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Privatization in South Africa
Under the Nationalist Party Government

Privatization in South Africa

Privatization has been an important issue for the Republic of South Africa for over two decades. Although the National Party government of South Africa expressed its allegiance to an economic system of markets, the government sector in South Africa produced the highest proportion of GDP of any country outside of the Marxist Socialist bloc. This high proportion of production in the public sector came as a result of historical situations in which over the years various governments of South Africa were unwilling to trust the private sector to provide certain key products and services. Some such services were provided by government agencies such as the South African Railways and Harbours Administration which was created in 1910. Later these services were included in the Ministry of Transport, Posts, and Telecommunications. The government also created public corporations, called parastatals, which were given exclusive franchises in certain industries.

The major parastatals were:

(As can be discerned from the above, the acronym for a parastatal was sometimes based upon its name in English and sometimes on its name in Afrikaans.}

FOSKOR, SASOL and SOEKOR were created by the Industrial Development Corporation (IDC) which was established in 1940 to build domestic industries which would supply goods likely to be unavailable from foreign sources as a result of World War II.

In addition to other smaller parastatals the public sector included the partial share ownership of private companies by parastatals. When the government owns, directly or indirectly through a parastatal, controlling or even dominating share ownership of a private company, that company is effectively part of the State. In addition, when a private company is given a monopoly in an industry it is no longer strictly a private company but instead some sort of hybrid entity. So the extent of the public sector in South Africa was large and undefined. It was estimated that in the 1980s the government of the Republic of South Africa owned and controlled 40 percent of the physical capital of the country.

The government also was the major landlord of South Africa as a result of housing built and rented to the public by the government.

In addition to the property rights involvement of the government in the economy of South Africa the government set prices and enforced regulations. Some of the regulation had to do with racial policies but there was much that was plain and simple economic regulation having to do with a distrust of market processes. The name for the economic system in South Africa under the National Party is corporatism. Corporatism is an economic system that involves private ownership with extensive public regulation in most industries and public ownership in special development projects. Most countries of the world, including the United States, are now corporatist in economic policy. They differ as variants of corporatism but share a common core of institutions. This is not to say that all corporatist economies are the same. They differ in efficiency and the extent of civil liberties and thus in human wellbeing.

There is a strong element of collectivism in nationalistic movements. Nationalist movements such as the National Party in South Africa strongly opposed communism but perhaps not so much because of the collectivism of communism but instead because of its supposed internationalism and opposition to traditions. And of course one nationalist movement which wants to supplant another nationalism is an implacable enemy of that nationalism.

Given the collectivist element of nationalism it is not surprising that the parastatals ESKOM and ISCOR were set up in the 1920s under the government led by the Afrikaners Jan Smuts and J.B.M. Hertzog. South Africans of English background were not uninvolved in the role of government management of the economy but generally they did not have the same faith in government enterprise that South Africans of an Afrikaanse background had. The notion of economic self-sufficiency under an import-substitution strategy of economic development had a strong resonance with the laager ("circle the wagons") cultural mentality of the Afrikaners. (The Afrikaners of course had legitimate historical reasons for having developed a laager mentality.)

By the 1980s the National Party had partially given up the notion of import-substitutional development and tried to achieve economic development through export-oriented industry. Some industries such as the weapons industry continued operation as state enterprises but now the government encouraged weapons manufacture now only for domestic use but also for export. The international sale of South African weapons was handled by a division of ARMSCOR named Nimrod. Over the decade of the 1980s these arms sales totaled nearly $300 million.

Toward the end of the 1980s the National Party government announced its intention of privatizing some of the major parastatals, including ESKOM, ISCOR and FOSKOR. The postal service, the telecommunications services (TELKOM) and railway lines were also scheduled for privatization. This move toward privatization was prompted by a number of factors including:

ISCOR was sold in 1989 for 3 billion Rand which was equivalent to roughly $2 billion. There had been an attempt to sell ISCOR in 1929 just a few years after its creation but there were no buyers.

As a preliminary to privatization the National Party government in the 71980s reorganized the Ministry of Transport, Posts, and Telecommunications. The South African Railways and Harbours Administration was reorganized and renamed in 1985 as the South African Transport Services (SATS) which in 1990 became a corporation called TRANSNET. TRANSNET was made up of six divisions employing over 100,000 people:

A heavily subsidized corporation, the South African Rail Commuter Corporation, handled the commuter service for the major cities.

The privatization plans had to deal with the issue of whether foreign buyers would be allowed to purchase what had been deemed critical South African industries. The organizations such as the African National Congress that expected to come achieve political power in the near future opposed privatization. These organizations felt that privatization was merely a ploy to deny them control over the economic resources of South Africa even after they achieved political control.

When political change did come to South Africa in 1994 the Government of National Unity accepted the need for privatization. Some smaller state enterprises were to be completely privatized and in others such as TELKOM and SAA (South African Airways) the state would sell part of its ownership share to private interests. The Government of National Unity was facing severe shortages of government funds exactly at the time it most needed funds and privatization was an attractive option in many ways.

For material on other aspects of South African history see South African History.

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