Parastatals and Energy in South Africa

Politics and the social fabric of society are very much interlinked with economics. In the words of Lenin, states and other key economic players want to maintain control over the “commanding heights” to exert their will over the country.[1] In South Africa, these commanding heights refer to the Mineral-Energy Complex (MEC).[2] In mining rested the wealth of the country, and thus, control of the country’s politics and its social framework. But this sector relies upon control of energy to keep it functioning. Energy plays a crucial role in the politics of South Africa, as it acts as the lifeblood of industry. To control industry, states must control energy.

This essay will be outlining the history of energy parastatals in South Africa and their relationship to the state. The essay will be divided into eras, examining each in terms of the energy parastatal’s role under that regime. These eras are pre-WW2, Apartheid and the first decade of ANC rule. Due to constraints, this essay will be mainly focusing on the Electrical Supply Commission (Escom). Ultimately, parastatals (especially energy) have been used throughout the 20th and 21st century as an instrument of respective regimes to advance their political and social goals, causing inefficiency due to the inability of productivity and profit to be blended with politicisation.

Pre-World War 2, the framework of the South African economy was based in mining.[3] The state, for the most part, worked alongside this sector.[4] There was heavy foreign interest and mining capital was held in private, typically foreign, hands. This private-dominated MEC benefited from the state’s heavy infrastructure.[5] This era is characterised by a shift from this private domination of mining capital to a rise of parastatals. This started in 1922 with the establishment of the Electrical Supply Commission (Escom), which took over the supply of electricity from the private sector.[6] While this move benefited mining, this shift also saw the Pact government of 1924 pursue policies that became costly to mining capital – rather attempting to address rural poverty and solve ‘the poor white problem’ and imposing protectionism.[7] Due to the critical strategic value of mining, and the energy which it relied upon, the state utilised parastatals to maintain control and influence.[8] Under this era, parastatals such as Escom and the Iron and Steel Corporation (Iscor) were used to influence the sector to work towards the state’s goal of addressing white poverty. Despite this, foreign mining interests maintained most of their power.

Malan’s electoral victory in 1948 saw the expansion of state interests, as a myriad of new parastatals and state enterprises were founded.[9] This was all to achieve economic independence, so that the state could work towards their goal of social engineering. Throughout the Apartheid period, the state sector appointed Afrikaans businessmen to key positions, creating the framework for ethnic-based appointment.[10] This control was also crucial for the state mines which were mostly domestically owned.[11] The National Party wanted to achieve economic independence for their ethnic group and did this by maintaining control over the commanding heights, while regulating the economy to achieve their social engineering goals.[12]

As opposed to other parastatals, however, Kenny (2015) argues that Eskom was relatively free of political interference until 1994.[13] The parastatal was tasked with a single goal: to make sure South Africa had enough electricity, and left to its own devices.[14] There was less, or even no, blatant Afrikanerising, as evidenced by the fact that one of Eskom’s highest regarded CEOs had been an Englishman.[15] Effective planning, merit based appointments and a vibrant coal industry allowed Eskom to succeed, without the need for state subsidies.[16] But, by the late 1970s and 1980s, state intervention had strangled much of the economy, leading to an electricity surplus.[17] In response, Eskom downgraded and mothballed three coal stations.[18]

Eskom was effective due to its relative independence. For the most part, it acted like a private business, free from the distorting factors of state ownership. Other state entities were not as effective, and by the late 1980s were facing inevitable privatisation to service the national debt.[19] Eskom, despites its effectiveness, was lumped in by Botha in 1988.[20]

The ANC utilised Eskom in a manner similar to the National Party’s interference in most of the Apartheid economy. The ANC utilised the control over parastatals to instate race-based appointments and pursue black upliftment policies.[21] As of 2005, Eskom had succeeded in this, with 69% of employees, and 58% of managers being black.[22] Despite fears that these race-based appointments would lead to inefficiency, Eskom reported profits from 1994-2000, while expanding its service across the country and continent.[23] This did not last long, however, as difficulties in collecting payments and expanding eventually led to mass power failures in 2006 and onwards.[24] Much of this was due to the state forbidding Eskom from constructing new stations in 1998, due to anticipation that the industry would be privatised.[25] This privatisation failed, due to a lack of a coherent plan and that private competitors could not compete with the low costs.[26] What is clear in the post-Apartheid story of Eskom is that, while the social engineering goals of demographic reform had been achieved, the parastatal was no longer sufficiently able to deliver.[27] Combined with corruption and cronyism, Eskom’s ability to function has become at risk.[28] While the state maintains control over this utility, it is unclear if its effectiveness at allowing the state to control the commanding heights will remain.

