South Africa considers privatisation to counter recession

South Africa’s finance minister laid out an ambitious 14-point programme on Thursday to wrench the economy out of recession that included the sale of non-core assets and partial privatisation of state-owned firms.

The plans to stimulate growth in the continent’s most industrialised economy appear to represent an ideological shift by the ruling African National Congress, whose political alliance with the unions has tended to make privatisation a dirty word.

A team commissioned by President Jacob Zuma to review state firms last year recommended that some should be sold. Now the government has set a date – March 2018 – by which to roll out a “private sector participation framework”.

But despite the opposition the plans are likely to face, Zuma’s government has to take action as the economy slid into recession for the first time since 2009 in the first quarter and is facing high unemployment and credit ratings downgrades.

“All of these items that we have announced … they constitute an important intervention to restore confidence and demonstrate action,” Finance Minister Malusi Gigaba told a news conference.

The government would also reduce the number of debt guarantees to the firms, especially those extended for operational purposes, he said.

“I’m not sure how far he is going to be able to get with this because I think ideologically there’s a lot of opposition,” NKC African Economics analyst Gary van Staden said.

“The last time I heard the ANC even talk about privatisation or even talk about sale of state owned assets on any kind of level is when Thabo Mbeki was president. It’s been a long time.”

The Congress of South African Trade Unions (Cosatu), a powerful union umbrella group and ANC ally, said the proposals went against the ruling alliance’s ideology.

“It is an abandonment of the principles. He is going the route of privatisation, something we have spent decades opposing,” spokesman Sizwe Pamla said.

“NOT BIG AND BOLD”

The economic slump is adding to the pressure on Zuma, who is also facing persistent corruption allegations and increasing calls for him to stand down from within the ANC.

Parliament will hold a no-confidence vote on Zuma next month.

The opposition Democratic Alliance said the plan was a “huge disappointment” as it did not include “one big, bold, new idea capable of restoring business confidence and stimulating private sector investment”.

Many of South Africa’s 300-odd state-owned companies are a drain on the government’s purse and ratings agencies have singled them out as threat to its investment rating.

The firms, known as “parastatals”, include companies such as South African Airways, power utility Eskom and logistics group Transnet regarded as central to the functioning of the economy.

Gigaba did not say what would be going under the hammer first, saying that would be determined by an audit.

BNP Paribas South Africa economist Jeff Schultz said investors would want to see more details before endorsing it as a viable turnaround strategy.

“It’s very difficult to say at this stage. He was quite cagey on what sales of non-core assets he was referring to,” Schultz said.

South Africa sold its stake in mobile phone firm Vodacom in 2015 to as part of a 23 billion rand capital raising for Eskom.

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