PART TWO: Rise Mzansi promises social democracy but delivers neoliberalism
South Africa’s economic stagnation and social decay stand as a damning testimony to the failure of neoliberal economic policies. With millions hungry, jobless and poor, one would hope that parties contesting the general elections would offer to forge a new path towards economic growth and social upliftment.
Initially one assumed that Rise Mzansi, claiming to be social democrats and adopting the campaign slogan “2024 is our 1994”, would maybe signal the dawn of a party armed with the imagination and political boldness to offer alternatives that break away from neoliberal policy-making.
Rise Mzansi’s manifesto presents no compelling fiscal or macroeconomic strategies beyond continuing South Africa’s unsustainable dependance on private sector investment and export-oriented growth. Worse, the manifesto proposes “private investment in public assets” to reduce fiscal risk and stimulate investment in the economy. This form of investment can unfold in several ways.
One option is public-private partnerships, in which the government enters into long-term contracts with private sector partners. Another approach is converting the funds for infrastructure projects into financial instruments that can be traded on on the financial market, turning infrastructure into an asset class. There is also the strategy of so-called blended finance, which occurs when public funds or developmental finance is used to lure private investment by providing a series of incentives, whether it be subsidies, capital grants or revenue guarantees.
The strategy of seeking private investment in public infrastructure is one straight out of the neoliberal playbook, in line with the trend of “de-risking”. This is evidenced by a telling statement from the 12th president of the World Bank Group in 2017, who argued “we have to start by asking routinely whether private capital, rather than government funding or donor aid, can finance a project. If the conditions are not right for private investment, we need to work with our partners to de-risk projects, sectors, and entire countries.”
Infrastructure projects, especially in developing or underdeveloped nations, require large resources and carry a number of risks that can be unpalatable to private investors, who seek returns on their investments that are not outweighed by risk. Therefore, governments are increasingly using particular financial tools to de-risk public assets, to ensure they remain commercially attractive to private investors — with dire economic and social consequences.
Even though there is mounting empirical evidence that demonstrates the dangers and failures of public-private partnerships (PPP), both the ruling ANC and Rise Mzansi ignore concerns that numerous political and developmental economists have expressed.
Gathering evidence from several countries (such as Liberia, Spain, Mexico, Peru and India) a collection of civil-society organisations based across Europe recently released a report documenting the failure of public-private partnerships. They argued that “the high fiscal cost of PPPs is due to the high cost of capital; the expectation of profit from the private partner; the high transaction costs associated with the negotiation of complex PPP contracts; and the high likelihood of renegotiation. These higher costs are rarely justified by proven efficiency gains in delivering public services.”
The soaring costs of PPPs and the way in which they expose government’s to higher contingent liabilities is a serious concern for a political party that would aim to avoid increasing government’s overall indebtedness — consequently limiting fiscal space for socio-economic development as servicing debt takes priority over provisioning basic services and public goods.
But the price paid for attracting private investment into public assets is not just monetary, it is also human. Attracting private investment into public assets often requires structural adjustments to fiscal, monetary, labour and industrial policy that are not in the best interest of the public. To ensure profitability, the past 30 years of private sector investment for infrastructure development has often resulted in the commodification of basic services and the transformation of citizens into precarious consumers.
The poor state of South Africa’s water, electricity and public transport provisions are not just a consequence of corruption and mismanagement, but the decades-long attempts to court the private sector into investing in public assets through deregulation, commercialization and gradual privatisation in the form of PPPs.
The simple fact is that private sector investors are accountable to their shareholders, not to citizens. Why should a nation seeking to overcome unemployment or poverty, concede more and more of its infrastructure, social obligations or strategic industries to shareholders or chief executives whose lives and interests are so far removed from the realities of most South Africans? Rise Mzansi’s proposition of relying on private investment serves the first objective of neoliberalism: re-establishing the conditions for capital accumulation.
How will Rise Mzansi solve the energy crisis?
The People’s Manifesto is absolutely correct in identifying Eskom’s dysfunction as a colossal constraint to the flourishing of economic activity. Where the party begins to falter is in the ambiguity of their solutions to load-shedding and their generally moderate approach to the energy crisis. Eskom’s recent history unveils the pitfalls of attempting to court private sector investment into public assets and reveals the disastrous outcomes of commercialising and commodifying basic services — which is a instrumental requirement for the kinds of public-private partnerships Rise Mzansi seeks to foster.
The genesis of the energy crisis is a consequence of a destabilising contradiction in Eskom’s operation: the state-owned utility is governed under a corporate mandate — operating as a private company — but it is expected to provide a universal public good.
Beginning in the 1980s (after the De Villiers Commission) Eskom underwent a commercialisation process, which meant the utility would change from a not-for-profit utility (partly subsidised by the government through tax revenue) with the mandate of providing cheap electricity to central industries and the white population. It would now become a utility that also had the objective of operating for financial gain. This process of commercialisation advanced, initiating Eskom’s corporatisation as the ANC government embraced neoliberal policy in the Growth, Employment and Redistribution plan (Gear). By 1998, Eskom became a limited liability company, with this transformation taking full effect in 2002.
