Privatisation does not benefit the poor Article prepared for The Sowetan by Ravi Naidoo, Director, NALEDI, 27 August 2001

Introduction

Providing basic services to the poor is crucial if we are to break the poverty cycle that oppresses the majority of South Africans. These basic services include education, healthcare, electricity, water and sanitation, transport, and telecommunications – the essentials that people need in order to participate and advance in society.

Government's major solution informed by the virtues of “extending markets” and increasing “consumer choice” is to accelerate the privatisation process. Privatisation effectively includes contracting government functions out of the public sector or selling state assets.

But does privatisation benefit the poor?

The results of privatisation

Privatisation, in its various forms, is not new to South Africa. Indeed the Apartheid regime set the process in motion before it was removed.

Health – Since the 1980s private health was promoted, particularly through deregulation. Today 16 per cent of the population are in private health costing R36 billion a year. This is more than the R32 billion spent by the public health sector that covers the remaining 84 per cent of the population. Over-servicing in private health has driven medical inflation to over 300 per cent in real terms since the 1980s. The poor are completely priced out of this private health market. The poor instead use the public sector that, due to fiscal constraints, has seen public health per person spending fall by 15 per cent in real terms since 1996, resulting in deteriorating healthcare for the poor. In addition there has been a massive shift of key health professionals from the under-funded public sector into the private sector, increasing the public health crisis.

Water – While government has succeeded in rolling out more water infrastructure (taps and pipes) to the poor, communities are expected to pay. Even communities who never paid for water before now have to. While government has intended to contractually oblige the outsourced water management companies to deliver affordable and quality services, in practice contracts have been invariably renegotiated soon after privatisation, and tariffs increased. This has led to many of the poor being forced to go back to use the rivers, contributing to the deadly cholera outbreak in KwaZulu Natal early this year. Recently national government announced a “free water” programme, but without the support of additional national funds needed for effective implementation.

Telecommunications – Government sold 30 per cent of Telkom to a US-Malaysian consortium, and gave the investors full control of the enterprise through a “shareholder agreement”. As part of the service agreement, government required Telkom to roll out 1,9 million new phones to disadvantaged areas. In the three years since then, the price of local calls, which the poor use, has risen by 35 per cent in real terms, while international calls (used by businesses and the rich) have fallen by 40 per cent in real terms. The local call increases have led to disconnections that have almost matched the roll out of new lines. After accounting for disconnections, the reality is that there was a bigger roll out of new lines before Telkom was privatised than after.

Electricity – Eskom, under public sector management, is one of the cheapest electricity producers in the world. However, government intends to permit private generation of up to 30 per cent of electricity, particularly through transferring the stake to a black empowerment consortium. Privatisation consultants advising government estimate that the cost of electricity for households will have to be increased by up to 50 per cent. This is against a backdrop where there are already 10 000 electricity cut-offs to poor households in Soweto every month.

Transport – Public transport is an important basic service, desperately needed to counter the spatial effects of apartheid planning. In this regard, government, advised by international consultants, has proposed that the components of the public railway enterprise, Spoornet, be privatised. Part of the privatisation would require closing or downscaling “unprofitable” railways lines, mainly those serving poor areas. Significantly, trade unions recently forced government into accepting a joint stakeholder technical task team to analyse the feasibility of the proposed privatisation. This team came to the unambiguous conclusion that the consultants' advice was wrong, and that Spoornet would be better off if it was not privatised.

There are further examples of privatisation of basic services that one could refer to, though the conclusion would be the same: privatisation does not benefit the poor.

The underlying notion of “extending markets” to the poor, who do not possess market power (money), particularly in view of the extreme poverty and inequality in South Africa, is irrational. In this context, allowing “consumer choice” to determine service levels is effectively reducing service to the inadequate levels that the poor can afford, or cutting them off entirely where they cannot pay.

Further, the belief that government can force the private sector to serve the poor through regulation or contracts is being proven hopelessly unrealistic.

So why is government pushing ahead with privatisation?

There is clearly no fiscal constraint forcing government to privatise. Rather government has been cutting taxes over the past few years, by over R25 billion. Further, there have not been any credible cost-benefit analyses done which show that the specific privatisation proposals will help the poor.

So what are the real reasons pushing government to proceed with privatisation?

The first of these is that consultancies, rather than government, are actually driving the privatisation processes. Many of the consultancies, usually large international consultancies linked to finance capital, are aggressively promoting privatisation – and also getting massive commissions on doing the actual sale.

The second reason for the privatisation drive is that the Department of Public Enterprises behaves more like a “Department of Privatisation”. It creates an impression that it has a Cabinet mandate to sell certain state assets regardless of the impact on the poor.

Finally, and fundamentally, the pushing ahead with privatisation regardless reflects an ideological approach. The benefits of privatisation are assumed as fact, even if actual developments show this to be false. This ideological approach is consistent with South Africa's other ideological strategy, the Growth, Employment and Redistribution (GEAR), which has also patently failed to deliver on social targets.

What is to be done?

For those who are prepared to look at the facts with an open mind, the conclusion is clear and unambiguous. Privatisation of basic services is not benefiting the poor and, in the South African context, cannot be expected to.

Due to this reality, the following steps need to be taken:

• The current policy to privatise basic service delivery needs to be changed. Here one accepts that the public sector must be restructured. However, in the South African context, the restructuring should aim to “extend the State”, and not the market, in providing accessible and affordable services.
• The role of all foreign consultancies or any consultancies with remotely conflict of interest arrangements need to be investigated.
• Any restructuring of public sector basic service delivery needs to be preceded by credible cost-benefit analyses of its impact on the poor.
• Parliament, as the elected representatives of the people, needs to have final oversight over the restructuring process.

The ANC government needs to reflect on the profound irony represented by the forces aligned for privatisation (big business and right-wing opposition) and those aligned against it (trade unions, civics, NGO, religious and student movements). All that, and the ANC government approach also suffers from a patent lack of evidence that privatisation will benefit the poor.

In conclusion, the ANC government leadership and their policy advisors would do well to heed the advice: “If you find yourself in a hole, stop digging”.

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