Privatisation, the Bogeyman under Eskom’s bed

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As an economics student I often find myself trying to make sense of complex economic, political or social problems that South Africa faces. Partly the reason for this is because I’m required to do so in order to obtain my degree and to hopefully find employment one day, but for the most part it is because problems fascinate me. Recently, the Eskom power crisis has slipped into my mind on a number of occasions whilst lighting candles in the dark. I find myself wondering what impact the blackouts have had on the economy since its beginning in 2008; why we are in this mess in the first place and if it will ever end. It turns out I’m not the only one seeking an explanation. Provided you have electricity, if you search “Eskom” on Google South Africa you will get 7 260 000 results. To get a perspective of how much information this is, have a look at the graph below.Result per topic

Source: Google South Africa (2015)

Given the sheer height of the blue bar, towering over xenophobia, strikes, unemployment and corruption, it is clear there is far more information on Eskom in the media. However this does not mean Eskom is more important than the above topics because more results were displayed, that would be a narrow measurement. It would be a fallacy of composition and is not the intention of this graph. For example, it is a no brainer that unemployment is a massive issue in South Africa. To give you an idea, according to an article from financial 24, the unemployment rate (narrow definition) for almost a decade in South Africa, is equivalent to the unemployment rate experienced for a month during the great depression of the 1930s in America at 25%. Had discouraged workers been included within this calculation, the actual unemployment rate currently in South Africa would be 36.15%[1].The graph therefore serves as an indication only, for the amount of information in South African media on each topic. But it does beg to ask the question, is the power crisis a top priority in the country? How important is it?

According to the Efficient Group Economist, Dawie Root, South Africa could have grown by 10% between 2008 and 2014, had the blackouts not occurred. This translates to a loss of R300bn since 2008, and millions of potential jobs forgone. To be specific, a loss of R50bn was recorder in 2008. How much money is this comparatively? Have a look at the graph below.Cost in a year

Source[2]

Interestingly Eskom cost the government in 2008 more than all the individual aforementioned budgetary items for 2015 separately. According to Chris Yellend, an energy expert, load shedding stages 1 and 3, in the worst case scenario for 2015, will cost the economy anywhere between R20bn to R80bn a month. An exponentially larger cost than that of 2008, in potentially one month! This means wasted funds which could have gone to health, education and social security that the economy desperately needs. Although this is a narrow comparison, and is based on “what ifs”, it does provide an element of reality. With a current growth rate of 2.1%, a predicted budget deficit of 3.9%, a forecast debt to GDP ratio of 44% and consequently a very tight budget, there are harsh choices and therefore trade-offs government face. Questions the government are asking themselves sound something along the lines of: should we distribute funds from social spending to keep the lights on? Should we allow further price hikes in electricity? Should we apply for another loan elsewhere? Or should we consider deregulating the electricity market?

In order to make a rational choice, in this regard, one would need to determine the cost and benefits of each decision and select the option which provides the best result for South Africa. Take for instance, the first option, if the government distributed social spending towards Eskom. The costs would definitely outweigh the benefits by far. With a record unemployment rate, the world’s highest inequality and extreme poverty, the majority of South Africa (more than 16 million people) survive on social grants. Any cut in such spending would be disastrous. The next option government has, is to raise the price of electricity to receive the necessary revenue to fund Eskom. In fact this is what Eskom is currently trying to do. However, having already received conformation to increase the price of electricity by 8% per year in 2008, the National Energy Regulator South Africa (NERSA) has denied any further increases for 2015. Even if NERSA allowed Eskom to increase prices; the benefits of the additional revenue only go as far as to how efficiently they are spent. According to Keeton, a Rhodes university professor, the state owned entity spent R11.3bn on diesel last year to meet the demand the power station, Madupi, could not supply. This cost more than it would, had Madupi generated the same electricity. A price hike therefore fails to address administration and management issues, resulting in an expensive and unfavourable outcome for South Africans.

The third option government has, is to seek for a loan. Given the current high debt to GDP ratio, unfavourable growth forecasts and credit rating agencies gnawing at our heels, the sustainability of debt is a concern. To increase the burden of debt at this stage is risky and should be avoided if possible as recommended by the International Monetary Fund (IMF). The last but not least option government has is privatisation. If the government sells part of Eskom off to the private sector they will be able to generate the funds required. Furthermore, the funds will be spent with improved efficiency, due to the competitive nature of the new liberalised market. Projects which are overrun will either require extra funding from shareholders, a reduction of costs within the company or the business must write off capital which has been wasted. This will do wonders for taxpayers and will release copious amounts of pressure on National Treasury. Eskom will be unable to set prices favourable to their financial circumstances and will be forced to increase efficiency to remain competitive. Privatisation therefore not only solves the revenue issues but the efficiency issue Eskom faces, none of which either of the above scenarios can achieve on their own.

A rational decision maker, in light of the information provided above, would conclude that privatisation is the best choice with exceeding benefits. Then why has the government avoided privatisation since 1998? Why did they ignore the warning of a possible system collapse by 2007? Unfortunately the assumption that human beings are rationale is far from the truth. To presume rational outcomes would come from the very limited abstracted scenarios I have created above, would be to say the least delusional and biased. However, the scenarios do emphasise a hard choice needs to be made. A choice which is influenced not only by the leaders of South Africa, but also by political groups such as: COSATU and NUMSA. It seems that the notion of privatisation merely serves as a mythical creature used by politicians and the general public to frighten bad performing state entities into good behaviour. Much like the Boogyman is used by adults to frighten children who misbehave. Should Eskom fail to find sustainable revenue and electricity generation, electricity could easily become unaffordable whilst the state owned entity buckles under heavy debt. In that case load shedding in the future is a given, along with poor economic growth.

