South Africa has a history of underperforming state-owned enterprises, including the ‘big four’: Denel, Transnet, Telkom and Eskom. According to the National Planning Committee on the National Development Plan, these companies account for approximately 77% of employees in state-owned enterprises and make up about 91% of the asset base of the top 30 state-owned entities.
These entities have evoked discontent from the public, Eskom in particular. They have accumulated large losses, always ready to ask for a helping hand from the government. Like an absentee father who spoils his son to make up for the time he does not spend with him, our national treasury is only too pleased to support these enterprises in the form of bailout packages.
This has led to a call from certain factions for these state-owned enterprises to be privatized. A paper titled Privatisation and Nationalisation Cycles by Roberto Chang and others looks at a model built around a basic trade-off between equality and efficiency. It argues that greater equality is attained under public ownership of a natural resource or state assets, while more efficiency is achieved when the ownership and administration of the resource or company are in private hands.
The connection between ownership and the equality-efficiency trade-off is given by the set of incentives for the efforts that each regime provides to economic agents. However, it should be noted that greater equality does not necessarily translate into greater welfare. Imagine a situation where national income would be distributed equally among all South Africans. Equality would leave many worse off. Greater efficiency is required. The reality is that there are greater sets of incentives at play which drive efficiency when operating a privately-owned company, among them maximizing the profits and equity of the shareholders. The sets of incentives are not as strong in state-owned enterprises.
One source, who asked to be unnamed, says that during her time as HR Manager at the state parastatal, South African Airways (SAA), she had to deal with numerous high-level government officials dumping their family and friends résumés on her desk and instructing her to find positions for them within the organization. She says that most did not have the required skills and qualifications. It comes as no surprise that SAA is one of the most inefficient state-owned enterprises. Unfortunately for South Africans who pay taxes on their hard earned incomes, the government continues to bail out the airline with no regard for its dismal performance. These are some of the pressing issues that make privatization of state-owned enterprises attractive.
On the other hand, the breaking up of the Soviet Union led to the emergence of Russian oligarchs in the late 1980s and early 1990s, when state firms were privatized particularly in the oil, gas and mining sectors. These oligarchs emerged under Mikhail Gorbachev’s political movement for the reformation of communism, which is widely thought to be the proponent that led to the dissolution of the Soviet Union. Today, post-Soviet oligarchs usually include relatives and close associates of government officials and are among some of the wealthiest people in the world. David Satter, author of Darkness at Dawn, asserts that “what drove the process was not the determination to create a system based on universal values but rather the will to introduce a system of private ownership, which, in the absence of law, opened the way for the criminal pursuit of money and power.”
Privatization has challenges and opportunities, which if implemented properly would go a long way to correcting the inefficient operation of state-owned enterprises.
There needs to be a conversation surrounding the viability of privatizing state-owned enterprises and possible partnerships with privately-owned companies. If privatization is proven to be viable, it will go a long way to optimizing productivity and reducing costs, but perhaps more importantly it could reduce government bailouts and save taxpayers money.

Will Privatization  save us money?

