12 January 2024

Parastatals, state-owned enterprises, and government interference in the economy all contribute to the continual rise in corruption and decline in competence in those enterprises and in the economy as a whole. The cure for their ineptitude and criminality is to privatise these state-owned enterprises and put as many government functions as possible in the hands of the private sector.
 
The root of our failing economy and collapsing society is government, its obsession with socialist central planning, and its uncontrollable urge to appoint incompetent cadres and political yes-men in positions that require competent businessmen and bureaucrats – not politicians.
 
The ruling party and its allies openly support a system of governance that sees them place their friends and political allies in positions of governance. They don’t care if these individuals are competent or qualified. Or if they’re even honest. This has led to huge corruption across all levels of government and throughout our economy – as even private sector businesses are forced to invite in government appointees due to BEE regulations.
 
Our tendering system is also awash with corruption, incompetent ideologies, and politicking. When we should be picking the best provider for the job, instead the government wrangles everything to ensure that their friend gets the job.
 
Just look at the recent case with PetroSA picking Russia’s Gazprombank to help them restart the gas-to-liquid refinery in Mossel Bay. Not only did PetroSA pick a foreign company rather than local businesses, they picked a company that is associated with a country facing global sanctions – further threatening our global reputation.
 
How did this happen?
 
The tendering process was awash with controversy, with PetroSA receiving bids before even advertising the tender. This stinks of corruption. And with the government’s track record of sucking up to Russia, despite its invasion of Ukraine, terrible human rights record, and the fact that it doesn’t actually have anything much to offer South Africa, we can clearly see that this was a politically and corruption motivated deal.
 
If PetroSA was privatised, would this have happened? PetroSA would pick a partner based on economic merits, not political benefits. It also wouldn’t be convinced to make deals with foreign powers for political kickbacks.
 
And even if it did, the damage would not be as great. Rather than the entirety of South Africa being tarnished by associating with Russia, only one private company would face scorn.
 
Corruption in Eskom is well-documented. The same in Transnet. Beyond state-owned enterprises, which all host significant levels of corruption, and varying levels of gross incompetence, municipalities suffer from even worse criminality.
 
And at the core of all this corruption is access to public coffers, a lack of accountability due to there being no competition, and consumers having no choice.
 
The cure to all of this is to unbundle, decentralise, and privatise as many of these state-owned enterprises as possible. And, on top of that, to privatise ostensible “government functions” in general as well. The government has proven inept at performing basic tasks. So, where possible, its job should be done by the private sector.
 
The process by which these assets and functions are privatised must however be closely monitored by society at large, the private sector, the media, and independent regulators. The state-owned enterprises and governmental functions can’t just be sold or given away as is to politicians or their friends. They must be unbundled into individual assets and facilities, and granted to the private sector in bidding wars that measure both simple monetary bids, competence, and require a lack of association with political actors or corrupt entities.
 
The reason for the decentralisation is that a private monopoly suffers from many of the flaws that a public monopoly does. Alongside privatisation, there must also be vast deregulation to allow new entrants to these industries. There shouldn’t be a single company taking over electricity procurement, but dozens, if not hundreds. The same goes for all functions that need to be privatised.
 
Free market imperative
 
To lower the risk of corruption, complacency, and endemic incompetence, there must be a vibrant free market with fiery competition. When these companies are allowed to fail, and be replaced by better companies, then we will know we have a healthy economy.
 
On top of this, with the government no longer needing to fund and subsidise so many state-owned enterprises, it can service its debt, redirect funds to functions it should run (like law enforcement), or even lower the tax burden.
 
The tendering process must also be made as transparent as possible, with government functions becoming consumer-centric rather than tenders being chosen by officials. For example, equip many companies to take over some of the responsibilities of Home Affairs, or road repairs, and let consumers and communities choose which company they would like to perform the task – not an official who will inevitably choose his friend or the company that bribed him.
 
Ultimately, decentralisation and privatisation can only be a net good for South Africans, and the only thing that will truly lessen the impact of corruption on our people.

Nicholas Woode-Smith, an author, economic historian, and political analyst, is a contributing author for the Free Market Foundation.

This article was first published by BizNews on 4 December 2023