South Africa needs to sober up to save itself from sickly state-owned enterprises

South Africa needs to decide if it will continue to waste public money on its national carrier, or incur the costs of letting SAA go bankrupt.
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The South African government is said to be seriously considering selling its stake in telecommunication firm, Telkom, in order to save the troubled South African Airways (SAA). This has brought back debates about what is the right thing to do around the country’s state owned enterprises. Sibonelo Radebe asked Seán Muller to weigh up the options.

What does financial support to SAA actually involve?

There are two basic forms of assistance government has provided to SAA. The first “government guarantees”, in which the Treasury provides a guarantee to support SAA’s borrowing from private lenders. These guarantees mean that if SAA is unable to pay its debt costs or repay the full loan when required, the Treasury must pay. As of February 2017, SAA held R19.1 billion in government guarantees. These pose a risk to public finances, but strictly speaking do not require any funds immediately.

The second type is a “cash injection”, where Treasury directly transfers cash to SAA. This is what is more commonly known as a “bailout”.

In the current case the lines between these two forms of support are blurred. One of Treasury’s reasons for giving SAA cash is apparently to prevent it defaulting on all debt that is called in by SAA’s creditors.

Is selling a Telkom stake and redirecting the money towards saving SAA a good idea?

There are two aspects to this question. First, is injecting more public money into SAA a good idea? Second, is selling government’s stake in Telkom a good idea?

It is hard to see the case for putting further public money in SAA. At various points it may have made sense to do this in order to stabilise SAA as a public enterprise, or prepare it for large scale privatisation. However, this scenario has been repeated so many times that the argument is no longer credible.

Of course, the government has an obligation to prevent the harm that would result from a state-owned enterprise going bankrupt. The direct effects via SAA’s operations, and indirect effects on the economy and investor sentiment in relation to state owned enterprises, could be severe. The failure to implement a successful turnaround strategy at SAA, which appears to be linked to the determination to keep Dudu Myeni as board chair, has placed South Africans in a bind: either the country wastes public money, or it incurs the costs of letting SAA go bankrupt.

With regards to Telkom, it is useful to remember that government previously committed to only bailout state-owned enterprises using funds raised through the sale of state assets. There are two advantages of this approach. First, it focuses minds on the consequences of state owned enterprises failure – as is happening in the case of SAA. Second, it means that the main national budget is not affected, so Treasury can still meet its commitments like the planned budget deficit.

But there is no good case for bailing out SAA. At best, it is simply to avoid an even worse scenario in which SAA’s guarantees are called in by creditors. Wherever the money comes from, the social cost is significant and arguably unjustified.

Some have suggested that there are additional costs because Telkom is now a profitable enterprise and represents a government success story, but this is debatable. South Africa’s ICT development has been unsatisfactorily slow and arguably one reason is that government’s stake in Telkom meant that it ended up protecting a firm with monopoly power in fixed line infrastructure.

Contrary to an increasingly popular narrative, the fact that Telkom has become profitable by moving into the mobile space and slashing employment does not make it either a privatisation, or a state ownership, success story. From this perspective, government selling its stake could be a good thing for ICT development in the medium to long run.

What does the consideration say about ANC’s attitude towards privatisation?

There is an obvious tension between the claim that SAA cannot be privatised, while effectively privatising government’s remaining stake in Telkom. Such inconsistencies are characteristic of ANC policy in the last two decades. This is partly due to differences within the alliance and partly the result of policy incoherence, along with a failure to act on advice and implement decisions.

The National Development Plan and the Presidential Review Committee on State-Owned Entities both provided fairly clear direction, but many recommendations appear to be inconvenient for the president and those around him – who appear to see state owned enterprises as vehicles for personal enrichment rather than economic development.

Clearly the Telkom model works. Should it be replicated?

It is actually not at all clear that the Telkom model “works” in the sense of advancing economic growth and development in the broader public interest. It was arguably the wrong model for the country’s ICT sector.

However, even if it had been the right model for that sector, simply replicating it would be a bad idea. State ownership, privatisation and regulation strategies need to take into account the characteristics of particular sectors. What works for telecoms will be different to what works for energy or for airlines.

And what do you make of the state of Eskom?

