"Restructuring for Development: Ensuring benefits for the People"
Sandton, South Africa 16 May 2000
It is a great pleasure to be with you this morning to participate in the first session of the Privatisation Africa 2000 Conference. It is even more pleasant to be able to welcome so many distinguished colleagues and friends from many parts of Africa and beyond. I must admit that I was rather startled to read in the 'Business Calendar' in yesterday's Business Report that my address to you would last "until 18 May"! Let me assure everyone that I have absolutely no intention to talk for two days, as I am a firm believer in the idea that we should talk less and do more! Nevertheless I will be happy to share a few thoughts with you on the South African government's perspective on the restructuring of state owned enterprises. I intend doing so in a manner that I hope will help set the scene for the more detailed discussions about the sectoral and country perspectives your conference will deal with over the next few days. My address will look principally at the following elements: first of all, what motivates our interest in restructuring; second, where does it fit into the broader framework of economic policy in South Africa; third, what do we hope to achieve with our restructuring initiatives; and finally, how do we see progress to date and in the immediate future.
The African National Congress has consistently engaged debates and discussions around the question of the total liberation of the people of South Africa from national oppression and economic exploitation. Over the decades, it developed a keen interest in and participated in many conferences of international agencies for change and development, many of them concerned solely with the African continent or the plight of the developing world. As the international campaign to isolate the apartheid regime intensified and the prospects of the possibility of a negotiated settlement to the South African conflict loomed large, the ANC developed detailed and considered policies in a number of areas in preparation for government. Included in this long list was of course the question of economic policy as an instrument of long term, sustainable development that would serve to address the fundamental problems we inherited from the colonial and apartheid era. These problems include extreme forms of poverty concentrated heavily in the areas of the former homelands but also evident in urban areas; uneven infrastructural development in the country as a whole, but exacerbated by the wholesale neglect of infrastructure investment by the previous apartheid governments in the 1970s and 1980s; the bulk of our business sector in South Africa has had to undergo a steep learning curve as we re-entered world markets; outmoded, bureaucratic forms of organization and excessive red tape bedeviled government interaction with the business sector before the new era of democracy; a plethora or laws and customs that emphasized coercion and suppression of workers, the poor, the marginalized, and the disenfranchised that collectively ensured exclusion from policy making and implementation; and finally, a whole educational and skills training system that excluded the vast majority of people on the basis of race.
I have emphasized these points not because I do not think that an audience such as this is ignorant of our history. Rather, the point is to suggest that we still need to examine the choices we make today, whether in the field of education or of the broader economy, in the context of the absolute, objective need to fundamentally transform the lives of our people not only through a system of institutional and political change, but through the development of an inclusive, people-centred approach to development that frees resources from largely consumption-driven imperatives to investment in social capital, infrastructure, and sustained development.
What is as clear to us as the sparkling snow that caps Kilimanjaro in the bright light of day is the simple fact that the magnitude of the task that faces all of us in South Africa to create a better life for all our people demands workable solutions to difficult problems within timeframes etched with urgency. Hence, we value greatly opportunities such as this one, and numerous others that we have engaged in and will continue to do so, to share information about similar bold efforts elsewhere in the world, particularly those areas that appear to share elements of our own racial and economic past, and to learn from each others experiences accordingly. For us in Africa, it is a truism that if we are to translate short-term gains into long-term benefits, then it is necessary to adapt generic frameworks devised to address similar problems to the particular conditions within individual countries and regions. We must also accept that restructuring comes in many different shapes and sizes, just as our own physical features may differ but do not detract from our common identity as human beings.
So, to sum up so far, I would suggest that our interest in restructuring as an instrument of public policy emanates from the very real need to ensure that our people as a whole live better, engage with one another with greater humanity and justice, are exposed to the opportunities and chances that come with greater social wealth, so that they can take their place proudly as citizens in every sense of the word, of South Africa, of Africa and of the world. This is our emancipating vision and one that drives our thinking. As such, restructuring is not driven by cold dogma or rampant ideology. As a tool it has certain dimensions, but many applications. It is our task, nay, responsibility, to work out the particular job to be done for the greater benefit of the people of our country.
There seem to be some cardinal realities in the nature of the contemporary political economy that we should keep in mind. First of all, although globalisation has become a common way to express the major elements of international economic relations, the origins of our current system go some way back. Critically, though, the ability of markets, investors, capital, and to a lesser extent, labour to migrate far more easily, rapidly and in some instance with greater fickleness than before, is a hallmark of our times. Again, another element is the simple fact that the bulk of investment capital available today is held in private hands, or more correctly, in collections of private hands, that highlights the greater influence of the private sector in many social and political debates. Another element is simply that many, many governments depend to a larger or lesser extent on loans and funding for infrastructure development. Nonetheless, the challenge for the developing state at the very least is to engage with the international community in a manner that secures as large an impact it can muster in the identification of its own priorities, and the implementation of the best solutions to its problems.