It is critical to note that the government’s attempts to seduce the private sector into generating electricity started as early as 1998, with the White Paper on Energy envisioning 30% of generation coming from private sector producers and identifying Eskom’s unbundling as a key reform for the development of South Africa’s energy sector.
Yet, in trying to create space for private sector investment into the energy sector, the government denied Eskom’s request for public financing to boost its generation capacity and electrification efforts. Eskom’s leadership warned that if the new generation was not built before the turn of the century, supply would run short by 2007. Load-shedding struck South Africans for the first time in 2007.
Arising from the structural reforms to Eskom’s operations and financing were a series of pivotal changes: government became its sole shareholder and its tax exempt status was removed, but most importantly, the utility adopted the full-cost recovery model and the user-pays principle.
The user pays principle( a concept beloved by the world World Bank) maintains that “all costs associated with the use of a resource should be included in the prices of the goods and services (including government services) that result from the use”. And the full-cost recovery model has meant Eskom is mandated and dependent on selling electricity to us (as end-users) to raise revenue and recover the cost of its operations (with additional profits and market-rate debt being raised to fund new projects).
Full-cost recovery, within Eskom’s financing and in the municipal financing framework, has been a failure of epic proportions, resulting in the millions not being able to tangibly experience their socio-economic rights and effective basic service provision. Because South Africa is overwhelmed by economic stagnation, mass unemployment, stagnant or low wages and pervasive poverty, many if not most citizens could not and cannot afford the electricity Eskom sells (or the price mark-up by municipalities).
According to researcher David A McDonald, “a 2002 survey by the Municipal Services Project and the Human Sciences Research Council found that up to 10 million people have had their water and/or electricity cut off since 1994. In most cases, those cut off were simply unable to pay the rising costs of water and electricity.”
By passing costs on to consumers through the full-cost recovery model and user-pays principle, Eskom has undergone years of shrinking revenue streams, meaning a depletion in resources for infrastructure maintenance and building new projects to boost its generative capacity. Instead of receiving sustainable public financing, the utility has relied on requesting tariff increases and taking out loans (domestic and foreign) to stay financially afloat.
But tariff increases produce more instances of non-payment and servicing debt (especially foreign debt with high interest rates and debt that must be paid back in a foreign currency as the rand depreciates) is a cost the utility has struggled to bear. Compounding costs, which take resources away from maintenance, is the burden of energy bought from independent power producers (IPP). In 2023, IPP contracts accounted for more than a third of primary energy costs, while contributing only 8% of total installed capacity.
Colossal debt, narrowing revenue streams, soaring tariff increases, low generation capacity and private generation gradually chomping up Eskom’s market share all result from a long journey towards unbundling and the creation of a competitive electricity market.
Progressive political movements, trade unions and civil-society organisations have in recent years expressed serious doubts as to whether unbundling and marketisation will rid us of this energy crisis. Moreover, numerous energy experts and civil society organisations alongside grassroots movements have intervened to highlight that a just energy transition and a low-carbon economy cannot be achieved in a liberalised energy sector. So when Rise Mzansi’s manifesto proposes that they will “accelerate the shift to a more decentralised energy system” one can only understand this position to be a political euphemism for unbundling and liberalising our energy sector.
The party should be commended for realising the need to provide free electricity to low-income households, moving away from coal-dependency and fixing the procurement system while improving the expertise of those who manage Eskom, overall the policy proposals regarding the energy crisis offer no significant departure from government’s current plans. Furthermore, they lack needed clarity on the question of ownership in the energy sector.
Eskom needs to be transformed. In other words it must be de-corporatised (abandoning the full-cost recovery model) and be provided with sustainable public financing so that it possess the internal capacity to renew its infrastructure and play a central role in the green industrialisation South Africa needs if we are serious about confronting the climate crisis while creating jobs and growing the economy.
But beyond this, Eskom must be democratised, citizens must play a substantive role in holding the utility accountable and ensuring its financing or procurement is transparent. The utility can no longer operate as a private company that is accountable to shareholders and led by the incentive of profit. If we want to overcome unemployment and poverty, while adapting to climate change and mitigating its destruction, South Africa must strengthen its economic and energy sovereignty, but Rise Mzansi’s proposals do not lead us towards this path.
Entering the political landscape as a new political party takes courage and conviction. Rise Mzansi’s leaders and members are admirable for taking initiative to try to correct South Africa’s precarious course. But good intentions do not revive economies or erase inequality.
The overarching issue with Rise Mzansi is that the party’s leadership emerges from a liberal tradition in post-apartheid politics, one which perceives our crises to be solely rooted in bad and corrupt governance. From this an obsession with technocracy develops, mistakenly believing that only ethically righteous and expertly skilled leaders will be our salvation, thereby neglecting the economic structure, macroeconomic policies and relations of property ownership which have put South Africa on a path of decline.
Although Rise Mzansi fails to pull the country out of the living nightmare of neoliberalism, let us wait and see what the polls on 29 May hold for the party’s future.
Andile Zulu is with the Alternative Information and Development Centre in Cape Town.