The state of Eskom is of grave concern. Load shedding and price increases, combined with more energy efficiency options for businesses and consumers, have led to much lower electricity demand than originally forecast.

Meanwhile, Eskom is bringing massive new coal power stations online that have vastly exceeded their original budgets. The result is that Eskom faces a “death spiral” where it needs to increase prices to prop up revenue and bolster its finances, but doing so leads to customers reducing demand (through increased efficiency and implementing alternative options like decentralised solar power).

Eskom holds up to R350 billion in government guarantees and is in an increasingly precarious situation. If one adds the lingering possibility of an unnecessary and ill-advised nuclear deal into the mix, the fear is that Eskom could end up in a similar state to SAA now.

SAA may be a waste of public funds, but the threat it poses can probably be contained. That would not be true of Eskom. The main debate between many analysts now is not whether a crisis is looming but whether there remains any chance of avoiding it, given repeated failures to make and implement critical policy decisions.

And so, what should happen to SAA and Eskom?

In the absence of a clear developmental mandate for SAA, and it being repeatedly bailed out with public money that could be better used elsewhere, the objective must be to minimise the cost of SAA to citizens: if privatisation is the best option then so be it. Eskom is a much more strategically critical enterprise and its problems are more complex, so privatisation would just create a range of different problems. Each state owned enterprises requires tailor-made solutions but one thing they all require is basic good governance, which is not currently in place.

Seán Mfundza Muller, Senior Lecturer in Economics, University of Johannesburg

This article was originally published on The Conversation.

'Exposés about South Africa's deputy president point to ulterior motives

South Africa’s Deputy President Cyril Ramaphosa says his emails were hacked.
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The recent media “revelations” about South Africa’s Deputy President Cyril Ramaphosa’s several alleged extramarital affairs are the classic approach to creating doubt about a prominent person’s integrity.

They also call into question his claim to be a suitable moral or ethical alternative to President Jacob Zuma’s corrupt administration. The latest accusations are meant to attack the very foundation of his campaign to lead both the ANC and the country. Ramaphosa admitted to having had an affair a decade ago.

This is not the first time that prominent ANC personalities have been placed in a situation similar to Ramaphosa’s. In the past accusations were made against Kgalema Motlanthe, a former ANC secretary-general and deputy president, and against Blade Nzimande, general-secretary of the South African Communist Party (SACP) and Minister of Higher Education. The SACP is in a governing tri-partite alliance with the ANC and labour federation Cosatu.

More specific reports of alleged infidelity have appeared against Police Minister Fikile Mbalula and Jeff Radebe, minister in the Presidency. Marius Fransman, the ANC’s Western Cape leader, has been suspended for five years for sexual misconduct.

It would be inappropriate to generalise about all of them. And, with the available information, the Ramaphosa case appears to be an example of the tried-and-tested trick of spreading rumours about or exposing infidelity.

It is noteworthy that Ramaphosa’s defence mentions this directly, and that state institutions are being used (by the pro-Zuma group) to neutralise his election campaign:

It represents an escalation of a dirty war against those who are working to restore the values, principles and integrity of the African National Congress and society.

Ramaphosa is considered a frontrunner among the contenders to replace Zuma - ahead of the president’s preferred successor, Nkosazana Dlamini-Zuma.

Gunning for Ramaphosa

The campaign to discredit Ramaphosa has gone through several stages:

• first, an attempt was made to compromise him by placing blame for the Marikana massacre on him.
• Then he was discredited as a puppet of business who is being manipulated by “white monopoly capital”.
• These were followed by the claim that he was being manipulated by a “white clique” that manage his election campaign and that he was, therefore, not genuinely “black”.
• He was also accused of having beaten his ex-wife. But, she refuted the allegation.

The latest line of attack seeks to advance the view that his moral outrage against Zuma’s corruption and unethical leadership is compromised by his own immoral extramarital relations. Importantly, he admitted to having had an affair a decade ago.

But, the campaign to discredit Ramaphosa appears to not be getting the desired effect. The general sentiment among ANC spokespersons and those of Cosatu is one of dismay. Ramaphosa’s family and acquaintances have also dismissed the latest accusations against him.

The fact that some refers to events about eight years ago, and the fact that they openly challenge Ramaphosa’s character, point to possible ulterior motives.

