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?

Everyone knew Lindani Dhlamini and Ndumi Medupe’s daily routine. Every morning the two would sit behind a closed door laughing and sharing stories, as old friends do, before launching into the day. On a cold winter’s morning in July 2007, the laughter stopped. Nothing could have prepared Dhlamini for what was to come. Medupe walked into the boardroom, sat across from her and calmly said: “You know Lindani, I’ve decided to pursue a different route”.
The silence was unbearable as a shocked Dhlamini took in a setback she never saw coming. She tried to talk Medupe into staying but there was no hope. It was merely a month before, during an interview with a magazine, where the two women gushed about how great it was doing business together. By the time the article made it into print, Medupe was long gone.
“We’re shutting this thing down,” Dhlamini thought as Medupe left the boardroom.
With her head bowed, she thought back to 2003, when the two eager young women set out in the market.
“At the time there was a lot of talk about empowering black owned businesses, women owned businesses and youth owned businesses. We felt we met all the criteria and we started,” Dhlamini says.
With a staff of 30 and R1.7 million ($170,000) seed capital from the Umsobomvu Youth Fund, the two women hit the ground running with their auditing firm, Xabiso.
“[The capital] got finished within six months of us starting… we had to go back many times,” laughs Dhlamini.
From the beginning the two women were inseparable. They depended on each other for everything and consulted each other on every decision made. But Medupe wanted out.
The days following Medupe’s departure were filled with turmoil and uncertainty. On the cusp of shutting the business down, Dlamini was overcome by sweet reason.
“I realized I had invested four years of time and energy into the business and I wasn’t willing to give it up that easily. I was going to see if I could do it by myself…and if it didn’t work out, well at least I tried.”
But before the silver lining; a dark cloud. After half the staff left with Medupe, Dhlamini stayed behind to calm the fears of those who remained. There was great uncertainty among clients but Dhlamini reassured them that there would be no shortcomings in service delivery.
“I had to go to each and every client and explain the situation. My partner has decided to pursue other interests. I’m still here; I’ll still be able to deliver what you need. If you have any issues whatsoever, call me directly.”
As the storm broke, Dhlamini was relieved that she had lost only one client.
“It was a difficult time for me, it really was&#8230;I’ve never been depressed in my life but I think I was depressed during that time,” she says.
After Xabiso recovered, Dhlamini set her sights on bigger projects and knew that in order to gain bigger clients she would have to merge.
In September 2012, Xabiso merged with auditing firm Sekela to form SekelaXabiso. Together they have a 20 years of auditing experience and their revenue at the end of February was close to R220 million ($22 million).
“We just got awarded the biggest internal audit contract by Transnet. It’s a R1.3 billion ($130 million) contract over a period of three years. We are the lead firm on this account.”
Looking ahead, Dhlamini sees only blue skies and hopes of fulfilling her Vision 2020 project to be a R1 billion ($100 million) company.
As for grudges and regrets? Dhlamini has none.
“You get to a point in time when you want different things. [Medupe] was here when she was supposed to be here and she wasn’t when she no longer needed to be here.”
Since Medupe’s departure, the two women have worked together on various projects.
“We are such a small community. You see there are 30,000 chartered accountants in the country, less than 3,000 are black and even smaller is the pool of black women. So you cannot afford not to like or not to get along with anybody in the small pool. Because more often than not sometimes you’ll find them sitting on the other side of the table being your client, which happens quite often.”
A lesson in life and a lesson in business: No matter how bad things get, don’t burn your bridges because you may find yourself shaking the hand of a familiar face.

Tag: Transnet

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