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ANC Privatizations Fail to Deliver in South Africa

by Patrick BondSpecial to Corpwatch
August 18th, 2004

The ANC managed to score a solid victory in the 2004 elections, yet criticism from the left has been mounting and cracks in the ruling coalition continue to grow. There has always been a rift between the ruling African National Congress (ANC) and the Congress of South African Trade Unions (Cosatu) on privatization. But it deepened substantially last year when the Government decided to sell the state telephone company, Telkom, under the rubric of 'black economic empowerment'.

A great deal is at stake here because the probably inevitable departure of Cosatu and the SA Communist Party from the ANC-led alliance will occur over ideological differences - such as whether basic services should be operated on a for-profit basis. Cosatu won a minor victory early in 2003 when some railroad privatizations were halted by Transport Minister Dullah Omar. But President Thabo Mbeki has cemented his agenda for 'restructuring state enterprises'. He labels his trade-union and community opponents 'ultra-Leftists' and has so far combined intimidation with divide-and-rule tactics to maintain the pretence of unity.

Related Story:

Soweto Residents Resist ANC Privatization Moves

It has not been an easy job. The union placards say: 'We did not fight for liberation only to sell it to the highest bidder!' In October 2001 a partially successful, two-day strike of a quarter of the national workforce highlighted how far matters had deteriorated. A previous two-day strike had, for Mbeki, badly marred the August 2001 World Conference Against Racism. Then, a year later, the World Summit on Sustainable Development (WSSD) featured a march of 20,000 activists who attacked the 'privatization of the WSSD' - including the crucial water and energy sectors.

Access to water and electricity has become a key struggle in South Africa's townships. One study conducted through the Government's Human Sciences Research Council found that an estimated 10 million people have suffered water cutoffs and electricity disconnections under privatization, mostly because they couldn't afford new, higher rates.

As a result the country's cholera epidemic continues, with more than 140,000 cases since August 2000. Millions of people - especially children - get diarrhoea each year because of unaffordable purified water and atrocious sanitation. Tuberculosis and other respiratory diseases are also rampant since without electricity women are forced to cook and heat with coal or wood.

As the Government prepares to sell off 30 per cent of the national electricity company, Eskom, it too has clamped down on customers in arrears. In Soweto 20,000 households were disconnected every month in 2001 - until resistance from militant communities rolled back the process.

During the last decade's transition from racial to class apartheid, Soweto residents have shown that wherever capital commodifies, the masses can strike back, through 'decommodification' strategies and tactics that some observers celebrate as 'autonomist' (though others simply call stealing).

Flashbacks to the 1976 anti-apartheid intifada aside, township activists are again highly regarded around the world for liberating electricity and water from expensive (and unreliable) meters; advocating (and partially winning) access to free basic 'lifeline' electricity and water; campaigning to produce or import cheap generic anti-retroviral medicines that fight AIDS (especially for pregnant women and rape victims); invading land and housing during an era of massive displacements by the state and capital; helping put the demand for a Basic Income Grant ($12/month) on the national agenda; insisting on free primary education for all; and, thinking globally, demanding that George W. Bush leave Africa and the rest of the world alone

With Cosatu again campaigning against Telkom's privatization, there appears to be renewed scope for an 'alliance of the dispossessed'. Municipal Workers Union members sometimes dispense with traditional ANC loyalties to join Anti-Privatization Forums (APF) in the major cities, even while the latter are tentatively preparing for a future political party challenge to the ANC Government. Most importantly, the APFs and other militant communities continue taking matters into their own hands - including illegal reconnections of electricity and water. (See interview with Trevor Ngwane)

Privatization Fails to Deliver
The four major cases of commodification of state services: telecommunications, transportation, electricity, and water have all suffered significant failures on the road to full privatization.