Message to detractors

An important aspect of the current Ramaphosa case is that it is an indirect message to Zuma’s opponents. Zuma is making it clear that he still has sufficient access to intelligence agencies to expose the skeletons in their cupboards. It will likely dampen the emerging rebellion in the ANC. An example of such rebellion was seen during the recent motion of no confidence against him in Parliament. It saw 35 ANC MPs defy orders to toe the party line in the motion brought by the opposition.

If it’s seen in the same light as the Hawks’ investigations into former finance minister Trevor Manuel and his deputy Jabu Moleketi; and then former South African Revenue Service Commissioner Pravin Gordhan, about SARS intelligence and Treasury management; it sends a message to Ramaphosa supporters: to tread carefully in the future.

The fact that the ANC leadership nomination process has commenced, and that intense contestation can be expected ahead of the party’s national elective conference in December, the possibility of serious incidents shouldn’t be excluded.

Political assassinations already underway in KwaZulu-Natal might increase.

Serious setbacks

Another important symptom of the motive behind the Ramaphosa case is the fact that Zuma has experienced a set of serious setbacks lately. These include that:

• the Guptas, the business family and his friends at the centre of state capture, are suffering a meltdown;
• there are new parliamentary investigations into state capture;
• the demise of his key supporters in government agencies (like Brian Molefe, Ben Ngubane, Hlaudi Motsoeneng, Berning Ntlemeza);
• the South African Broadcasting Corporation is increasingly exhibiting independence;
• the ANC’s parliamentary caucus is rebelling against him;
• he has suffered several negative court judgments; and
• the UK public relations company Bell Pottinger’s woes have also discredited Zuma’s mantra of “white monopoly capital”. The British public relations company employed by the Gupta business empire got embroiled in ANC internal politics. It has since been sanctioned for its role in promoting the racially divisive “white monopoly capital” narrative sponsored by the Guptas, Zuma’s friends at the core of state capture allegations.

Warning to the media

The months leading towards the ANC’s December conference will be a trying period for the South African mainstream media. They are a lucrative target for abuse by the two main ANC election campaigns.

Leaks, planted information, fake news and attempts to lure journalists to support either faction are all very likely possibilities. The Ramaphosa case has been the first major test for the media. Clear editorial policies, uncompromised ethical practices and exceptional professionalism are what will see the media through. It cannot afford mistakes or miscalculations in the next four months.

Dirk Kotze, Professor in Political Science, University of South Africa

This article was originally published on The Conversation.

South Africa: what does the future hold for the 'rainbow nation'?

President Jacob Zuma’s party remains the dominant force in South Africa despite a number of political and social changes.
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As part of my work for the University of Sydney and the Australian government, I’ve visited South Africa seven times since retiring from politics in 2006. Each time something new has happened, and what appeared as a reasonably stable dynamic within the African National Congress (ANC) is no longer so.

In 2008, Thabo Mbeki was ousted as South Africa’s president and replaced by the unashamedly populist Jacob Zuma. Also in that year, a section of the ANC left to form the Congress of the People (COPE).

In 2013, former anti-apartheid activist, academic and businesswoman Mamphela Ramphele returned to politics after a long absence to form a new party which she has called Agang, Sesotho for “let us build”.

Radical youth leader Julius Malema was also expelled by the ANC in 2012 and has now formed his own party, the Economic Freedom Fighters (EFF). Malema calls himself “commander-in-chief”, and proposes expropriation of land without compensation, the nationalisation of mines and other strategic assets and free education and health care.

Added to these factors are the new divisions within the working class over which unions are best equipped to represent their interests. No longer is it the case that the Triple Alliance - involving the Congress of South African Trade Unions (COSATU), the South African Communist Party (SACP) and the ANC - can say that the workers are “theirs”.

Open conflict between the National Union of Mineworkers (NUM) and a newly-formed rival, the Association of Mineworkers and Construction Union (AMCU), is a case in point, with the latter claiming the NUM is too close to management. The killing of 34 striking mine workers in what is now described as the “Marikana massacre” in August 2012 has further exacerbated these divisions and raised doubts about the loyalties and priorities of the ANC.

