{"id":35804,"date":"2008-03-26T16:35:41","date_gmt":"2008-03-26T21:35:41","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/south-africa-1999-2000-and-beyond.html"},"modified":"2008-03-26T16:35:41","modified_gmt":"2008-03-26T21:35:41","slug":"south-africa-1999-2000-and-beyond","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/law-library\/south-africa-1999-2000-and-beyond.html","title":{"rendered":"South Africa 1999-2000 and Beyond"},"content":{"rendered":"
\n
\n

This article was edited and reviewed by FindLaw Attorney Writers<\/a><\/em><\/p>\n\n | Last reviewed\n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n\n

The privatisation programme initiated by the Government of National Unity after winning the elections in 1994 was initiated with a declared aim of turning around a weak economy emerging from the apartheid era and restructuring South Africa's spread of wealth among its people.<\/p>

This article will consider the political and economic background that led to privatisation policies being implemented in South Africa today, the government's approach to achieving its aims and progress towards instituting these policies. It will also look at the government's preferred methods of realising its privatisation policies, areas of potential investment in South Africa and post-millennium prospects for future privatisations in South Africa.<\/p>

Privatisation: Political and Economic Background<\/b><\/p>

South Africa's large number of state owned enterprises ("SOE") were established at the beginning of the 1920s with the goal of making the relevant industries more robust. The government invested heavily in the numerous SOEs but they became cost centres draining state funds. In the absence of continued government funding, they borrowed heavily. This over-borrowing coupled with the adoption of discriminatory policies in the workplace led to hostile work environments and resulted in low productivity, inefficiencies and stagnation.<\/p>

By the mid-1980s international pressure on the South African government had resulted in several companies removing their operations from South Africa and a marked decrease in foreign direct investments being made into the country. A group of international banks also began to sever links with South Africa calling for immediate loan repayments on short term credits. The European Community imposed sanctions and the United States Congress passed legislation implementing mandatory sanctions that included the banning of new investments and bank loans to South Africa. These sanctions took their toll on the South African economy.<\/p>

The intended introduction of a privatisation programme in the late 1980s resulted in the sale of the South African Iron and Steel Corporation (ISCOR) in November 1989, other planned privatisations were not taken forward.<\/p>

The lifting of sanctions began in the early 1990s when the United States Congress enacted its Comprehensive Antiapartheid Act and subsequently the European Community began to lift some of its bans on trade and investment. By 1994, South Africa had its first non-racial democratic elections (won by the Government of National Unity) and the scene was set for revisiting plans for the regeneration of South Africa's industries.<\/p>

The Government's Approach<\/b><\/p>

By the time of the 1994 elections, South Africa's SOEs were in need of restructuring to enhance their efficiency, improve their competitiveness and increase their profitability. Part of the government's plan was to implement a broad restructuring programme that would improve the commercial viability of South Africa's SOEs and increase their investment potential to foreign investors.<\/p>

The privatisation initiative began in 1996, two years into the Government of National Unity's (renamed the African National Congress ("ANC") in 1996) term in office and was confirmed following the re-election of the ANC Government in June 1999. The Restructuring and Development Programme ("RDP") was put in place as part of the privatisation programme and this was intended to effect a streamlining of SOEs in preparation for outright or partial sale. As well as the broad aim of evenly distributing wealth among all South Africans, the proceeds of the sale of SOEs were intended to be used to reduce state debts and finance growth. Also, the programme had objectives with both a social and an economic focus. Among other things a National Empowerment Fund ("the Fund") was created to enable an allocation of shares to black empowerment groups on the sale of SOEs to the private sector. The Fund's objective is to spread the ownership of previous SOEs more widely amongst South Africans by buying shares in privatised utilities from the government at a discount for resale to the disadvantaged.<\/p>

Although critics comment on the slow progress made by the government during the early years of the privatisation programme, there were many other issues to address on both the social and economic development of South Africa and the government faced obstacles in the form of bureaucracy, heavy debts and strong trade unions, some of which were opposed to privatisation. However, the gradual pace of the programme has allowed the government to reconsider the privatisation from time to time and although some will say that it has taken the South African government too long to realise the restructuring programme and sell SOEs, the privatisation programme has moved forward and advances have been made. During the period from 1996 to 1999, the following sales were made:<\/p>

Airports Company<\/b><\/p>

A twenty per cent stake in the Airports Company (operator of South Africa's main airports) was sold to Aeroporti di Roma for R819m, including a 4.9 per cent shareholding to black empowerment groups for approximately R201m.<\/p>

Sun Air<\/b><\/p>

Sun Air, a small airline was sold for R97m to the Rethabile Consortium consisting of Rethabile, Comair and Consolidated Network Investments. However less than two years later, the airline ceased operations in August 1999.<\/p>

Telkom<\/b><\/p>

A thirty per cent stake in Telkom (the national phone company) was sold to a consortium comprising SBC International, a subsidiary of SBC Communications Inc. and Telekom Malaysia for US$1.3bn.<\/p>

South African Broadcasting Corporation<\/b><\/p>

Various radio stations operated by the South African Broadcasting Corporation were sold to local buyers for R520m.<\/p>

President Mbeki was elected as President in June 1999 and demonstrated his government's strong focus on continuing the work begun in 1996 by announcing the sale of twenty per cent of South African Airways, a component of Transnet (the transport utility). The appointment of a Director General of the Department of Public Enterprises with responsibility for supervising and accelerating the privatisation programme gives an indication of the government's positive intent and suggests that the privatisation process may operate at an accelerated pace from 1999 onwards.<\/p>