JJ Milner was an IT geek and never had to make a conscious effort to learn about the industry he is in today. It was a hobby that came naturally. He knew this hobby would turn into a business when he was just 17 years old. Today, 25 years since its inception, Global Micro Solutions is making a mark in cloud servicing and business in the IT industry.
In 1990, Milner and a friend founded Global Micro Solutions with $400 each, selling computers out of his parents’ garage.
Today, Global Micro Solutions is making money many businesses can only dream of. Working with a broad spectrum of companies in South Africa, Milner provides IT solutions to small and medium sized organizations as well as enterprises and multi-nationals.
But it hasn’t been smooth sailing for this entrepreneur.
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Micro Global Solutions offers the latest advances in the information, communications and technology sector but when the United States-based WorldCom (now known as MCI) decided to pull out of a $400,000 deal with Micro Global Solutions, Milner had to dig deep to save his business.
“Our biggest challenge is people not keeping their word, in one form or another. Whether in breaking a contract or breaking the spirit of the contract; when not delivering when they say they’re going to deliver; renegotiating something that was agreed when they understood that was not the basis when they went into the deal,” says Milner.
Global Micro Solutions was doing well and he wanted the business to grow out of its comfort zone and that involved putting down his hard-earned money, as well as his time and effort.
Around 1995, Global Micro Solutions had a deal with UUNET, a subsidiary of WorldCom. UUNET partnered with Global Micro Solutions to offer the first multi-tenant hosted exchange platform in Africa. It was made possible through a close relationship with Microsoft.
“We went to them and spent six to eight months planning what we were going to do, like build some new services. We built the first multi-tenant host exchange solution in the world with Microsoft on Exchange 2000 Beta,” says Milner.
UUNET was based in Johannesburg and at the time the US-based telecommunications firm, WorldCom, was the second largest distance phone company and had partnered with Global Micro Solutions on this project.
Milner and his team spent over eight months building the data center at UUNET’s offices and connecting all the wires to make this a success, spending around $400,000 on the project.
It was around this time that a WorldCom representative from the US came to South Africa. Everything was set, all the connections made and Milner was just waiting for the green light to unveil the project.
“We kept asking them when we are going to launch and the guy turned around and said we’re not sure if the service is going to work,” remembers Milner.
After months of hard work, this was a sickening blow.
“Yes, with all the equipment in their data center,” he says.
WorldCom was going to sell UUNET, which meant that the management team would change affecting relationships already built between Milner and the companies. At the time, Milner didn’t know what was going on with WorldCom in the US.
“And literally after I was funding this myself and every month we were there, there was R300,000 finance fees going out for the business. I had to start pushing buttons quite hard to find out what was going on,” says Milner.
Global Micro Solutions were given a million reasons why WorldCom was pulling out of the deal and none made sense to Milner as there was a signed agreement.
“It was a hard thing to deal with, because normally when someone is having a dispute with you they defend their position. There are three sides to every story right? When someone says to you ‘I just changed my mind’, how do you argue with that?” asks Milner.
He could have sued WorldCom, but he didn’t.
“You’ve got to fight the battles you can win,” he says.
Even with a Law degree, Milner felt helpless.
He was worried about the salaries for the 18 people who relied on him to survive. The equipment cost around a few hundred thousand rand every month, but there was no revenue coming in.
“You have a multi-million-rand hole and you’re 24 or 25 years old and the largest telecoms company in the world is telling you to whistle and you don’t have a customer yet and you’ve moved on from what was a good customer service because it was time to spread your wings and do the next thing,” says Milner.
“It’s not a bad decision to be in, but it makes you stronger.”
Milner went on and reached out to everyone he knew including Microsoft. They couldn’t help him but they set up a meeting with South Africa’s biggest landline provider, Telkom.
“I went to Telkom with Microsoft. We gave them an incredibly soft deal. We had to. They had no risk, we put everything down and to Telkom’s credit they took the opportunity. They were incredibly cushioned. I shouldn’t sound surprised by it, we priced it right,” he says.
Telkom launched the hosted exchange project within three months, also becoming Global Micro Solutions first major reseller of its services. The deal got Milner’s company out of its debt woes. Today, Telkom remains a client.
Since then, Milner has been taking risk and expanding his business. The company has evolved into one of the most experienced IT providers of diverse, comprehensive and business-related managed technology services in South Africa. Global Micro Solutions also boasts a number of South African firsts, including: first deployments of hosted Exchange and federated hosted Exchange, hosted Citrix, n-Tier provisioning, Hosted Hyper-V, and Hosted OCS.
He says this has all happened because he took risks. Milner compares his personality as a bussinessperson to Discovery Holdings’ Adrian Gore. He says that becoming an entrepreneur is like jumping out of a plane with silkworms instead of a parachute and hoping that they’re overachievers.
“I can’t think of a better definition than that because I do that a lot,” he says.
“I’ll often go into something and just trust the team we’ve got and trust that we will figure out the answers. It’s served us well. I hope I’ve got overachievers with me.”
Cloud computing is quickly becoming an indispensable part of the IT industry. Milner, along with his team, offers insights into cloud technologies, email management, server architecture, and enterprise communication strategies which has made Global Micro Solutions a leader in its industry.
Milner is one of the most respected voices in the industry today and his company, Global Micro Solutions, is spearheading many of South Africa’s top technology projects. And he will not allow another deal to set him back.