Given all of these factors, it is not surprising that the main opposition party, the Democratic Alliance (DA) - led by the gutsy and much-respected Helen Zille - is making progress. It does well where it governs – most notably in the Western Cape where Zille is premier – as confirmed by a report from the nation’s Department of Performance Monitoring and Evaluation. In each of the four key performance areas – governance, strategy, human resources, and finance – the Western Cape was ranked first among the provinces and national departments.

In the 2009 national election, the DA’s vote grew by nearly 50% – up to nearly 16.66%. For the first time, the ANC fell short of the two-thirds majority needed to change the Constitution.

This all being said, the ANC remains the dominant force in South African politics. It led the struggle against apartheid and under Nelson Mandela managed a remarkably smooth transition to democracy. However, it is now under real pressure, a victim of its own complacency and sense of entitlement. Its opponents on the left (EFF) and in the centre (DA) can point to growing unemployment on the one hand - particularly among the young - and corruption and ineffective (sometimes dysfunctional) government on the other.

A recent survey conducted by Transparency International found that 47% said they had bribed at least one official in the last 12 months. Such bribes, those surveyed claimed, were needed to get the service they wanted or to “speed things up”.

One of the major battlegrounds will be the forthcoming election in the populous and wealthy Gauteng Province, currently run by the ANC. It is, as writer Ranjeni Munusamy has put it: “where decisions, deals and money are made”.

In the Gauteng Province, the DA won 21.86% of the vote in the 2009 elections, and in municipal elections a year later won 33.04%. It is more complicated this time around, however, with the EFF and others in play. Elections are to be held midway through 2014, and indications are that the ANC might fall below the halfway mark and that the DA will be close behind, with the EFF a credible third. Just what Agang’s pulling power will be is difficult to judge.

Poverty and unemployment are two issues that continue to cause political instability in South Africa.
EPA/Kim Ludbrook

What this tells us is that the country may be entering a period of political instability. Many within the middle-class are wanting to settle things down with good government but are unable to find the majority to do so while the disenfranchised are on the march and are restless for radical change.

There have been some improvements in South Africa’s Development Index score (a composite measure of life expectancy, education and income per capita) but it isn’t significant and sits alongside increasing unemployment levels. The official unemployment rate for 15-to-24 year olds is just under 50%, and for 25-to-34 year olds it is nearly 30%. In reflecting on politics in South Africa, it is always important to be reminded that it is one of the most unequal countries in the world, with government studies showing us that more than half the population are living in poverty.

The ANC government does have a strategy to eliminate poverty and reduce inequality in the form of the National Development Plan (NDP), but it is seen as too market-oriented by significant sections of the labour movement and some in the Cabinet. The capacity of the NDP to deliver for the government will depend on political leadership, but as South African political expert Richard Calland has written:

Will Zuma continue to back the NDP or will he zigzag on it according to the expedient needs of the day, as he does on most policy issues?

Zuma needs the strength that comes from unqualified legitimacy, but he has found that hard to find given continuing campaigns – mainly but not only by the DA – claiming corruption and maladministration, past and present. He easily fought off the “forces of change” within the ANC that sought his removal in favour of deputy president Kgalema Motlanthe last December, but continues to make headlines in relation to taxpayer-funded renovations to his private retirement home. Zuma’s power within the ANC has grown, but one cannot say the same thing about his authority within the nation at large.

Whichever way you look at it, South Africa is a nation of massive contradictions between rich and poor, modernity and backwardness, and hope and realism. Managing those contradictions in the transition to democracy was a remarkable achievement, but is all that much harder today as the electorate splinters and division replaces unity within the political class.

Geoff Gallop, Director, Graduate School of Government, University of Sydney

This article was originally published on The Conversation.

South African business must own up to its part in the corruption scandals

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South Africa is reeling from a string of scandals involving state owned enterprises and the Guptas, a family with close ties to President Jacob Zuma. A trove of recently leaked Gupta emails exposed the involvement of prominent businesses in the extensive corruption networks. Sibonelo Radebe asked Mills Soko to explain the implications of the scandals.

What do you make of the situation?

If nothing else, the Gupta leaks have shown us how perilously close South Africa is to losing everything so many people fought so hard for. Not only does corruption divert capital allocated for public services away from the poor, it hollows out important state institutions and, ultimately, frays the social and economic fabric of the country. It threatens the hard won democracy and political stability.

