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RON DERBY: Stabilising Eskom is the most difficult and important job in SA

09 December 2018 - 00:08 By Ron Derby

We've all been in that debate, or at least heard it, the one where we all pontificate about the definition of a healthy economy. Is it one where the state acts as a stimulant or one where there is a small government that just sets the rules and lets entrepreneurs and big business get on with driving innovation and making profit.
Most often used as the best example of capitalism is the emergence of Silicon Valley in the US, where over the past decade the world of technology has become the Master of the Universe, replacing the Wall Street bankers. But it's incorrect to say that the emergence of technology giants such as Google and Facebook that have become this generation's version of John D Rockefeller's Standard Oil was achieved without any state spending. The US government was central to much of the research spend that enabled the domination of these companies. The Chinese have followed that template and have seen their tech titans rise and start to threaten Silicon Valley's supremacy.
One could go back in history and find countless other examples of industries that were stimulated by government spend. Toulouse in France is the centre of global aviation, all achieved in a country that's long been criticised as having an overbearing state. Again, China has emulated this and will soon be a competing centre of aviation.
So the government has a role, and quite a significant one, in at least establishing an industry and leaving it to the private players to exploit the opportunity. SA is a case in point with the establishment of Eskom almost 100 years ago, when the government appointed Dr Hendrik Johannes van der Bijl to chair the company. It triggered industrialisation in SA. To this day the company is the massive factor in the competitive advantage that SA has over most of Sub-Saharan Africa.
Today, through poor policy choices during the Thabo Mbeki era to the past decade's crippling of governance at the institution for nefarious purposes, Eskom has shifted from being an inspiration to the economy to being a massive burden. It's the backbone of the economy, and had the right policy decisions been made over the past decade, no matter how unpopular, it would still be singled out as a strength of the economy, not its greatest risk, as was once again highlighted by ratings agency S&P Global Ratings this week.
Stabilising Eskom is the most difficult and important job in SA. On our feeble growth, despite our emergence from a recession this week, a CEO of one of the leading banks considered just how much the state of Eskom has fed into the real nuts and bolts of the economy.
If you were a manager responsible for any sort of spend in an institution such as Eskom, would you at this juncture be spending on anything without virtually ensuring you have the sign-off of not only the board but the public enterprises minister himself? It makes absolute sense that there's an issue with coal procurement at the moment.
Now, if processes at Eskom, the second-biggest company in the country, are frozen, there's an impact on growth. This frozen state, as we are learning from the Zondo commission, among others, is, or rather should be, a symptom across all state-owned enterprises such as SAA and the SABC.
The state makes up about a third of the South African economy and if in its various guises it is not paying its bills on time to its suppliers in the private sector, it tells a story of how depressed our growth prospects really are. As we all fret about just where growth is going to come from in an age where the knowledge economy becomes increasingly dominant, it's in getting the state participating in a positive and sustainable form in the overall economy that efforts have to be concentrated.
Eskom is supposed to be a stimulant of the South African economy, an investor in renewable energy and other technologies, thereby keeping the country moving forward. Getting back into that position is going to require the guts of France's Emmanuel Macron, not necessarily the tactics...

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