South African govt to sell under-performing state companies

The South African government should sell some state companies to improve public finances which have been hit by a weak economy, a privatisation team commissioned by President Jacob Zuma has recommended.

The team’s report, released over the weekend, did not mention any companies. Analysts said any sales would probably be smaller companies and not struggling power utility Eskom or national carrier South African Airways.

Many of South Africa’s 300-odd state entities are a drain on the government’s purse. If Zuma’s government were to adopt the recommendation, it would mark a departure from the ruling African National Congress’s stance since coming into power in 1994, that state companies should not be sold off.

The report, released over the weekend, said “governance, ownership policy and oversight systems were found to be inadequate” in state-owned companies and recommended the government sell underperforming companies either fully or partially.

Zuma, in his annual state of the nation speech last week, said the government needed to tighten its belt in the face of a weak economy, which has been hit by a global slump in commodities and by power cuts due to an inefficient power sector, but analysts said it was unlikely to sell key state assets.

“It needs to be taken with a very large pinch of salt,” Nomura International’s emerging market economist Peter Attard Montalto said of the report. “It will apply mostly to smaller parastatals and is unlikely to shift the dial on Eskom.”

Analysts have frequently said that cash-strapped Eskom , which was granted 20 billion rand ($1.27 billion) to refurbish aging power plants, and loss-making South African Airways should be privatised.

In July the government sold off its stake in mobile phone firm Vodacom at a 10 percent discount to market prices to raise money for Eskom.

Source: Newsday