and development fund." He was referring to the government's program to narrow the gap between blacks and whites by improving housing and services for South Africa's mostly poor blacks. Earlier, Deputy Finance Minister Alec Erwin suggested to the Congress of South African Trade Unions (COSATU) that the government should audit its enterprises to see whether they are serving economic and social goals and are worth keeping.

A likely candidate for early privatization is the national airline, South African Airways. It is part of the government's Transnet Ltd., which also includes railroads and port services. Other easy targets are the government's stakes of 13% and 16%, respectively, in steelmaker Iscor and Sasol Chemical Industries Ltd., the oil-from-coal corporation (table). They were privatized in the 1980s, and the government's remaining shares are currently worth $1.8 billion. "If you wanted to raise money, this would be the place you would start," says Sean O'Connor, managing director of the New York unit of South Africa's Standard Bank Group. Smaller privatization candidates range from vacation resorts to a forestry corporation.

There's still strong resistance, however, to broad-scale privatizations among ANC members and allies such as the powerful COSATU. "We must fight at all costs the selling of resources that are essential to meeting social needs," ANC official Jeremy Cronin told a COSATU conference. "The retention of public utilities like Eskom, Telkom, the post office, and Transnet is essential." Such a list would exclude the government's biggest enterprises--in electricity, telecommunications, and transportation--from privatization.

However, fast-changing technology could build up pressure to privatize telecommunications utility Telkom or to bring in foreign partners. Otherwise, "they know that it could be bypassed by new technologies," says Nico Czypionka, group economist at Standard Bank.

Partly, the shape and speed of South Africa's privatization effort will depend on the urgency of raising money. Currently, South Africa is spending 18% of its budget on debt service. "A group from the ANC went to Mexico and was impressed by Mexico's use of funds from privatization to reduce debt," Czypionka says. Such needs will be balanced against the need to cushion the impact of job losses and against the goal of empowering blacks by putting shares into the hands of workers and the public.

JUSTICE. This will be Pretoria's second round of privatizations. In 1989, the government's privatization unit, which is part of the Public Enterprises Ministry, sold off Iscor just months before Mandela stepped out of prison proclaiming nationalization as a central ANC policy. In that sale, 5% of the company's stock was reserved for purchases by workers at a 20% discount. In 1991, a brewer of traditional sorghum beer was privatized in a $12 million sale that was politically acceptable because the buyers were black business interests.

Now, the government is looking at sell-offs in South America, Asia, and Eastern Europe for other models of privatization. Its aim is to find ways to finance reconstruction while promoting greater economic and social justice.

                 South Africa's
                 Privatization Prospects
      NAME        TYPE OF BUSINESS        EST. VALUE
      ESKOM           Electricity            $4.0
      TRANSNET        Transportation          3.4
      TELKOM          Telecommunications      2.2
      DENEL           Arms and high-tech      1.1
      ISCOR*          Steelmaking             1.1
      SASOL*          Synthetic oil           0.7
      *Roughly 15% government shareholdings
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