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Privatisation winning through in S.African debate

By Ben Hirschler, Reuter
29 May 1996

JOHANNESBURG, May 29 (Reuter) - After months in limbo, South African privatisation policy is crystallising and financial analysts hope for decisive news on steps to sell state assets next month.

President Nelson Mandela sent the clearest signal yet that the government would push ahead with privatisation, despite union opposition, on his return from Germany last week.

"Privatisation is the fundamental policy of the ANC (African National Congress) and it is going to be implemented," he said.

Public Enterprises Minister Stella Sigcau underlined the commitment on Wednesday, adding that telecommunications giant Telkom and South African Airways (SAA) were at the forefront of the programme.

Her ministry was also studying shake-ups at arms firm Denel and forestry company Safcol, she told Business Day newspaper.

Economists and business leaders believe privatisation is central to restoring investor confidence, badly dented by the rand's sharp fall in the last three months.

It also offers refuge from South Africa's mounting debt.

The amount that could be raised via saleable state assets may total 100 billion rand ($28 billion), against current government debt of some 280 billion rand, according to Standard Bank's Economic Division.

Of that, some 20 billion rand could probably be sold off immediately without controversy, including stakes in commercial companies like Sasol Ltd (SASO.J)and aluminium producer Alusaf (GMFJ.J), plus oddities like resort group Aventura.

The Congress of South African Trade Unions, ally with the ANC and the Communist Party in the alliance which swept Mandela to power in 1994, has vowed to fight privatisation tooth and nail, raising the spectre of disruptive strikes.

Nonetheless, Sigcau said she was confident the unions would agree in the end. "In-depth discussions will be held with labour, but I am confident that we can bring them on board."

All this has stoked expectations of concrete decisions when Sigcau delivers what is billed as a major policy statement on privatisation on June 21, although Finance Minister Trevor Manuel has said there will be no "fire sale" of the family silver.

"I think it's likely we will get something substantive, probably in relation to fairly minor privatisation targets like Sunair and Transkei Air, but maybe also something on SAA and Telkom," said Tony Twine of Econometrix consultancy.

Telkom has already mandated Goldman Sachs to seek an international equity partner to take 20 to 30 percent of the group, while SAA -- part of the Transnet parastatal -- has had extensive talks with foreign airlines.

The biggest prize in the government's stable is electricity generator Eskom. But privatising Eskom is problematic since it is charged with delivering a massive subsidised electrification programme. It is also not technically owned by the state.

Sigcau said a bill would be introduced soon to establish state ownship of Eskom, after which it would be transformed into a corporation and decisions taken on its restructuring.

Analysts noted that unlike Eastern Europe prior to privatisation, many South African parastals are reasonably lean, with Telkom and Transet, for example, having shed a third of their workforce since the start of the decade.

On the downside, however, they have big pension fund deficits which would cut into their market value.

There was disappointment in the business community that then Finance Minister Chris Liebenberg made no provision for privatisation receipts in his March budget.

But despite that conservative accounting, BOE NatWest economist Nick Barnardt still expects the first -- albeit modest -- privatisation cash to roll in before the end of the 1996/97 (April-March) financial year.

Peter Worthington, emerging market analyst at J.P. Morgan in London, said the markets will be disappointed if the government does not outline a firm privatisation strategy, not least as a signal of its acceptance of wider, market-friendly reforms.

"Overseas investors see privatisation as a sign of commitment to the kind of structural reforms are are hard to sell at home," he said.