Fortunately for us, for example, is that although elements of restructuring have been repeated like a mantra for some years now, sufficient time has passed to show that some of the simplistic "answers" of yesteryear have not turned out to be the panacea they were originally thought to be. More important than this element, though, is the fact that we have much more information, experience and so on to go on now than we did before to deal with the essence of the problems that have not gone away, simply because the solutions have been found harder to find. The major encumbrances that face us include the failure of monopolies, both natural and legal, to alleviate adequately the depth of the development crisis we face; the inability at this stage of domestic systems to produce the levels of investment, technological expertise, business acumen and management systems skills that we require; and we need greater impetus to the development of the SMME sector to secure growth with jobs. At the same time, it is unfortunate that despite a number of initiatives, investment in the poorest areas of our country remains haphazard and insufficient to the need. The South African economy must ultimately serve the benefit of the majority of our people. In order to do so, and given the barbarous nature of poverty in our country that has to be addressed, we still require the strength and direction of state resources, including in some instances SOEs, to direct the development programme. The combination of the requirement for economic efficiencies and social responsibilities means the combination of a number of different strategies, options and tactics.
Stated in a slightly different way, I can indicate that our objectives for the restructuring programme can be identified by their relationship to micro, macro and social impacts. At the micro-economic level, restructuring involves enhancing the efficiency and effectiveness of state enterprises, sorting out their business systems and ensuring proper corporate governance, accessing globally competitive technologies, helping to create effective market structures that encourage greater competition in sectors currently dominated by SOEs; as well as mobilizing private sector capital, expertise and participation at the enterprise level. At the macro-economic level, restructuring aims to achieve a reduction in the public sector borrowing requirement, to attract foreign direct investment, and to finance growth and provide for greater industrial competitiveness. Taken together these two sets of aims at different levels would achieve a great deal; however, given our conditions of inherited inequality and injustice, they would be insufficient on their own to provide an adequate response to the pressing issues of the day. Hence, we believe that it is imperative to emphasise that at the social level there are particular results we wish to see. These include wider participation in the South African economy through active participation and skills development of formerly disadvantaged groups and individuals, as well as to mitigate against any possible negative social impacts that may arise from restructuring efforts, such as marginal job losses, erratic price increases, or even the withdrawal or cancellation of services to certain areas.
It is commonly understood that the fundamentals upon which the South African economy now stand are essentially sound. In general terms, the direction and content of the policies implemented by government have produced the confidence in our economy that is both pleasing as it is necessary. However, there are a number of other elements that require our attention, and these include a renewed concentration and indeed acceleration of the restructuring of SOEs. At issue is the complex relationship between reshaping the economy itself, in which the restructuring process takes place, and the need to ensure that we do not create other problems along the way that would prove equally intractable further down the line. Thus we steer clear from the idea of bargain basement sales and prefer sound, sustainable business options that take into consideration apt due diligence assessments and market conditions. Also, the bottomless pit that some of the SOEs could become if we did not act is a no-man's land we should avoid at all costs. However, we do believe that with sound intervention and guidance, the best solutions can emerge.
Any country, whether it is developing or developed, has to ensure that the driving force sectors of the economy are catered for, maintained and lay a foundation for general progress. It is therefore no accident of history, as I pointed out in Parliament recently, that the major SOEs in our country are located in four critical sectors of our economy: transport, telecommunications, energy and the high technology defence industrial sector. Transnet, Telkom, Eskom and Denel are common names in our country, and increasingly are becoming household names in other parts of Africa. As we know by now, together they contribute 86% of turnover, 94% of net income, employ some 77% of the total workforce, and 91% of the total assets of the top 30 SOEs. Together they dominate if not overwhelm the sectors in which they participate. Government's decision to focus its restructuring attention on these Big Four has the agreement of political parties across the board.
This focus on the Big Four does not mean of course that we will slow down the task of exiting non-core business units, dealing with the less strategic entities. All of them need to be monitored and evaluated; rash business decisions must be avoided, even at the lower levels of engagement. Thus we have already employed a number of options that have seen a reduction in waste, aim to retain and even develop skills of both labour and management, and also allow for greater community involvement. Thus fixed-term management contracts to boost internal capacity have played a part in Aventura, Alexkor and Spoornet. Equity partnerships in the Post Office and SAA, operating at wholly different levels, indicate a useful approach. We are currently assessing the impact of possible public offerings, voucher schemes or other initiatives to promote popular participation. We have announced plans to concession out a number of the major services of Spoornet, to supplement other internal reorganization strategies. Similarly, the recent announcement of new appointments within Portnet boosts our designs to restructure port operations successfully. Similarly, government teams have engaged experts and specialists around financial models to alleviate debt burdens and the restructuring of pension funds. These latter options are particularly sensitive as any sensible commentator knows and you will understand why I am not prepared to provide any hints as to the direction of our thoughts at this stage.