The ongoing revelations around state capture and patronage are giving South Africans an unprecedented and frightening glimpse into the machinery of corruption. The most unnerving element of the emails is how many of the transactions appear blatant and almost casual. The absolute cynicism and lack of ethics revealed in this correspondence is breath taking.

What we do with this knowledge as a country is going to count for everything. As a business community we can look away and call these tales of corruption isolated incidents – or we can step up to ensure that our organisations hold themselves to a higher standard. Most critically the law must take its course.

What does it tell us about the role of business?

The emails remind us that in any corrupt interaction it takes two to tango. And while governments and public money are so often at the centre, the enablers of corruption are not in government but in the private sector.

With the Gupta’s at the centre of the rot, prominent international companies like accounting firm KPMG, consulting giant McKinsey, ICT player SAP, engineering company Liebherr and capital equipment manufacturer Shanghai Zhenhua Heavy Industries have been implicated in the mounting scandal. It’s worrying to see that companies of such calibre can be involved in such nefarious activity.

Corruption is, of course, not a new phenomenon – and nor is it unique to South Africa, as the Global Corruption Index shows. But certainly, the scale of what is going on in South Africa right now is unprecedented.

How do you rate the responses by the implicated businesses?

Companies have scrambled to distance themselves from the reputational firestorm that the Gupta leaks have unleashed. McKinsey acted promptly to suspend Vikas Sagar, a director in its South African office, to allow an internal investigation to proceed. For its part SAP, which originally denied the allegations, has similarly suspended South African staff while launching a full anti-corruption investigation , which is to be carried out by a multinational law firm and overseen by its executive board member Adaire Fox-Martin.

It’s convenient to blame these incidents on bad apples. But this doesn’t get below the surface of what is really going on. The scale of the corruption and the apparent ease with which it has been unfolding speaks to the fact that something is very wrong with the system. And it highlights an utter lack of business ethics and governance failures. This isn’t something the country can afford.

What should be done to root out the corruption?

While all of this may seem overwhelming, what is unfolding also presents the business community with an opportunity for some introspection. Calls have been made for greater purpose and responsibility on the part of South African leaders.

But how can we make sure these fine words and intentions are internalised? How do we make sure as a country that our business as well as our state institutions are committed to not allowing this to happen ever again?

Educational institutions, business schools in particular, are positioned as a first-line duty in making sure that graduates are equipped to recognise and reject corruption in any form. The country needs business leaders who are committed to building sustainable and profitable businesses but who are also mindful of their social and ethical obligations.

Citizens as workers and consumers also have a significant role to play. As individuals working in companies and purchasing goods and services from companies, they can condemn unethical behaviour from companies. This was partly reflected in how the general public put pressure on Bell Pottinger the UK based public relations firm which did work for the Gupta’s.

By rounding on Bell Pottinger, effectively causing the company to lock its Twitter account and issue a formal and unprecedented apology to the country (even though they also blamed the fiasco on bad apples rather than the system), South Africans have shown the power they can wield when united against wrongdoing.

But the country needs to go further. While government and business have not enjoyed the best relationship in recent times, they need to bury the hatchet and come together to fix the inequalities in this country. Deep divisions have laid South Africa open to the kind of racist exploitation that Bell Pottinger unleashed.

Until the country rights this situation, it will continue to remain vulnerable to these kinds of nefarious influences. South Africa needs to be united in the spirit of building a country that works for everyone – not just a select few. Things are broken, yes – but it’s not impossible to repair the damage.

Mills Soko, Associate Professor, Graduate School of Business, University of Cape Town

This article was originally published on The Conversation.

What is terrorism? What do terrorists want?

A vigil for the victims of an attack at Manchester Arena on May 23, 2017. REUTERS/Peter Nicholls

Editor’s note: The Islamic State has claimed responsibility for an attack at the Manchester Arena that claimed at least 22 lives and hospitalized 59 more people. One victim was just eight years old. The mayor of Manchester called the attack “an evil act.”

Because the media often sensationalizes terrorism and authorities tend to oversimplify it, demystifying common misconceptions about why individuals carry out political violence is important. We asked a professor at Georgetown University to answer three common questions about terrorism and political violence.

