After Long Delay, S. Africa Slices Into State Businesses

No one in South Africa's government likes to use the "p" word: privatization. But like it or not, it's a reality.

The ruling African National Congress of President Nelson Mandela used the rallying cry of nationalization during its struggle against white rule. But all that has changed since the party came to power in April 1994 and realized that it needed more revenue and investor-friendly policies.

The sober-suited ministers of the first black majority government like to employ euphemisms such as "restructuring" to sweeten a message unwelcome by the ANC's union allies.

But the message in Mr. Mandela's State of the Nation address earlier this year was loud and clear: After some foot-dragging, privatizations are finally due to begin this year, and there is no turning back.

"The macroeconomic strategy identifies the restructuring of state assets as a critical part of our program to attract investments and technology, ensure efficiency, guarantee affordable prices, and reorient state assets towards the goals of reconstruction and development," Mandela said.

The news that the government planned to forge ahead with selling off state assets has been welcomed by many businessmen and economists who believe such a move is crucial to restore investor confidence badly dented by the rand's fall last year.

Some economists estimate that the amount raised by selling off state assets could be as high as 100 billion rand ($21.5 billion) - or roughly one-third the government debt. Among the stakes to be sold off are holiday resorts, telecommunications, and airways.

The government last month finalized the sale of a 30-percent stake in the state-owned telecommunications company, Telkom, to the US-based SBC International and Telekom Malaysia. The landmark sale kickstarts the privatization process and is the largest direct foreign investment in South Africa to date.

Deputy President Thabo Mbeki said the government would commit $1 billion of the $1.26 billion raised by the sale into expanding infrastructure. But negative perceptions still persist, with some unionists accusing the ANC of betraying their partnership in the decades-long struggle to topple apartheid.

Many members of South Africa's 5-to-1 black majority are uncomfortable about privatization, according to Lawrence Schlemmer, a consultant with the Johannesburg-based Helen Suzman Foundation think tank. A recent survey carried out for the foundation showed that 54 percent of blacks were against the sell-offs, versus 18 percent of whites.

"Among blacks, there is a suspicion of privatization. The government is seen to be the answer to their problems," Professor Schlemmer says.

"So there is an understandable feeling that the government must be as strong as possible. They don't like selling off state assets."

Much of the ambivalence comes from the unions, especially the giant umbrella Congress of South African Unions (COSATU). Opposition parties have accused the ANC of delaying privatizations in an effort to avoid angering unions. COSATU spokeswoman Nowetu Mpati admits that, for unions, privatization implies job losses. But she insists that South African unions have a better deal than those in other countries, under the National Framework Agreement that stipulates that any major move would only follow consultations with labor.

"We have taken the view that it's better to be involved. Of course privatization is unfriendly to workers. It leads to job loss and retrenchments. But this way we have a say, and it will be less painful," she says.

As a sweetener, Public Enterprises Minister Stella Sigcau reaffirmed the government's commitment to the formation of a national empowerment fund to encourage share ownerships by blacks in privatized companies.

The fund is due to be launched this spring and would own shares in state-owned companies including electricity company Eskom, arms manufacturer Denel and Safcol. This may not be enough to silence critics of privatization, who cite experiences in developing countries and Russia that they claim prove that sell-offs have not enriched the main populace.

Adding to their concerns is South Africa's weak job market. The economy is doing well otherwise, winning plaudits this year from World Bank President James Wolfensohn. But job creation is not growing fast enough to stave off the country's 30 to 40 percent unemployment rate.