Due to constraints, this essay has unfortunately not been able to sufficiently outline the details of all energy parastatals and the niceties of the state’s role. Despite that, this essay has outlined the basic role of energy parastatals, from the 1920s to the early 21st century, as instruments to maintain control over the economy, and instate political change. Escom (later: Eskom) was founded with the intention of exerting control over the economy. While political interference was less directed at Eskom during Apartheid, the energy parastatals were still crucial to the social engineering project. Post-1994, Eskom, among other parastatals, became a focus and instrument for black economic upliftment and political appointments. Corruption and state interference without a coherent plan of action, however, has endangered the institutions as it stands at the brink of no longer being able to function. Ultimately, energy parastatals, since their inception, have existed to control the commanding heights of South Africa’s economy. If that will remain feasible will remain to be seen.

References

  • Kenny, Andrew. “The rise and fall of Eskom – and how to fix it now.” @Liberty 18, no 2 (2015): 1-22. http://irr.org.za/reports-and-publications/atLiberty/files/liberty-2013-the-rise-and-fall-of-eskom-2013-and-how-to-fix-it-now. Accessed April 5, 2017.
  • Kling, Arnold. The New Commanding Heights, Cato Institute. Accessed April 5, 2017. https://www.cato.org/publications/commentary/new-commanding-heights.
  • Privatisation in South Africa Under the Nationalist Party Government. San Jose State University Department of Economics. Accessed April 2, 2017. http://www.applet-magic.com/southafrica.htm.
  • Southall, Roger. “The ANC, black economic empowerment and state-owned enterprises: a recycling of history?” in State of the Nation: South Africa 2007, edited by Sakhela Buhlungu, John Daniel, Roger Southall & Jessica Lutchman, 201-225. Cape Town: HSRC Press, 2007.

Footnotes

[1] Arnold Kling, The New Commanding Heights, Cato Institute, accessed April 5, 2017, https://www.cato.org/publications/commentary/new-commanding-heights.

[2] Roger Southall, “The ANC, black economic empowerment and state-owned enterprises: a recycling of history?” in  State of the Nation: South Africa 2007, ed. Sakhela Buhlungu, John Daniel, Roger Southall & Jessica Lutchman (Cape Town: HSRC Press, 2007), 201.

[3] Ibid., 202.

[4] Ibid., 201.

[5] Ibid., 202.

[6] Ibid., 203.

[7] Ibid., 202.

[8] Ibid., 201.

[9] Ibid., 203.

[10] Ibid., 203.

[11] Ibid., 204.

[12] Ibid., 204.

[13] Andrew Kenny, “The rise and fall of Eskom – and how to fix it now,” @Liberty 18, no 2 (2015): 5, http://irr.org.za/reports-and-publications/atLiberty/files/liberty-2013-the-rise-and-fall-of-eskom-2013-and-how-to-fix-it-now, accessed April 5, 2017.

[14] Ibid., 5.

[15] Ibid., 5.

[16] Ibid., 5.

[17] Ibid., 5.

[18] Ibid., 5.

[19] Privatisation in South Africa Under the Nationalist Party Government, San Jose State University Department of Economics, accessed April 2, 2017, http://www.applet-magic.com/southafrica.htm.

[20] Southall, “The ANC, black economic empowerment and state-owned enterprises: a recycling of history?” 205.

[21] Ibid., 210.

[22] Ibid., 213.

[23] Ibid., 211-215.

[24] Ibid., 216.

[25] Kenny, “The rise and fall of Eskom – and how to fix it now,” 6.

[26] “The rise and fall of Eskom – and how to fix it now,” 8-9.

[27] Southall, “The ANC, black economic empowerment and state-owned enterprises: a recycling of history?” 217.

[28] Ibid., 221.