benefits of restructuring state assets, The

Accountancy SA, Sep 2000 by Van Huyssteen, Pieter

The time has come to press ahead more urgently with privatisation, or the "restructuring of State assets", as the more politically correct term has it.

Because restructuring is taking so long, certain State assets, such as Safcol, and possibly even Telkom, have lost relative value. Restructures have a shelf life before investors become weary and withdraw.

Privatisation is a world-wide phenomenon, which has been proven time and again to increase economic efficiency One of the most dramatic examples is that of the United Kingdom, which in 15 years since privatisation began in earnest, recovered from being the "sick man of Europe" into one of the healthiest.

An economy that was notorious for high unemployment is now operating at virtually full employment, the pound has been one of the world's strongest currencies and the UK has never had it so good. Chile, New Zealand and other countries have also wrought miracles. Even the onceprosperous social democracies of Scandinavia are mending their dirigiste ways and reducing the role of the State in the economy

As we have seen through misguided investments such as Mossgas - and in the way that other state-owned enterprises have basically been driven into bankruptcy in the early 1980s - governments shouldn't be in the business of business.

Privatisation assists governments by way of large dollops of cash for the fiscus - even if cash is not the main objective in the process. These can virtually liquidate government debt and eliminate interest, which is one of the biggest costs to the fiscus at the moment.

Provided the restructuring is handled correctly the organisations undergoing transformation can benefit dramatically By seeking a return on the capital they employ, they take care not to waste capital through unwise investment. Because they are profit seekers, they also optimise their use of manpower and raw materials. Well-organised privatisation can transform organisations, which once gobbled up taxpayers' money into healthy, dividend-paying businesses.

Because private sector operators are more economical in their use of labour, it is quite realistic of Cosatu to fear that the first effect of a privatisation drive will be the large-scale loss of jobs.

Cosatu and its members will need much persuasion that the alternative in a global economy is literally the extinction of inefficient organisations. Trades unions are Marxist at heart - but the government needs the political will to proceed.

If we, through the assistance of privatisation could emulate the UK example, we could grow our economy at 6% a year, not at just 3%. And everyone would be more prosperous. Unfortunately it would take time that we don't have.

In any privatisation prospect, there are two employee groups - those who will remain gainfully employed and the redundant.To minimise redundancies, activities not core to the business should be contracted out to employees.

The government can negotiate a social plan with the unions for employees who are patently surplus.There may be some pain for those retrenched in the short run. But retrenchment programmes can be fair and reasonable and the State can assist redundant workers through re-training programmes. Re-training and direct poverty relief are actually more affordable than not proceeding.

Privatisation could be a useful instrument to enhance black economic empowerment.Apart from the direct investment by black empowered groups, shares could be set aside for managers and employees.The National Empowerment Fund could also take meaningful stakes in privatised entities, bearing in mind that risk is part of a private sector investment and some privatised entities might well not perform.

The other positive aspect for salaried and waged employees is that once the national debt is reduced by privatisation proceeds, the relative tax burdens should be relieved.

Often the process does not flow because civil servants and politicians don't want to be seen making mistakes. They need professional advisers to keep the process fair and reasonable to all stakeholders and to keep the process moving. Advanced skills are needed, to weigh up and assess probabilities and to help decision-makers to make up their minds and to derive the right results.

Each case should be judged on its own merits and handled according to its own specifics. Decisions are one thing. Implementation is another. The process needs to be principle-driven.

Inevitably there are conflicting issues. Governments are agents of the taxpayers and must therefore strive for the optimum price. But after restructuring, customers must not suffer through higher prices and diminished quality of goods or services. There must be something in it for employees.

Finally, there are the needs of the new owners.The terms must be attractive. In addition, they must have confidence in the process or investors will simply go away.

It is all about striking the right balance between conflicting objectives. Governments, which lack business acumen, should not be afraid to appoint professional experts to analyse and to keep the process sane and moving.