These initiatives have emerged from a thorough assessment of international trends and an examination of the initial steps our new government took after 1994. The stakes are high for all involved, and therefore government has taken its role as mediator, facilitator and ultimately as the driving force of the process in line with basic policy positions, very seriously. We want to make sure the transition towards world class, competent and responsible SOEs is as smooth as possible. To this end, we have adopted Protocols on Corporate Governance with SOEs management and their Boards of Directors and will sign off Shareholder Compacts as well. Furthermore, the final touches to a sound Social Plan to cushion the effects, for example, of possible retrenchments are being put in place. We have engaged at various times with management, Boards and labour throughout the SOE sector in an endeavour to hear all voices, to identify possible glitches and to attempt to draw common conclusions. By its very nature this is a dynamic process and one that requires constant work. I am committed to presenting the country with a legitimate, workable programme that will be sustainable and will benefit our people long after we in this room are no longer here.
Those of you who followed the debate on my department's Budget Vote in Parliament will know more of the detail of the progress to date in the restructuring area. I will not repeat those items here. Let me add, too, that Government has chosen the path of open public policy processes that maintains a culture of openness and transparency to ensure that all stakeholders contribute meaningfully in the development, ownership and implementation of our restructuring programmes. To that end, I do not wish to premeditate the path of action that Parliament will take to ensure open and public discussion of our Policy Framework Discussion Document that will be tabled shortly. The final touches are being put together at the moment with my department coordinating inputs from other government departments. I am however, more than confident that the Business Plan approach we are proposing will conclude the initial business of restructuring by 2004. Where necessary, legislation for different sectors and/or entities will be in place, the critically important areas of regulation and competent authorities will be operative, and the balance between social needs in a developing society will be maintained alongside the best economic practice appropriate to such development. In the middle of this bubbling cauldron of restructuring activity is the central requirement that we ensure that the economic and commercial objectives of the state as shareholder on the one hand the responsibility of the state on the other to ensure the affordable delivery of services, are balanced as well.
We are well aware of the more favourable economic climate that has emerged over the last two years or so. Most recently Standard and Poor commented positively on our general economic direction and became the latest analyst to increase our investment confidence rating. Recent figures that indicate a drop in FDI, we have noted an increase in new investment from companies that had not ventured here before. This is itself is encouraging. The United States has also adopted a more open policy towards Africa, and we have seen a successful though tough conclusion to the European Union negotiations. Together, these elements open new opportunities for investors from abroad and also for the development of joint ventures here. Government looks forward to the expanded participation of the private sector in our restructuring efforts. We look forward to foreign investors, large and small, coming to our shores. We are also exploring methods to ensure participation in our programmes of other African countries and those of the South, including companies based there. Bilateral and regional discussions and agreements to build each other in the context of the African Renaissance have become the order of the day. We are enthusiastic too, that vehicles such as the National Empowerment Fund or Employee Share Ownership Plans are included. Beyond them, we consider the involvement of trade union investment companies and ventures as ideal partners with the state in the allocation of equity. The variety of options that we have identified according to the requirements of the specific entities and the possibility of them fulfilling the purposes we have set allow for a greater involvement of different stakeholders than normally considered.
We are also aware of the broader context that influences these positive developments. Peace and democracy, freedom from conflict and war, tensions over borders, and respect for the rule of law, anti-corruption measures and openness, all contribute to making development possible. But all of these programmes, their intricate detail and the shape they take, bring us back full circle to why we are doing it all in the first place.
A better life for all our people is our aim. Through participation and cooperation, through the investment of our different resources, skills and time, the mobilization of our common endeavour to seek the best way together, we shall be able to secure the vision I outlined much earlier this morning. There are government officials and business people scattered throughout this audience and who will be here for all your deliberations. They are open-minded to the extent that they know that they are here to listen, to learn, to invigorate your debates and to provide information where this is lacking or unclear. There are compatriots and colleagues from other parts of Africa who we are proud to host and to welcome.
The African Renaissance is about the translation of our current endeavour to build a future our ancestors would be proud of. We can move Africa forward into the African Millennium. We must use instances such as this Conference to reassert the common strength we know resides in our African soil to overcome diversity, conflict, insecurity, disease, and poverty. All our brothers and sisters, here and in the Diaspora, and all who sincerely claim to be one with us in our common human objective are agents for change and transformation. We cannot squander our responsibilities; we must enrich our continent for the benefit of our culture, our art, our music, our faiths, our politics and philosophies…for our people and humanity as a whole.
I thank you all.