First, consider the mess created in the lucrative telecommunications sector, in which 30 percent of state-owned Telkom was sold to a Houston-Kuala Lumpur alliance. The cost of local calls skyrocketed, leading the vast majority of new lines to be disconnected. Meanwhile, 20,000 workers were fired. Attempts by the government to cap fixed-line monopoly pricing were blocked by the Texas-Malaysia joint venture with a court challenge and a serious threat to sell their Telkom shares in 2002. As a result, Telkom's 2003 initial public offering on the New York Stock Exchange raised only a disappointing $500 million. Thus, in the process an estimated $5 billion of Pretoria's own funding of Telkom's late 1990s capital expansion evaporated. A pact on pricing and services between the two main private cellular operators and persistent allegations of corruption combined to stymie the introduction of new cellular and fixed-line operators.

Second, in the field of transportation there have been a variety of dilemmas associated with partial privatizations. Commercialized toll roads are unaffordable for the poor. Air transport privatization led to the collapse of the first regional state-owned airline. South African Airways has been disastrously mismanaged, with huge currency-trading losses and an inexplicable $20 million payout to a short-lived U.S. manager. The privatization of the Airports Company has led to security lapses and labor conflict. Constant strife with the ANC-aligned trade union has thrown port privatization into question. The increasingly corporatized rail service shut down many feeder routes that, although unprofitable, were crucial to rural economies.

Third, the electricity sector is privatizing rapidly, with 30 percent of the parastatal Eskom (the world's fourth largest electricity producer) to be sold in 2004, resulting in a host of problems. Thirty thousand electricity workers lost their jobs during the 1990s. Potentially unnecessary new generation capacity is being created by private suppliers. While a tiny pittance is invested in renewable energy, the state is likely to expand nuclear energy, through new pebble bed reactors in partnership with U.S. and British firms. Rates for residential customers have risen much higher as cross-subsidies came under attack during the late 1990s. As a result of increasingly unaffordable rates, Eskom slowed the extension of the rural electricity grid, while millions of people who fell into arrears on inflated bills have been disconnected-leading to massive (often successful) resistance such as illegal reconnections. With tuberculosis and other respiratory illnesses reaching epidemic levels it is a cause for concern that those who do not reconnect their electricity are forced back to paraffin or coal fires for cooking, with all the hazards that entails.

Fourth, virtually all local governments turned to a 100 percent cost recovery policy during the late 1990s, at the urging of the central government and the World Bank, largely to prepare for a wave of water and waste commercialization. Attempts to recover costs from poor communities inflict hardships on the most vulnerable members of society, especially women and those with HIV positive family members susceptible to water-borne diseases and opportunistic AIDS infections. Although water and sanitation privatization applies to only 5 percent of all municipalities, the South African pilot projects run by the world's biggest water companies (Biwater, Suez, and Saur) have resulted in services that are overpriced and a public that is underserved. Contracts have been renegotiated to raise rates because of insufficient profits; services have not been extended to most poor people; many low-income residents have been disconnected; prepaid water meters have been widely installed; and sanitation has been substandard. Across South Africa, the dogma of 100-percent-cost-recovery led to the continent's worst-ever cholera outbreak, catalyzed by mass disconnections of rural residents in August 2000.

As a result of this consistent failure to deliver, alienation and discontent are obviously increasing. According to a late-2002 survey conducted by the liberal Institute for Democracy in South Africa, the number of black people who believe life was better under the apartheid regime is growing. Tragically, more than 60 percent of all South Africans polled said the country was better run during white minority rule, only one in ten people believed their elected representatives were interested in their needs, and fewer than one in three felt the current government was more trustworthy than the apartheid regime. Black people were only slightly more positive than white and mixed-race groups about the government, with 38 percent deeming it more trustworthy than before. Only 24 percent of black South Africans agreed with the proposition that the current government is less corrupt than the apartheid regime.

For the 10 percent or so wealthiest whites and a scattering of rich blacks who enjoy segregation and insulation from the vast majority, lifestyles remain at the highest level in the world. This is evident to any visitor to the slightly-integrated suburbs of South African cities. Racial apartheid was always explicitly manifested in residential segregation, and after liberation in 1994, Pretoria adopted World Bank advice that included an avoidance of public housing (virtually no new municipal or even cooperatively-owned units have been constructed), smaller housing subsidies than were necessary, and much greater reliance upon banks and commercial developers instead of state and community-driven development.