The Deal That  Short-Circuited

Women perform 66% of the world’s work, yet they only earn 10% of income generated across the globe, according to the United Nations Development Programme.
Statistics like these serve as a stark reminder of how far women still need to go to become equal players in the business arena. And with seven of the fastest-growing economies based in Africa, it is critical that female entrepreneurs take advantage of the expansion.
WEConnect International, a corporate-led, non-profit that empowers female business owners to succeed in local and global markets, has come to Africa’s shores to help businesswomen make their mark.
“If you look at the power of the markets, there is huge growth potential for our corporate clients in Africa,” says Elizabeth Vazquez, CEO and co-founder of WEConnect.
The network, which is headquartered in the United States, held its first African launch in South Africa. Vazquez says Nigeria is next.
WEConnect certifies women’s business enterprises based outside the United States to make it easier for multinational corporations to source from them. It also connects its corporate members with businesses that have at least a 51% women ownership.
The corporations represent $700 billion in annual purchasing power. They include Coca-Cola, HP, Intel, Pfizer, Master Card, Boeing, Wal-Mart, IBM, and Procter and Gamble.
“We are looking for countries that want to grow businesses, grow wealth and create jobs. We want early investment… because we know if you spend on women, they tend to invest in families and communities,” says Vazquez.
Last year, WEConnect’s corporate members as well as the Vital Voices Global Partnership and the Clinton Global Initiative announced a commitment to source $1.5 billion globally from female-owned businesses by 2018.
The agreement focuses on training female entrepreneurs to be ready to supply goods. The partners committed themselves to mentoring and targeting at least 15,000 female-owned businesses globally in that same five-year period.
WEConnect, which has female business owners from 70 different countries worldwide, has launched in South Africa with the blessing of the Trade and Industry Department.
“Studies have proven women are very good at paying back bank loans… but banks still don’t trust them. But it is not only [banks], but it is even by us in government. We still have a long way to go to realize women can drive and sustain business.
“[But it has been shown] wherever there are very powerful organizations of women, there will be very strong, sustainable women entrepreneurs because women thrive on networking,” Nomvula Makgotlho, chief director of women empowerment at the department, told guests attending the South African launch.
She says structures are imperative in lobbying for female entrepreneurs in order to change perceptions about how women have graduated from the kitchen and classroom into business.
“Women lack access to markets, they lack access to procurement. The journey of empowering women is a very difficult one. You make enemies on the way,” says Makgothlo.
Kalvenie Raja, who heads up the women’s fund at South Africa’s Industrial Development Corporation, agrees that it has not been an easy journey for women in South Africa.
“When we did BEE [black economic empowerment], women were somehow lost along the way. We need to see women coming into these markets,” she told the launch.
Accenture, a management consulting, technology services and outsourcing company, is one of WEConnect’s corporate clients. Linda Basson, who heads up procurement for Accenture South Africa, says the value of the network cannot be underestimated.
“By widening the supply base, you increase competition and also get greater creativity and innovation.”
“Being socially responsible is quite fashionable. We can’t look to government for hand-outs anymore.”
WEConnect has appointed Nathalie Chinje to head up its South African program. Chinje is the founder and director of an entirely female-owned marketing company, Upbeat Marketing.
While bias against female-led businesses remains entrenched, WEConnect is helping the so-called green ceiling turn a new shade of gender equality.

Tag: Enterprises

FORBES AFRICA SOCIAL MEDIA

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The Deal That Short-Circuited

Get Out Of The Kitchen