South Africa looks towards privatization to counter recession

South Africa’s Finance Minister Malusi Gigaba laid out an ambitious 14-point program on Thursday to wrench the economy out of recession that included the sale of non-core assets and partial privatization of state-owned firms.

The plans to stimulate growth in the continent’s most industrialized economy appear to represent an ideological shift by the African National Congress (ANC), whose political alliance with the unions has tended to make privatization a dirty word.

A team commissioned by President Jacob Zuma to review state firms last year recommended that some should be sold. Now the government has set a date – March 2018 – by which to roll out a “private sector participation framework”.
“All of these items that we have announced, they constitute an important intervention to restore confidence and demonstrate action, and outline an action plan that we as government can be responsible for,” Gigaba said.

The Zuma administration would also reduce the number of debt guarantees to these firms, especially those extended for operational purposes, he said.

South Africa’s economy entered recession in the 1st quarter and is also struggling with high unemployment and credit ratings downgrades. The state of the economy is adding to the pressure on Zuma, who is also facing persistent corruption allegations and increasing calls for him to stand down from within the ANC.
Parliament will hold a no-confidence vote on Zuma next month.

Many of South Africa’s 300-odd state-owned companies are a drain on the government’s purse. Ratings agencies have singled out some as threat to its overall investment grade rating.

The firms, known as “parastatals” in South Africa, include companies such as South African Airways, power utility Eskom and logistics group Transnet that are regarded as central to the functioning of the economy.

Gigaba did not say what would be going under the hammer first, saying that would be determined by an audit.

BNP Paribas South Africa economist Jeff Schultz said investors would want to see more details before endorsing it as a viable turnaround strategy.
“It is very difficult to say at this stage. He was quite cagey on what sales of non-core assets he was referring to,” Schultz said.

South Africa sold its stake in mobile phone firm Vodacom in 2015 to as part of a 23 billion rand (US$1.73 billion) capital raising for Eskom.

According to Schultz said it might try to sell similar stakes, rather than embracing formal privatization.
“In much the same way as government sold down their stake in Vodacom, the government is looking to do similar things to try and raise some revenue in the near term,” he said.

Source: Reuters