The privatization of housing is, indeed, one of the most terrible ironies of post-apartheid South Africa, not least because the man taking advice from the World Bank, Joe Slovo, was chair of the SACP. (Slovo died of cancer soon thereafter and his main ANC bureaucrat, who was responsible for designing the policy, now works for a World Bank subsidiary.)

Nine years later, the provincial housing minister responsible for greater Johannesburg admitted to a mainstream newspaper that South Africa's resulting residential class apartheid had become an embarrassment: "If we are to integrate communities both economically and racially, then there is a real need to depart from the present concept of housing delivery that is determined by stands, completed houses and budget spent." His spokesperson added, "The view has always been that when we build low-cost houses, they should be built away from existing areas because it impacts on the price of property." Rationalizing such policies, the head of one of Johannesburg's largest property sales corporations, Lew Geffen Estates, insisted that "Low-cost houses should be developed in outlying areas where the property is cheaper and more quality houses could be built."

Unfortunately it is the likes of Geffen, the commercial bankers and allied construction companies, who still drive housing creation, so it is reasonable to anticipate no change in Johannesburg's landscape-featuring not "quality houses" but what many black residents term "kennels." Several hundred thousand post-apartheid state-subsidized starter houses are often half as large as the 40 square meter "matchboxes" built during apartheid, and located even further away from jobs and community amenities. In addition to ongoing disconnections of water and electricity, the new slums suffer lower-quality state services ranging from rare rubbish collection to dirt roads and inadequate storm-water drainage.

Globalization Made Me Do It!
How did the degeneration of a once proud liberation movement occur so decisively, and so quickly? It is tempting to again point out that neoliberalism was dictated by the IMF in December 1993 before being codified in GEAR. But three prior decisions were also crucial: to drop "nationalization" formally from ANC rhetoric (April 1992); to repay the $25 billion of inherited apartheid-era foreign debt (October 1993); and to grant the central bank formal independence in an interim constitution (November 1993).

Various other international economic incidents should be mentioned. A few weeks after liberation in May 1994, when South Africa joined the General Agreement on Tariffs and Trade on disadvantageous terms, the country's deindustrialization was guaranteed. In January 1995, privatization began in earnest. Financial liberalization in the form of exchange control abolition occurred in March 1995, ironically in the immediate wake of the Mexican capital flight that destroyed the peso's value. South Africa's protection was to raise interest rates to a record high (often double-digit after inflation is discounted), where they have remained ever since. Later, from 1998-2001, the ANC government granted permission to South Africa's biggest companies to move their financial headquarters and primary stock market listings to London.

Under these circumstances, GEAR was merely a set of fantasy projections, and the failure of macroeconomic policy is even sometimes conceded in Pretoria. In an April 2002 article entitled "Great Leap into Stagnation Courtesy of World Bank," Bloomberg News Service reported that finance minister Trevor Manuel had loyally advocated "spending cuts, the dismantling of trade barriers and fighting inflation during the past six years, all under the guidance of World Bank economists. He is still waiting for the payoff. Now, Manuel and even some World Bank officials say Africa's largest economy has not gained as expected from the lender's advice." Manuel, who was chair of the Boards of Governors of the IMF and the World Bank and currently chairs the Development Committee of the joint body, admitted to Bloomberg, "We have undertaken a policy of very substantial macroeconomic reform. But the rewards are few." More generally, he conceded, "Developing countries have undertaken many reforms, but the benefits are, in fact, very slim."

The cost to South Africa's development, especially to the poor, is unacceptably high warns Cosatu. 'Privatization can only worsen conditions for the majority. The reality of the Telkom sale is that property is being expropriated from 46 million South Africans to be auctioned off to, at best, 1 million 'investors' in the name of black economic empowerment.'

Critics threaten to disrupt further attempts to privatize by targeting merchant banks, foreign firms and international agencies that are promoting the panacea. Whatever the outcome, it is safe to say that President Mbeki's faith in privatization is jeopardizing the future re-election of the ANC.

Patrick Bond is a professor of economics at Wits University in Johannesburg.