1. What is terrorism?

Terrorism is not an ideology like communism or capitalism.

Rather, terrorism is a tactic – a strategy used to achieve a specific end.

This strategy is often used in asymmetric power struggles when a weaker person, or group, is fighting against a powerful nation-state. The violence is aimed at creating fear in the targeted population and often provokes prompt and violent response from the state.

Acts of terrorism followed by violent crackdowns can become a cycle that is difficult to disrupt.

Recently, terrorist groups have begun using the internet and the media to spread fear and affect public opinion. The Islamic State uses the internet to recruit followers.

Nations also use terrorism tactics in other countries to safeguard their own national interest. Iran is known for supporting Hezbollah in Lebanon against Israel. The United States supported the Muslim Brotherhood in Egypt against the communist government of Gamal Abdel Nasser and the mujahedeen in Afghanistan against the Soviet Union.

2. What do terrorists want?

Terrorists are not all after the same thing.

Terrorists often justify their bloody acts on the basis of perceived social, economic and political unfairness. Or they take inspiration from religious beliefs or spiritual principles.

Many forms of terrorism were inspired by warfare between races, struggles between the rich and poor or battles between political outcasts and elites.

Some are ethnically based separatism movements, like the Irish Republican Army or Palestine Liberation Organization. The former cartel of Medellin are considered narco-terrorists because they combine drug trafficking with terrorism tactics to intimidate government and population.

Movements led by the extreme left like Colombia’s FARC are an example of terrorism inspired by a socioeconomic doctrine – in this case, a belief in communism.

Many terrorist groups are inspired by a specific interpretation of religious or prophetic scriptures. Al-Qaida and IS are two related groups that justify their violent actions as part of a crusade against nonbelievers. IS wants to establish a Caliphate, or an Islamic-ruled state.

How different terrorist groups act is informed by what they are trying to achieve. Some adopt a reactionary perspective aimed at stopping or resisting social, economic and political changes. Examples include IS, al-Qaida and the Army of God, a Christian anti-abortion group based in the U.S.

Others adopt a revolutionary doctrine and want to provoke change. Examples include the former Red Army Faction in Germany, the Irish Republican Army and Basque separatists in Spain.

3. Is terrorism getting worse?

Despite the intensity of media coverage and public perception, terrorism is actually not more frequent today than a few decades ago. For instance, terrorist attacks were far more common during the Cold War period than during the post-9/11 era. Some experts believe terrorism peaked during the 1970s.

Despite the recent attacks, the U.K. and Western Europe experienced relatively low terrorist activity during the period 2000 to 2016 compared with the period 1970 to 1995.

In the United States, terrorism attacks were in sharp decline from 1970 to 2011, decreasing from approximately 475 incidents a year to fewer than 20.

Worldwide, terrorism is highly concentrated in a handful of countries.

Terrorist attacks in 2014 were mainly concentrated in Afghanistan, Iraq, Nigeria, Pakistan and Syria. These countries saw 78 percent of the deaths and 57 percent of all attacks in the world. Since 2000, only 3 percent of deaths caused by terrorist attacks took place in Western countries, including Australia, Canada, members of the European Union and the United States.

In the U.S., the number of deaths represents 2.2 percent of the worldwide terrorist death toll. The violence committed in Western countries by organized terrorist groups such as al-Qaida or IS represents approximately 30 percent, while so-called “lone wolfs” account for 70 percent of the attacks.

All in all, terrorism activity in Western countries is not worse than before the 9/11 era. The opposite is true.

According to American University professor Audrey Cronin, terrorism as a tactic does not work well. Cronin studied 457 terrorist groups worldwide since 1968. The groups lasted an average of eight years before they lost support or were dismantled. No terrorist organizations that she studied were able to conquer a state, and 94 percent were unable to achieve even one of their strategic goals.

This is an updated version of an article originally published on Sept. 19, 2016. It has been corrected because of a previous inaccurate description of PETA (People for Ethical Treatment of Animals).

Frederic Lemieux, Professor of the Practice and Faculty Director of the Master's in Applied Intelligence, Georgetown University

This article was originally published on The Conversation.