Since August 1999, the Public Enterprises Ministry has been undertaking the groundwork for the preparation of a legislative blueprint for the continuation of South Africa's privatisation programme. This legislative blueprint will outline the rules of privatisation for local and international companies interested in the investment opportunities available. This framework document is currently going through parliamentary readings and seems likely to come into force in early 2000.<\/p>

Sale of State-Owned Enterprises 1999-2000\/Restructuring of State Owned Enterprises<\/b><\/p>

The SOEs that have recently been privatised or are in the process of restructuring prior to sale are:<\/p>

South African Airways<\/b><\/p>

The government raised R1.4bn for the sale of twenty per cent of South African Airways to Swissair. Swissair has an option to purchase a further ten per cent of South African Airways during the latter part of 1999.<\/p>

Denel<\/b><\/p>

After going through a period of restructuring, Denel's aerospace division was split from the rest of the state's defence service into a component business and twenty per cent of it is to be sold to British Aerospace, an international equity partner. The sale is currently at an advanced stage.<\/p>

South African Post Office<\/b><\/p>

The selection process for a strategic equity management partnership with the South African Post Office was held this year with New Zealand Post International and the United Kingdom's Royal Mail being selected as the preferred bidders.<\/p>

Aventura & Alexkor<\/b><\/p>

Management contract agreements have been entered into for Aventura (the state-owned leisure resort group) and Alexkor (the state-owned diamond mine) pending privatisation. Aventura is being managed by Protea Hotels and Alexkor by Nabera Mining Ltd. These management contracts are intended to improve the profitability of these SOEs and their ability to meet borrowing obligations and generally make them more commercially attractive in readiness for privatisation.<\/p>

Eskom<\/b><\/p>

The White Paper on Energy Policy 1998 proposes the unbundling of the Electricity Supply Commission ("ESKOM") into five regional electricity distributors. This proposal will separate generation and distribution operations and open the electricity sector to competition and eventual privatisation. The Public Enterprises Minister recently commented that the privatisation of ESKOM is not currently a priority, but the planned restructuring of ESKOM means that time is the only uncertain factor in its potential privatisation.<\/p>

Safcol<\/b><\/p>

Privatisation of Safcol, the state forest group, recently gathered momentum with the announcement of a shortlist of five bidders in October 1999. The shortlisted bidders are the African Forestry Consortium, Siyaqhubeka Consortium, Singisi Forest Products Eastern Cape Forestry Consortium, Amathole Timber Holdings and the Thesen Consortium. Bidders have the option of either buying the company outright or one or more of five asset packages. A seventy five per cent shareholding will go the successful bidder and the government will retain a small stake in the company plus ownership of land. Long-term leases or licences for a minimum of thirty years will be offered to the successful bidder. The sale is expected to generate between R1 and R1.5bn. Negotiations are under way to finalise and announce the preferred bidder.<\/p>

Abakor<\/b><\/p>

The government has approved the sale of Abakor, the state's abattoir facilities operator. The bidding process is now under way.<\/p>

Autonet<\/b><\/p>

The process for privatisation of Autonet (the road transport group) is scheduled to take place by the end of the year.<\/p>

Sasria<\/b><\/p>

Sasria (the South Africa Special Risks Insurance Association) is to be converted from a non-profit company to a public company, bringing it in line for privatisation in the next year or so. Under the Conversion of Sasria Act 1998, there is an obligation to privatise Sasria on its conversion to a public company, although no time period is stipulated.<\/p>

Methods for the Sale of State Enterprises<\/b><\/p>

The methods that have been adopted as part of the privatisation programme have ranged from outright or partial sale of a state asset, to introducing a strategic equity partner or management contracts between the government and a private sector operative. In deciding to restructure some of the SOEs, certain components of these SOEs have been corporatised or are in line for corporatisation. The government has used a number of advisers to assist with the privatisation programme, one of which has been Investec Corporate Finance who have been advising the government on the sale of Autonet.<\/p>

Post-Millennium Prospects for South Africa\/Conclusion<\/b><\/p>

The aim of the privatisation programme was to attract international investors to South Africa thus enabling the government to meet their social and economic objectives with the revenue generated from the sales of SOEs.<\/p>

The Government has had to overcome some opposition to their privatisation programme but has made progress during the period until this year and, during 1999 has achieved the partial sale of South African Airways and Denel's Aerospace division (at an advanced stage of sale). A number of SOEs are also at a variety of stages in the process of privatisation, such as conversion into a public company — Sasria, in the bidding process — Abakor, in negotiations prior to selection of a preferred bidder — Safcol, at the stage of selection of a preferred bidder — South African Post Office and under management contracts — Aventura and Alexkor.<\/p>

With the appointment of a Director General to the Department of Public Enterprises, a planned audit scheduled for the end of 1999 and the legal and regulatory framework scheduled for enactment early 2000, the pace of the South African privatisation programme seems destined to increase. Planned disposals for the year 2000 include a fifty-one per cent sale of the Airports Company and completion of the privatisation process for Autonet.<\/p><\/div>","protected":false},"excerpt":{"rendered":"

The privatisation programme initiated by the Government of National Unity after winning the elections in 1994 was initiated with a declared aim of turning around a weak economy emerging from the apartheid era and restructuring South Africa’s spread …<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_categories":[6500,6497],"class_list":["post-35804","corporate","type-corporate","status-publish","hentry","corporate_categories-law-library__communications-law","corporate_categories-law-library"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate\/35804","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=35804"}],"wp:term":[{"taxonomy":"corporate_categories","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_categories?post=35804"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}