Now is the time for Eskom to look under the bed and face their fears.

– Richard Johnstone

 

 

 

 

 

 

 

[1] Source: Quarterly Labour Force Survey: Quarter 4, Oct-Dec 2014. Calculation: (4909 + 2403)/20228 = 36.15%

[2] Eskom figure (Businessdaylive)

Provincial hospital services, Child support grant, Public Transport, University Transfer figure

(National Treasury)

 

Closed Stellenbosch: a ‘Blunt Force Blow’ Approach to Social Justice

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‘Activism’…the newest word to join the ‘connotation’-club. With the current campus generation, the ironically named “born frees”, stirring and pushing, some things have become apparent, with regards to student activism and student apathy: contrasting topics on a continuum that nonetheless do ultimately come to a meeting point. The question is if it will be a pleasant one.

The recent increase of student interest in activism and the concomitant establishment of ad hoc movements, prima facie point towards a renewed desire by students to influence change in the social justice sphere. Upon second glance, the sudden spike in ‘acitvist’ activities on campus reveals that despite the seemingly innocent desire to promote equality and social justice, the outcome of the activities result in something quite different. Take a long hard look: are some features repetitious, in the sense that the approach is seemingly always the same despite the fact that empirical data proves the lack of success with regards to this ‘blunt force blow’ approach? Didn’t Einstein say insanity is making the same mistake and expecting a different result?

Before I start abusing critical thinking, which seems to be a rare commodity at one of the foremost academic institutions in the country, let’s coin some phrases: Activism (in a South African context) can be subdivided into two groups: a constructive and a destructive approach. Constructive activism is self-explanatory, but for the sake of claritas, is a positive action aimed at building towards transformation beyond our history of artificial and prejudicial division. On the dark side of the tight rope of social change (which some of us choose to frequent) is a fear-fueled destructive activism; an outdated approach to activities aimed at social justice, which has long since its initial application become redundant, but which despite its obvious fallbacks, continues to manifest in the conduct and behaviour of self-proclaimed ‘activists’. Destructive Activism might be characterised by the following procedure: an initial positive approach, followed my the sudden and ‘accidental’ omission of good reasoning maintained whilst wallowing through the mire of current issues that South African students face. This type of action leads to negative or (arguably worse) no results – after pushing so hard for that platform to facilitate change.

With that being said, some interesting developments have taken place at Stellenbosch University campus as of late, which might serve as a practical example to illustrate my theory. I refer specifically to the new rector’s inauguration that took place in May of this year, and the march to this specific event by some students who wished to address certain socio-political concerns that influence the current student body and which are unique to our in-between generation.

The right to legitimate protests is a fundamental Constitutional right that I believe individuals should practice at liberty. Nevertheless, this specific day presents us with a few talking points as regards the aforementioned right. Excuse my approach that might display some reductionist elements, vis-à-vis the specificity of my example, which considers the utilisation of ‘vocal engagement instruments’ during a protest. Note: the purpose of this piece is not to critically discuss human rights and current affairs, but to discuss the solicitation of critical thinking and its role in activism.

The inaugural proceedings serve as a clear example of the fundamental difference between constructive activism (informed by critical thinking and a strategic approach to achieve success) and destructive activism (characterised by impulsivity and a lack of tact). Significantly, on the day in question, the protesters established their presence and their motives quite constructively. However, upon conclusion of their proclamations on the Rooiplein a march followed to the venue of the new rector’s inauguration. After the initial ‘bang’ of their entrance, the guests lost interest and re-directed their attention back to the proceedings. A few moments later the ‘moment of silence’ ensued, creating an opportunity to do one of two things: leave the proceedings or try and re-engage. Due to the sensitivity of the specific moment in the proceedings it would be quite risky initiate the latter. In this instance, the risk was interpreted as an opportunity to be a hero, but which in reality amounted to an impulsive ‘no-risk-no-reward’ approach. A perfect execution of constructive activism based on fundamental human rights enshrined in the Constitution up to that point in the proceedings tainted instantly by impulsive action. To qualify this sweeping statement, firstly, out of an ethical and social point of view chanting during a moment of silence might be construed as disrespectful towards the party you wish to engage critically, even if the symbolic act of disrupting the silence is believed to be necessary for the protesters’ plight. In its most basic form this qualification states that a person can’t expect another to act reasonably towards him if he is not willing to extend the same courtesy.

Moreover, the drafting and acceptance of the first discrimination policy in the history of the university, after the conclusion of a successful human dignity march serves as an example of the possibility of constructive channels of communication between the student body and management.

To conclude, I put it to the reader to look at these situations and define the type of activism seen in different situations. This position we find ourselves in is unprecedented for South Africa. Hence the necessity of an unprecedented approach being a prerequisite for the transformation embodied by our constitution. South Africa is changing, maybe our tactics to influence change should adapt too and we have to accept that we are a culturally rich country with various backgrounds. A good point of departure for any social problem that presents itself on campus would be to accept our differences not as a stumbling block but as a gift. Due to all these different experiences that come together we have limitless approaches and ideas to create a mutually beneficial ecosystem. Situations of social friction are very frustrating, any person who is passionate about social change wants to act, but the inclusivity of the action is key.

-Marc Rudolph3457881084